First-time Home Buyer Incentive Program not targeted enough: expert

The introduction of a federal program last year that was aimed at easing the burden of buying a house seemed promising for first-time home buyers, but initial numbers appear to be proving otherwise.

Data about the First-time Home Buyer Incentive (FTHBI) program’s progress recently made available by the Canada Mortgage and Housing Corporation (CMHC) reveal a bigger picture — the initiative has given rise to more questions than answers about how it has been received by the very people it was supposed to help.

Hardly any takers

The FTHBI, introduced in September 2019, has so far been used by only 109 buyers (approved applicants) in the Greater Toronto Area out of 148 total applicants. This is for an average loan of $20,000.

In other larger urban centres, like Metro Vancouver, the numbers are even lower. Only 29 applicants have been approved with 45 total applications made in the four-month period ending on December 9, 2019.

Across Canada, fewer than 3,000 first-time buyers applied.

The FTHBI is a shared-equity mortgage program that offers 10 per cent toward the down payment for a new home, and five per cent for resale homes, interest-free, if you meet the eligibility criteria.

The terms state that household income must be capped at $120,000, making the maximum eligible mortgage value approximately $480,000. Borrowers must pay the CMHC back after 25 years or once the home sells — whichever comes first. You can also pay back the loan early without penalty.

Diana Petramala, a senior researcher with Ryerson University’s Centre for Urban Research and Land Development says while she is a “bit surprised” at the seemingly low numbers, it’s too early to assess the program’s success.

“We do know that a lot of first-time home buyers were pushed to the sidelines because of the stress test rules and those rules are going to be relaxed in April,” she says. “So I would wait until the April push into the housing market as first-time buyers are back into the market, to see or assess the popularity of it,” she says.

Possible reasons for slow uptake

Petramala says the program was designed with a demand market in mind as opposed to the supply side and that may be something to consider in the future to make it more appealing to home buyers.

“People who are buying houses can afford them and they don’t really need the program,” she explains. “People who are not buying houses likely are not able to afford housing anyway, even with this program, so I don’t think its targeted enough at the proper problem.”

The CMHC, in an email statement to CityNews, says they expected the program to serve about 100,000 Canadians. They also say it’s a slower time during the fall and winter months for home buyers and “while it’s difficult to predict what the uptake will be for a new program, we expect the number of home buyers who can access the incentive to increase as the busier spring and summer seasons approach.”

According to the Canadian Real Estate Association, the current average benchmark prices for homes in the GTA are up eight per cent. In January 2019, the average price of a home was $761,800. In January 2020, it was $828,200.

In comparison, the average price of a home in the rest of Ontario in January 2019 was $549,671. This January it was up to $627,855.

Critics of the program have previously questioned its value, as they argued that the incentive won’t help people in Canada’s most expensive housing markets, like Toronto and Vancouver — places where people need the incentive the most — and feel this latest progress report proves them right.

Paul Meredith, a Toronto-area mortgage broker with CityCan Financial agrees.

“When it comes to the Greater Toronto Area, this whole program is really nothing more than smoke and mirrors. Sounds good, makes good media coverage, it gets people talking. But when no one can access the program in the largest area in Canada, it really makes it quite useless,” he says.

“It makes it really limiting for people when the maximum that they can buy is $500,000, so there’s really not that much available in the GTA [at that price] and there’s also a lot of people that feel uncomfortable giving up a portion of their homes equity to the government,” he adds.

Petramala says a better assessment can be made “post April and maybe over the next years” as the markets get more stable.

“We know we have a demand problem — demand is too strong for supply. What’s happening is higher income individuals — and there are a lot of them — across the country and in the major cities, are the ones who are able to attain housing and home ownership and the issue is the lower income brackets. We need to start providing housing for them and I think the right target there is just supply. The more you increase or the more you build, price [gets impacted], demand surges.”