The First-Time Homebuyer Incentive is being discontinued this month (the last day for new or amended applications is March 21st) and I’ve been asked by clients and the media how this will impact first-time homebuyers in Ottawa.
The short answer: Not much.
I haven’t had a single client qualify for the program since it launched five years ago.
The incentive program was designed to help first-time homebuyers get into the housing market. The federal government offered a loan up to 10 per cent of the purchase price that would go toward a larger down payment and thereby reduce monthly payments.
The program was well-meaning but flawed from the beginning. Between the restrictive household income cap at $120,000 and a borrowing cap of $480,000, the people the program aimed to help were swiftly edged out of the market by unrealistic eligibility criteria.
The program, which was launched in 2019, probably could have been helpful if it was responsive to the market needs and changes. At that time, a maximum home price of $480,000 was a reasonable limit for a first home in Ottawa. The average home price was under $500,000, or $300,000 for condos. But that has drastically changed in the last five years.
Overall, the average home prices in Ottawa have increased around 50 per cent since 2019 and held steady at that increased level for three years. The average home in Ottawa is going for $651,000 as of February 2024, which is completely out of reach for this program.
This is not just an Ottawa problem. Nationally, the average home price is $666,000.
The First-Time Homebuyer Incentive program had a price tag commitment from the federal government of $1.25 billion and aimed to support 100,000 homebuyers in the first three years. Yet five years in, less than 23,000 applications have been approved.
There was some hesitation, I think, for some prospective first-time homebuyers that the loan would have to be repaid in 25 years or when the home was sold, and instead of interest, the amount would increase with the appreciated value of the home. They share in the risk; they share in the profits – and some just didn’t want the government to own part of their home.
This is not to say that this program done right wouldn’t help. According to recent Environics Research, 35 per cent of first-time homebuyers nationally reported getting help with their down payment from family, and 25 per cent said they received financial help with their monthly payments.
Let’s not throw the baby out with the bathwater – the First-Time Homebuyer Incentive Program is fixable. Increasing the household income cap to $200,000 would allow more people to partake. An incentive to sellers could bring more much-needed inventory to the market, which would drive home prices down, and support first time homebuyers to enter the market.
Truthfully, if the CMHC and the government adjusted the First-Time Homebuyer Incentive program indexed to inflation and fluctuations in the housing market and the cost of living it could help a lot of people.
