New home loan program gives apartment, townhouse prices a bump: report
But one economist thinks the program for first-time buyers had a bigger impact than the B.C. Real Estate Association report claims.
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A program introduced under the B.C. Liberals that gives first-time homebuyers an interest-free loan to help on a down payment has increased housing prices by about half a per cent, a new report shows.
But at least one economist says the impact may be higher.
In the B.C. Home Partnership program, people are eligible to receive up to $37,500, interest-free for five years, if they are approved for an insured high-ratio mortgage where the down payment is less than 20 per cent of the home’s purchase price.
Nearly 1,400 households took advantage of this deal in the program’s first nine-months, according to a report by the B.C. Real Estate Association. One third of those transactions took place in Metro Vancouver. It was responsible for boosting apartment prices in that region by 0.55 per cent and townhome prices by 0.57, according to authors of the report.
“We found the impact was quite negligible…there were relatively few sales [in the program] compared to total market transactions,” said Cameron Muir, chief economist at the B.C. Real Estate Association.
Condo values increased by as much as 40 per cent in some parts of Metro Vancouver in 2017, according to BC Assessment.
Muir’s team looked at the relationship between home prices and home sales, and modelled what prices would have looked like if the sales made possible by the program did not happen. But Tom Davidoff, a professor at UBC’s Sauder School of Business, says that analysis does not take into account the possibility that people who received an interest-free loan would be willing to pay a higher price than usual for a home.
“Imagine if you have five first-time buyers competing for an apartment and now three of them can afford to pay more. I don’t see where [the report] has handled that,” he said.
“This methodology doesn’t rule out something closer to three or four per cent [price] increase based on the program.”
Davidoff was one of several economists who criticized the program when it was first introduced in December 2016, saying it would encourage risky behaviour by helping people buy more than what they could actually afford in an already hot housing market.
About 30 per cent of people in the B.C. Home Partnership program had less than five per cent down payment prior to receiving the government loan, according to the BC Real Estate Association.
If interest rates go up significantly, “these [mortgages] are primed to default – it’s quite likely,” said Davidoff.
But Muir says the program achieved its goal, which was to help young first-time buyers enter the market. The median age of people in the program was 33 and the median income was $82,800. The median price of homes bought through the program was $415,000. Almost everyone in the program bought an apartment or townhome, as opposed to a detached house.
The NDP has been critical of the taxpayer-backed loan, and Muir noted he is waiting to see if the government decides to cut the program in the upcoming budget.