First-Time Homebuyer Incentive inadequate
Clayton Jarvis
Mortgage Broker News
On May 12, two Conservative MPs addressed their concerns over the federal First-Time Homebuyer Incentive in an open letter addressed to Canada Mortgage and Housing Corporation CEO Evan Siddal and Minister of Families, Children and Social Development, Ahmed Hussen.
The letter’s authors, Tom Kmiec and Stephanie Kusie, both from Calgary, criticize the program’s cost and its failure to capture the interest of consumers. Kmiec was highly sceptical of Liberal projections, released in May 2019, that saw 100,000 Canadians eventually leveraging the shared-equity program. The CMHC’s annual report for 2019, published earlier this week, found that only 2,950 Canadians were approved for a shared-equity mortgage through the FTHI.
“[T]hese 2,950 approvals are a far cry from the target of 20,000 that CMHC had set for the program’s first six months of operation,” the letter reads. “Indeed, it seems that the program has been a complete failure and any notion that it will come close to assisting 100,000 aspiring homeowners is now scuttled.”
The FTHI has been a constant target for Kmiec, who debated the program in the House of Commons with Siddal in May 2019. He has gone after it in multiple Facebook posts dating back to April 2019.
“I knew that the Liberals’ shared equity mortgage scheme was doomed to fail because the vast majority of Canadians don’t want to co-own their home with the federal government,” Kmiec told MBN by email. “More importantly, gambling on the real estate market with taxpayer dollars through the purchase of equity shares in Canadians’ homes is not an appropriate role for government.”
Kmiec is also concerned that the program, along with the CMHC’s commitment to purchase $150 billion in mortgage-backed securities from Canadian lenders, exposes taxpayers to the risks associated with insuring that level of mortgage credit. He says the measures taken over the past decade to reduce CMHC’s liabilities have been undone.
“These measures will have a significant impact on our county’s finances for decades to come,” Kmiec writes. “Now is the time for the government to be eliminating wasteful programs, such as this First Time Homebuyer Incentive, to help limit the devastation the pandemic will have on our economic health.”
In his comments to MBN, Kmiec explains that the FTHI “does nothing to help” first-time buyers qualify for a mortgage that wouldn’t otherwise be approved. Because one of the conditions for the program is that a borrower must qualify under the existing down payment and underwriting criteria, he says the almost 3,000 people who signed up for the program “would have all been able to qualify for a mortgage and purchase a home without the FTHI. The only appeal of the program to these 3,000 individuals would be the slight reduction in the monthly mortgage payments, which will end up costing them a significant share of the equity in their home when it is time to sell.”
The equity component of the program may indeed be the sticking point for many Canadians, says Streetwise Mortgages’ Dalia Barsoum, who compares the program, rather unfavourably, to mortgage deferrals.
“There are downsides,” she says, particularly for homeowners having to pay back amounts far beyond what they originally borrowed to get into the housing market. Owners in rapidly appreciating markets like Toronto or Montreal could, in twenty years’ time, possess properties that have doubled in value. Based on CMHC’s own figures, it’s clear that few Canadians are excited by the prospect of cutting the government a cheque for five percent of those gains.
But Barsoum thinks cancelling the FTHI is short-sighted.
“They shouldn’t eliminate it,” she says. “It’s not for everybody, but there are people who will benefit them who have no other options.”
Kmiec’s attacks on the First-Time Homebuyers Incentive all have one thing in common: they come with no proposed alternatives. MBN asked the MP to provide his own ideas for helping first-timers, specifically urging him to go further than pointing out the obvious fact that supply needs to increase. The response received may underwhelm most readers.
“We can expect that the COVID-19 pandemic and the subsequent government-enforced shutdown of the economy will lower real estate prices across the country. We can also expect to see continuing record-low interest rates as the economy enters into recovery. Now is not the time for anymore sweetener from the taxpayer. The federal government should work with provincial governments to reduce barriers and red tape to residential construction that are impeding new housing construction stock across the country.”
Changes to the program do not appear imminent.
“Now is not the time to cut support for Canadians,” Jessica Eritou, spokesperson for the Office of the Minister of Families, Children and Social Development, said in a statement to MBN. “It is especially important to invest in programs that put home ownership within reach of more middle-class families. We will continue building on our historic commitments to giving more Canadians a safe and affordable place to call home.”
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