In Fall 2019, the Federal Government launched the First Time Home Buyer Incentive. The program, backed by the CMHC, aimed to provide home ownership for 100,000 Canadians within 3 years. Portions of down payments would be provided, interest free, in exchange for a portion of equity in the home.
There’s only one problem, it’s a failure. As of February 2020, the program has only seen 3,252 applications, with 2,730 of them approved. This is well off-track of the target; over 15,000 applications should have been approved by this time.COVID-19 has only exacerbated the issue. With April Sales down 67% (month-over-month), the housing market is in dire need of a jump-start.
Why is the incentive such a failure? It’s mislabeled. The Government’s efforts to stimulate the housing economy aren’t what they appear to be. The program is a business endeavour in which the Government is attempting to leverage its ability to stimulate the housing market with financial return on the investment. However, it’s masked as a social aide for those to whom the dream is unattainable.
The program may see more success with Real Estate Investors who are used to the idea of equity sharing. Yet first time home buyers want to do just that: own their first home. The fear rests in the future. Most first time buyer’s aren’t using this program on its own to finance their home. Loans with interest will take priority over a payment-free leg up from the government. So, what happens if they keep their home for the full 25 year term, without paying back the CMHC? Will they receive a demand from The Government in an amount three times what they paid? How can the CMHC advertise financial peace and security, when the fears of the unknown will weigh heavily on those who elect to use this program?
There’s an easy way to fix this disaster: scrap the equity-sharing contingency. If you’re looking for investors in a business, it’s expected (and only fair) that they’d receive proportionate return on their investment. But your home isn’t a speculative play in your portfolio. It’s your castle; your domain. Your home is the one place that you shouldn’t ever need to fear losing, especially to those governing you.
There’s better ways to incentivize money into the housing market. Increase RRSP withdrawal limits, improve pre-existing tax rebates. Double the credits for those purchasing energy-certified homes. Solutions like these are virtually costless to the Government, easy to implement, and could potentially inject the momentum so desperately needed to stop a price-slide.
During the next election, Canada will not forget how (or if) The Government stepped in to stop our economy from slipping into a recession. Fixing a pre-existing stimulus package with an abysmal success rate is an easy win-win scenario.