Will expanding the FTHBI in the Greater Toronto Area actually work?

If you’re a frequent reader of my weekly post, you know I tend to avoid politics, but there is one thing I want to talk about, and no, it’s not what you think it is. 

Some recent, um, controversy has plagued the Liberal campaign, and it has likely overshadowed some policy announcements. 

It looks like if the Liberals win in October, they plan to expand the First-Time Home Buyer Incentive, increasing the maximum value of the mortgage from $480,000 to $798,000, but only in the Greater Toronto Area, Vancouver, and Victoria, British Columbia. 

According to a recent Zoocasa study, the average home price in the GTA in July 2019 was just over $800,000, so some may say the FTHBI still won’t work, but it’s important to remember that averages are a combination of higher and lower quantities. 

When the FTHBI first launched, many in the real estate industry argued that it wouldn’t help first-timers in the most expensive markets because $480,000 can’t get you much in places where average prices hover around the $800,000s. I thought this argument was kind of weak because I can list off condo developments across the GTA with prices starting in the $300,000s, but I can still kind of understand the frustration.

The thing that rubs me the wrong way is that it was obvious that the current iteration of the FTHBI was only going to help a few first-timers in select markets across the country, so it seems like this “expansion” was mostly just a well timed announcement leading up to the election. It’s not a small increase, it’s an extra $318,000, added to a mortgage. (Even in Toronto, are there first-time buyers taking on this level of debt?)

I was already convinced that at least 2,000 buyers in Toronto would qualify for the FTHBI as it currently stands, so with a significant increase in purchasing price, I would think that most first-time buyers in the GTA would be able to take advantage of the program.  

The FTHBI makes buying a home easier and more affordable because the Canada Mortgage and Housing Corporation will loan you 5% for a resale home or 10% for a new construction home. That means they own equity in your home. You only have to pay it back when you sell (you pay back the value of 5% or 10% at the time of selling).

Not everyone is a fan of the FTHBI because they say it is limiting when it comes to qualifying. For example, in theory, someone with a $30,000 down payment and $100,000 income could probably qualify for a $500,000 home, but the FTHBI as it currently exists would limit that person to a $430,000 home (4x their income, plus the down payment). This obviously changes for first-timers in the GTA, Vancouver and Victoria if the Liberals win and keep their promise. 

One thing the Liberals haven’t done is address the mortgage stress test, and guess who did? The Conservatives are saying they’ll review the stress test and attempt to eliminate it for renewals. I’m open to the stress test being reviewed and made more flexible, and even being eliminated for renewals, but I don’t know how much we can trust this political promise.

The Office of the Superintendent of Financial Institutions, which implemented the stress test, is an arm’s length regulator, and supposedly independent. I can see a political party saying they’re going to attempt to influence a change, but getting results is another thing.

Which way am I leaning? It’s too early to tell, and I’d never try to influence your vote. All I can say is you should do your research, stay on top of the campaigns, and question everything! 

To stay up to date on party platform details regarding housing, visit the Canadian Real Estate Association’s REALideas Hub.