Canada's finance minister has jacked up the minimum people must put down to buy a home. That may be sober banking, say experts, but it's no cure for unaffordability in the nation's hottest housing markets like Vancouver.
Under yesterday's changes, which come into effect in February, homes under $500,000 will continue to require at least five per cent up front. But anything more expensive, as many of Vancouver's houses are, will need an additional 10 per cent down payment on the value above that. Today, a $1-million home -- close to Metro Vancouver's detached house average -- requires $50,000 minimum; once the change kicks in, it would rise to $75,000.
Making it harder for modest-income families to enter the homeownership market protects them from taking on too much debt risk -- and being more vulnerable to a housing crash as happened in the U.S.
As Finance Minister Bill Morneau announced yesterday, boosting down payments is meant to protect "all homeowners, including many middle-class Canadians whose greatest investment is in their homes'' and play ''a key role in maintaining a stable and secure housing market and economy over the long term."
But media have reported raising the down payment floor is also intended, in part, to ''cool'' skyrocketing housing prices in Toronto and Vancouver.
And that has experts scratching their heads. Actually, they say, the move might be bad news for young working families in Vancouver who hope to enter the housing market someday but are already feeling priced out by skyrocketing costs.
Preserve of the well-off?
This year, the city's affordability crisis led to protests and a #DontHave1Million campaign by those disillusioned by rising prices.
A report released earlier this year by Vancity Credit Union warned that young families could soon be priced out of the Metro Vancouver housing market altogether. By 2025, only senior business, construction and engineering managers will be able to maintain affordable housing in the region, the credit union predicted.
However, several experts consulted by the Tyee Solutions Society said that although the change will likely block some first-time buyers from getting into the housing market, the policy will do little to fix Vancouver's affordability crisis.
"It's a little disingenuous," said Tom Davidoff at UBC Sauder School of Business. "They really mean they want to protect themselves'' from a potential housing market meltdown spurred by imprudent buyers.
"If you have to put 10 per cent down on a house over $500,000, that doesn't sound like the most crazy thing I've ever heard," Davidoff said. "If people are like lemmings buying houses, when interest rates go up it protects them from jumping off the cliff."
But that doesn't place housing more in reach of home buyers or renters, Davidoff notes.
"It makes me nuts that nobody's acting on the more obvious issue -- that there's an affordability problem. Trudeau should really have to answer for his lack of affordability policy. I'm a little mind-boggled by the lack of leadership there."
Patrick Condon, chair of urban design at the University of B.C. School of Landscape Architecture, wishes the feds would consider varying mortgage rules to the average costs in different markets --instead of simply imposing the same amount in vastly different market.
Making it harder for new home-buyers to enter Vancouver's hot market "is one more nail in the coffin of the fast-vanishing middle class," Condon said. Government needs to find ways to help people who live in a community secure their future through real estate appreciation, rather than see it enrich "giant hedge funds, pension funds, and wealthy investors."
Won't cool Vancouver prices: economist
Buyers in Canada's already most unaffordable cities will likely see a disproportionate impact from the down payment hike, those impacts won't be massive, according to the B.C. Real Estate Association's chief economist Cameron Muir.
"The biggest impact will be in Vancouver's market and Toronto's," he said, "simply because home prices are relatively higher. You have more low-equity buyers looking to get in with smaller down payments."
But with 35 per cent of the Metro Vancouver region's homes sold in the price range affected by yesterday's announcement -- $500,000 to $1 million -- "in most of those sales, people are putting more than five per cent down anyway," he said, "so this will only affect a few people trying to buy expensive homes on a small down payment."
Bryan Yu, senior economist with Credit 1 Credit Union -- which provides financial services to B.C. and Ontario's credit unions -- argued that yesterday's announcement will be unlikely to have that great an impact on Vancouver's heated housing market.
In fact, despite fears that this could simply make it even harder for already priced-out working families in the region to ever own, Yu said the decision helps protect them.
"The purpose of the down payment change was really to ensure that some of the younger buyers don't become over-leveraged in their housing decisions," he explained. "It also helps the government de-risk itself -- limiting its exposure if there's a downturn in the housing market.
"I don't think this creates too much difficulty for individuals already able to get into the market. We're talking about a modest increase to down payments -- it's just going to take more time to build up that down payment."
But over time, that small slice could grow a lot larger, he warned, "as more and more Vancouver homes get closer and closer to that threshold" of $500,000 to $1 million in value.
Director of UBC's Centre for Urban Economics and Real Estate Tsur Somerville said the Liberals' shift -- particularly compared to the Conservatives' election promise to get 700,000 families into homeownership -- will indeed deter some from that goal.
"If your objective is to maximize the number of people who are homebuyers," Somerville continued, "then this is going to keep some people in some places out of the market.
"The Conservatives' policy would have been more expansive. But it's not clear that the most pressing concern in our housing market is getting people from renting to ownership. Poor renters strike me as a more pressing problem."
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