Affordable Housing for Young Canadians: The New Normal?
Failure to launch?
As young millennials transition into adulthood, the prospect of securing stable employment rests uneasily on their minds. Compounded with the stress of entering the labour market are skyrocketing property prices, which have given rise to increased anxieties over the possibility of affordable home ownership. According to the 2016 census, just over one-third of young adults in Canada aged 20-34 live with their parents; one of the possible reasons for this is the higher costs of living, especially in major cities such as the Greater Toronto Area and Vancouver. A growing number of first-time homebuyers have been relocating to towns near secondary municipalities (exurbs) instead of opting to live in large urban centres to escape the high cost of housing.
Ottawa’s First-Time Home Buyer Incentive
In March, the federal government announced its new First-Time Home Buyers Incentive (FTHBI) - a policy designed to ease young Canadians’ concerns about home ownership through measures that prevent excessive borrowing and limit house price inflation. Under this program, the federal government is offering interest-free loans to help homebuyers take out smaller mortgages and keep monthly repayments lower. In practical terms, the incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. It is not interest-bearing and does not require ongoing repayments. Early payout options in full are available at any point in the duration of the 25 years. In order to qualify, the applicant must have a household income of less than $120,000 annually and be able to come up with a 5 percent down payment if they fulfill the requirements. As the plan began operation in September 2019, the Canada Mortgage and Housing Corporation (CMHC), a Crown corporation, will provide funding for the federal budget. However, Ottawa’s efforts to alleviate financial burdens may seem distant and detached from the realities that young homebuyers face. Experts state that many Canadians would be left out of homebuyer proposals, particularly in markets like Vancouver, Victoria and the GTA, where home prices continue to soar and remain unattainable for many (especially first-time homebuyers). In these major cities, federal incentives are unable to provide much financial ease to homebuyers.
Additionally, the city of Montreal has put in place its own plan to supplement the federal scheme in the hopes of encouraging young families to settle in Montreal while also promoting the development of more affordable housing. The city has adopted a more accessible plan for homebuyers that extends to families with at least one child under 18 who have purchased or intend to purchase property. Additional benefits for first-time homeowners also include a lump sum financial assistance of at least $2,250 or up to $6,250. This lump sum would only be paid once the new owners have demonstrated that they occupy the residential unit as their principal residence and have satisfied all other program requirements. A bonus for families in addition to the financial assistance is also offered to further alleviate the costs of living, such as reduced public transport fees on an annual OPUS full-fare pass.
Is it helpful?
Experts have voiced their skepticism surrounding the effectiveness of the financial incentives mentioned above. According to Craig Wright, the chief economist with the Royal Bank of Canada, the program was a “solution looking for a problem,” especially given the high home homeownership rates in Canada compared with other countries such as the US or in big cities such as Berlin and London. With the cost of living being a big election issue, and housing being the biggest single expense for most Canadians, parties have rolled out their plans to make life more affordable for Canadians. Prime Minister Justin Trudeau has promised an expansion of the FTHBI program in the GTA, Vancouver, and Victoria as well as the implementation of a national vacancy tax on homes. The timing of this announcement, however, has come under fire from critics who view it as a program that is “more about politics than policy.”