QUESTION PERIOD — Ministry of Finance
First-Time Home Buyer Incentive
May 14, 2019
Thank you, minister, for being here. Minister, one of the showcase initiatives in your Budget 2019 is the new billion-dollar home buyer’s program, which proposes to provide up to 10 per cent of funding of mortgages for first-time home buyers.
The interest-free loans from CMHC are to be repaid when the homes are eventually resold. However, the plan is not without its critics. The plan will increase demand for houses and supply but while the new homes are being built, house prices will most likely increase. In markets where prices have stabilized or declined, it could reverse improved affordability.
However, the biggest and most visible threat is record-high household debt tilted heavily toward mortgages. In fact, Canadians have the highest debt load in the Group of Seven economies. This program will encourage more people on the margins to take on more debt while contributing to higher housing costs that got Canadians into their current debt problems. In fact, our own Bank of Canada says that Canada’s high household debt is the central bank’s top domestic financial vulnerability. In addition, the International Monetary Fund has warned Canada about its high debt levels and the pressure on Canadian households to pay down their debt.
Keeping Canada’s household debt in check should be at the top of your priority list. Minister, why are you implementing a program which will increase the biggest threat to our economy?
Thank you for the question. First of all, I would like to say that I share Governor Poloz’s point of view that a high household debt is critically important for us to be looking at as we consider economic risks. The challenge around debt in our country is real and it’s most significant at the household level, where we see levels of household debt approaching 170 per cent of annual incomes.
That is one of the reasons we have been focused on the real estate sector since we have come into office. One of the first things I did as Minister of Finance was begin to deal with the challenge around the rising costs of housing, particularly in some of our heated-up markets in Toronto and Vancouver.
We have been on that since we have come into office, and it has been something on which I can say our approach has demonstrated some real success. We’ve seen a significant change in terms of the escalation in housing prices in both the Vancouver and Toronto markets, which were unsustainable and contributed to a potential lack of stability in those markets.
That has been a positive.
We want to make sure we continue with an approach that keeps that market stable while also recognizing that the challenge for first-time home buyers is real. In many parts of our country, it’s hard for people to get into their first home purchase.
We have taken an approach that is targeted. Each year in Canada we have about 500,000 home purchases and about 100,000 of those are first-time home buyers. We believe this is targeted to increase the number of first-time home buyers to expand that universe from about 100,000 up to as many as 130,000 or so.
It’s important to put that in context. That means we might expand by up to, say, 30,000 in a given year, and it’s a three-year program, so think about that over three years.
In any situation, therefore, you’re using a numerator of 30,000 on a denominator of 500,000, which gets to the size of the program. The analysis that we and the Bank of Canada have done suggested, in fact, the actual market impact is very minor. That’s certainly also what the CEO of the Canada Mortgage and Housing Corporation has talked about over the last couple of weeks.
So we don’t see this having an impact in terms of price that is in any way meaningful, nor do we see that the issue you have just suggested is valid at all. In fact, what we’re doing here is saying that for families with up to $120,000 of annual income, they can purchase a house of up to four times their annual income, so up to $480,000. In that case, what we’re doing is allowing them to take 5 to 10 per cent of the cost of that house, depending on whether it’s existing or new supply, and put it into a shared equity mortgage. By doing so, they will actually reduce the amount of mortgage they are carrying.
In fact, that family will have a lower mortgage to carry because some of it will be on the books of the Canada Mortgage and Housing Corporation and household indebtedness for those families will decline.
We think this is a measured way to get at the challenge of first-time home buyers. It will not change the challenges around market prices in any meaningful way, and it will actually diminish the mortgage debt for those people to take on in this approach.
For that reason, we have decided to move forward with it and will have more details as soon as we can get through them, likely during the course of the summer.
