In the first year of the pandemic, the number of first-time homebuyers in Vancouver increased by 51% over a two-year period, driven by the ultralow interest rate.<\/p>\n
There were 1,530 first-time purchasers in 2018 and by the end of 2020, there were 2,315, according to Canadian Housing Statistics Program data analyzed by Prof. Andy Yan, director of Simon Fraser University\u2019s City Program.<\/p>\n
The harder part for policy-makers is drawing those first-time buyers into a higher interest rate market through government incentives. Policies are often ineffectual when confronted with the barrier of high prices, particularly in Vancouver.<\/p>\n
\u201cYou can see in this data what is most likely the effect of pandemic-era, ultralow interest rates, and how the ability to become a first-time homeowner in the City of Vancouver requires a capacity to incur and maintain debt,\u201d says Prof. Yan.<\/p>\n
\u201cThe first rung of the property ownership ladder begins in a pit of debt.\u201d<\/p>\n
The problem for buyers, and policy-makers, is they are dealing with two unprecedented booms in the last few years, both promoted by the federal government, says David Williams, vice-president of policy for the Business Council of BC, and former senior economist with the Bank of Canada. There is the population boom and resulting demand shock. And then there is the shock of household debt \u2013 the amount of mortgage credit borrowed against housing stock climbed from $1.6 trillion in 2020 to $2.1 trillion three years later.<\/p>\n
\u201cI would like to see the federal government look at the levers they control around credit and population growth,\u201d says Mr. Williams.<\/p>\n
Senior government has responded with several policy adjustments to try to attract those new to the housing market. At the end of March, the Canada Mortgage and Housing Corp. quietly cancelled the First Time Home Buyer Incentive, an unpopular program that failed to offer relief from high home prices. Not only was the program unhelpful, but it was confusing, says mortgage broker Alex McFadyen, who saw few first-time buyers last year.<\/p>\n
\u201cIt was a complete failure by most accounts,\u201d he says. \u201cPeople thought it was a down payment assistance program, which would have been a much better program. That would have been helpful. What it was was a reduction in mortgage amount, which was essentially useless. It was an equity loan \u2026.. that didn\u2019t help somebody qualify for more and get their down payment, which are the issues people are facing.\u201d<\/p>\n
In April, the federal government increased the withdrawal limit on the RRSP Home Buyers\u2019 Plan, from $35,000 to $60,000. First-time buyers can now withdraw that amount from their RRSPs to use as a down payment. As well, those buyers will now have five years to begin repayments instead of two.<\/p>\n
First-time buyers are now also eligible for a 30-year amortization on insured mortgages for a newly built home. Previous rules only allowed a 25-year amortization if the down payment was less than 20% of the purchase price. While Mr. McFadyen believes the property transfer tax exemption should have a real impact, he wasn\u2019t so enthused about the extended amortization period.<\/p>\n
\u201cIt\u2019s only on new development properties, and I can\u2019t even fathom the reasoning behind that, other than to incentivize developments that aren\u2019t existing, or that people don\u2019t want to buy,\u201d he says. \u201cI just don\u2019t think it will have any notable impact on the average person. \u2026.. This isn\u2019t going to incentivize them to [buy] or help them necessarily \u2013 at least not in this market.\u201d<\/p>\n
Policy-makers encourage first-time buyers because they play a key role in the economy, say industry experts. Ownership is a way to accumulate wealth and borrow against equity. But policies can also turn homes into investment assets, which works against first-time buyers.<\/p>\n
Mortgage broker Eitan Pinsky says government just needs to do the right thing to help the younger generation.<\/p>\n
\u201cThis is the first generation ever that we will be less well off than our parents,\u201d said Mr. Pinsky, who is a Millennial. \u201cYou could say it\u2019s an optics thing.\u201d<\/p>\n
He also said that he seldom sees a single person purchasing their first property any more. Almost all his clients are high-income couples.<\/p>\n
\u201cYou usually had one person being able to purchase in the past,\u201d he says. \u201cNow, the vast majority are two people with good incomes, and they are all purchasing in the $1-million to $1.5-million mark.\u201d<\/p>\n
Vancouver realtor Hasan Juma said that he\u2019s seeing first-time buyers pay more for a home than they did in years past, but it\u2019s got nothing to do with policies.<\/p>\n
\u201cFrom what I\u2019ve experienced, first-time homebuyer purchase prices have gone up because of more financial support from family, whether that is in the way of increased down payments or parental co-signers to help them qualify for larger mortgages,\u201d says Mr. Juma.<\/p>\n
Others, he says, just leave the urban core to buy elsewhere.<\/p>\n
For example, only 508 transactions in Vancouver involved first-time homebuyers who qualified for the tax exemption program in 2020, according to Prof. Yan\u2019s analysis of property transfer tax data.<\/p>\n
A first-time buyer is defined as a BC resident who\u2019s never owned a principal residence anywhere in the world at any time. Before a recent increase, the province only allowed an exemption on properties up to $500,000 in value. Considering how few properties in Vancouver could be found for that amount, there was little take up, with those eligible representing only 4.7% of the total sales transactions that year.<\/p>\n
Not surprisingly, the BC program has had more success in less expensive markets since it was introduced.<\/p>\n
A greater amount of first-time buyers took advantage of the tax break in Surrey, Prince George, Abbotsford and Kamloops, according to Prof. Yan\u2019s analysis.<\/p>\n
As of April 1, the province raised the threshold for eligibility to $835,000 fair market value, which should enable more first-time buyers in Vancouver to qualify.<\/p>\n
\u201cOne of the most common and significant concessions made by first-time homebuyers is the location of their purchase,\u201d says Mr. Juma. \u201cMost have been priced out of Vancouver.\u201d<\/p>\n
He isn\u2019t surprised that the senior levels of government are trying harder to draw in first-time buyers, especially in expensive urban cores.<\/p>\n
\u201cI think they understood that up until this year, our incentives for first-time homebuyers were essentially non-existent,\u201d says Mr. Juma. \u201cBut secondly, incentivizing first-time homebuyers \u2013 from a political standpoint \u2013 is a way to appeal to the masses and appease virtually everyone. \u2026.. It really is a win-win scenario for the government, to offer incentives to first-time purchasers and secure public support and future votes along the way.\u201d<\/p>\n