Among the pre-election gambits in the federal government’s March budget was a program to bolster the spending power of aspiring homeowners in Canada’s stretched housing market. Ottawa released the details this week, and the program opens to applicants in September.
The problems in Canada’s housing market, particularly in Toronto and Vancouver, are acute. The price of housing has tripled in the first two decades of this century.
In British Columbia’s Lower Mainland, the typical single-detached property costs $1.2-million and the typical condo costs $653,000. In the Greater Toronto Area, the median single-detached home is $842,000 and a condo is $532,000.
Paul Kershaw, a University of British Columbia professor who founded a group called Generation Squeeze, put the market in perspective this month.
A generation ago, in the late 1970s, it took the average young buyer in metro Vancouver or Toronto six years to save for a 20-per-cent down payment on a home. It now takes a millennial aged 25 to 34 in Vancouver almost 30 years to put away the money, and 21 years in Toronto.
On a national basis, it takes 13 years to save for a solid down payment. Prof. Kershaw’s starkest observation was this: For housing across Canada to become affordable, either incomes need to soar, or house prices need to crash.
For anyone looking to buy, it is a grim, if not impossible, financial picture.
The new First-Time Home Buyer Incentive is a shared equity program, in which Ottawa will put up a portion of a buyer’s down payment to help reduce monthly mortgage payments, thereby making the mortgage less costly. It’s a three-year, $1.25-billion program that aims to back upward of 100,000 buyers.
Canadian Mortgage and Housing Corp. will run the program. Responding to worries it will simply make an already expensive housing market even pricier, the Crown corporation says its financial modelling shows the incentive at worst would only fractionally inflate the market.
The program is limited to households with incomes of less than $120,000; the range of housing available for purchase tops out at about $565,000. Buyers have to come up with a 5-per-cent down payment. CMHC will then supply another 5 per cent on existing homes and 10 per cent on new homes. The loan is interest-free and must be paid back when the house is sold; thanks to it, a person could save several thousand dollars in mortgage payments a year.
But while CMHC says it won’t inflate the market, the program doesn’t make housing less costly. Ottawa will help strapped millennials buy an expensive asset; if interest rates rise, those buyers could find themselves in a real pinch.
As well, a $565,000 condo is still just a $565,000 condo – a bewildering number to anyone who bought an entire house for less just a decade ago.
Ottawa needs to more forcefully address a broken housing market, one that has enriched many but left home ownership out of reach for many others. The overpriced market has created a generation that faces renting for years, if not their entire lives.
The Trudeau Liberals have a national housing strategy; the new program is part of it. But the Parliamentary Budget Officer this week said the modestly increased funding that goes with it won’t have much of an impact.
Much bigger ideas are required. Far too much land is used inefficiently in major cities by being zoned for single-family homes only. That was fine decades ago. Not anymore.
The City of Vancouver last year made a first step and rezoned much of the city to allow duplexes – a needed move that has generated a lot of blowback. In the United States, Minneapolis last December ended single-detached zoning.
In Toronto, however, no one is seriously discussing the idea of rezoning the so-called “yellowbelt” – the vast swaths of the city limited to single-family homes.
Canada and its rapidly rising population needs more housing in its biggest cities. There’s plenty of land, but it’s not well used. New supply in recent years has come in the form of one-bedroom condos in tall urban towers. The vast gap between such condos and single-detached properties is dubbed “the missing middle.”
Until governments fill in that missing middle, nothing will change. The Liberals’ new program might win a few votes this fall, but it doesn’t address the real issue.