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Ottawa is taking aim at housing affordability with billions of dollars in new incentives, including zero-interest mortgages for first-time buyers and subsidized loans for the construction of tens of thousands of rental units.

Finance Minister Bill Morneau said Tuesday he is responding to the plight of Canadians who say they can’t afford to live in many of Canada’s largest and priciest cities, including Toronto and Vancouver.

“Finding an affordable place to call home is not just a challenge. For too many hard-working Canadians, especially for young people, it feels like an impossibility,” Mr. Morneau said in his budget speech.

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The federal budget includes new spending in a range of areas including support for first-time homebuyers, ensuring seniors are enrolled in CPP and the further advancement of reconciliation.

To address the problem, the government has opted mainly for subsidies rather than the tax and regulatory changes sought by the real-estate industry to prop up the slowing housing market. Real estate brokers, builders and some lenders have lobbied Ottawa to relax many of the rules introduced in recent years to discourage Canadians from taking on too much debt, including a mortgage stress test introduced last year and the current 25-year maximum amortization period for home buyers with smaller down payments.

The government said it decided to leave the stress tests untouched because they’re “having their intended impacts.” The test requires borrowers to prove they can handle a mortgage with higher interest rates than they are actually getting.

But the government said it would continue to “closely monitor” its mortgage policies and could adjust them “if economic conditions warrant.”

The dilemma for Ottawa is that if its efforts to help first-time buyers and builders work, the government risks fuelling even hotter – and more expensive – real estate markets.

The centrepiece of Ottawa’s housing plan is a $1.25-billion, three-year program of zero-interest loans for low- and middle-income people looking to buy their first home. Canada Mortgage and Housing Corp. will offer mortgage loans – up to 10 per cent of the purchase price of newly built homes and 5 per cent of existing homes – to help prospective homeowners.

The government says it expects about 100,000 Canadian households to borrow under the plan.

The loans will be available to people with household incomes of $120,000 a year or less and will be repayable when the mortgage is repaid.

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But many other key details, including precise repayment terms and maximum available loans, remain unclear. The government says CMHC will release full details later this year, with the loans available in September, pending passage of legislation.

The budget cites the example of a purchaser looking to buy a new $400,000 condominium. The buyer would be eligible to get up to $40,000 from CMHC, reducing the amount they need to borrow from a bank or other lender and thus lowering their mortgage payments by $2,736 a year.

Within the real estate sector, the new interest-free loan program won quick praise Tuesday, with numerous industry representatives saying it will help first-time buyers, who are the group that have been most adversely affected by the new stress-test rule.

Phil Soper, chief executive of real estate brokerage firm Royal LePage, said the new financing program for first-time buyers is a creative solution that avoids both overstimulating the real estate market more broadly and spurring rapid growth in home prices in expensive markets.

“I do like that it doesn’t add to the debt burden of young people,” he said.

Several real estate groups had urged the government to consider allowing 30-year amortizations on insured mortgages, up from a 25-year maximum currently, but Mr. Soper said that option would have added to the debt level of buyers for longer periods in their lives.

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In another boost for first-time buyers, the government is raising the amount that Canadians can withdraw from their RRSPs to buy a home to $35,000 from $25,000, effective immediately. Mr. Morneau said the government is raising the threshold for the first time since 2009 to “reflect the realities” of higher real-estate values.

Michael Bourque, CEO of the Canadian Real Estate Association, which represents real estate agents, said his organization would have been satisfied with simply expanding the RRSP borrowing limit if that were all that had been done in the budget. He said the additional interest-free loan program is a major new commitment that will help many more people buy their first homes.

“It’s a pretty good recognition that there’s a whole cohort of first-time home buyers that are having trouble getting into the market, and it’s a significant commitment to help them with that,” he said.

Paul Taylor, CEO of Mortgage Professionals Canada, which represents the mortgage-lending sector, said he is disappointed that the government did not heed his organization’s calls to reduce the stress-test burden, which is keeping many home buyers from qualifying for mortgages.

But he said the new interest-free loan program will help the earners most affected by the stress test, so it may be a good alternative. The program requires more analysis to assess how successful it will be, he said.

His organization estimated that the stress test would compel about 200,000 potential home buyers to change their plans in the first two years of operation. If 100,000 are helped by the loan program over three years, “a good chunk” of people most impacted may be getting help, he said.

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The budget also proposes to extend for nine years an existing program of subsidized loans to builders of rental homes and apartments in areas with low vacancy rates. The upfront cost would be $10-billion. The extension in funding will boost the number of units built to 42,500 from 14,000, according to the government.

Kevin Lee, CEO of the Canadian Home Builders’ Association, said the budget’s various stimulus measures to spur new construction, coupled with the assistance to first-time buyers, means “there is some potential” to help buyers who need it most.

“We do know there is inadequate supply in so many places right now, so helping to incentivize new construction would certainly be a good thing,” he said. “We have some work to do to analyze everything, but there are some potential steps in the right direction.”

savings in mortgage payments with

cmhc first-time home buyer incentive

Here’s an example from the budget of how it works:

$228 per month/$2,736 per year

Insured mortgage model

(No incentive)

House

price

$400,000

Down

payment

$20,000 (5%)

Insured

mortgage

$380,000 (95%)

Monthly

carrying cost*

$1,973

CMHC First-Time Home Buyer

(Incentive model)

House

price

$400,000

Down

payment

$20,000 (5%)

CMHC First-time

Buyer Incentive

$40,000 (10%)

Insured

mortgage

$340,000 (85%)

Monthly

carrying cost*

$1,745

*Assumes amortization period of 25 years and

a mortgage rate of 3.5%.

THE GLOBE AND MAIL, SOURCE: 2019 federal budget

savings in mortgage payments with the cmhc

first-time home buyer incentive

Here’s an example from the budget of how it works:

$228 per month/$2,736 per year

Insured mortgage model

(No incentive)

CMHC First-Time Home Buyer

(Incentive model)

House

price

House

price

$400,000

$400,000

Down

payment

Down

payment

$20,000 (5%)

$20,000 (5%)

CMHC Buyer

Incentive

$40,000 (10%)

Insured

mortgage

Insured

mortgage

$380,000 (95%)

$340,000 (85%)

Monthly

carrying cost*

Monthly

carrying cost*

$1,973

$1,745

*Assumes amortization period of 25 years and a mortgage rate of 3.5%.

THE GLOBE AND MAIL, SOURCE: 2019 federal budget

savings in mortgage payments with the cmhc

first-time home buyer incentive

Here’s an example from the budget of how it works:

$228 per month/$2,736 per year

Insured mortgage model

(No incentive)

CMHC First-Time Home Buyer

(Incentive model)

House

price

House

price

$400,000

$400,000

Down

payment

Down

payment

$20,000 (5%)

$20,000 (5%)

CMHC First-Time

Buyer Incentive

$40,000 (10%)

Insured

mortgage

Insured

mortgage

$380,000 (95%)

$340,000 (85%)

Monthly

carrying cost*

Monthly

carrying cost*

$1,973

$1,745

*Assumes amortization period of 25 years and a mortgage rate of 3.5%.

THE GLOBE AND MAIL, SOURCE: 2019 federal budget

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