Liberals’ Homebuyer Plan: Short-Term Political Gain for Long-Term Taxpayer Pain

Christy Clark’s interest-free loans to buyers will inflate home prices, enrich real estate industry and lure people into risky deals.

By Bill Tieleman 20 Dec 2016 | TheTyee.ca

Bill Tieleman is a former NDP strategist whose clients include unions and businesses in the resource and public sector. Tieleman is a regular Tyee contributor who writes a column on B.C. politics every Tuesday in 24 Hours newspaper. E-mail him at weststar@telus.net or visit his blog.

“I hate it. To be very clear, I think it’s really bad economics.” — UBC business professor Tom Davidoff on BC Liberal homebuyers plan.

Premier Christy Clark’s homebuyers plan provides short-term gain for the BC Liberal Party and long-term pain for those who borrow money from the government, taxpayers and the B.C. housing market.

But for Clark this is all about getting re-elected next May — who cares if some first time homebuyers can’t make their mortgage payment and lose their houses down the road?

What’s it to her if housing prices go up for everyone because the B.C. government plan will increase competition for the already limited supply of housing?

As flimflams go, this one is impressively slippery — and a lucrative Christmas present to the BC Liberals’ biggest donors, the real estate industry. It’s like giving money to Scrooge instead of Tiny Tim.

The government will spend $130 million of taxpayer dollars to lend, interest free, money to 42,000 first-time homebuyers to get into the tight housing market.

But like every good scam, there’s a catch — and it’s a doozy.

The government will loan first-time homebuyers up to $37,500, with no interest or payments required for the first five years of the 25-year term. But after that borrowers will have to pay interest of prime plus half a per cent for the remaining 20 years.

That might mean you effectively borrowed money from a payday loan company, with outrageous interest rates that drive you into deeper debt.

After all, who knows what interest rates will be in five years, let alone the following 20?

Buyers who can afford an interest-free loan when the program starts in January may not be able to make payments if rates — currently ranging from about 2.34 per cent to 4.66 per cent for a five-year fixed rate — jump up even a few points in the future.

Consider this: if rates go up just one-half per cent on a home with a $500,000 mortgage, the monthly payments go up $126 a month.

It’s not hard to see how easily even a mild financial downturn that sends interest rates modestly up could put those new homeowners “under water” — holding more debt than the market value of their homes. They would face challenges in making monthly payments, find it impossible to refinance and be unable to sell without paying cash to get out of the debt.

The B.C. government loan is also a second mortgage on the home — there’s still the regular mortgage on the rest of the outstanding amount.

And with 42,000 new homebuyers suddenly added to the market, guess what happens? Supply shrinks dramatically, so prices go up and everyone has to pay more to buy a house.

There’s also the significant cost to taxpayers of subsidizing home ownership for the lucky ones who get the loans — estimated at $130 million.

This from a BC Liberal government that just provided a minimal increase in disability benefits after freezing them for nine years — and then clawed back money by increasing bus pass charges.

The homebuyer loan plan goes against everything the federal government, Canada Mortgage and Housing, economists and experts say about B.C.’s — and especially Metro Vancouver’s — overheated housing market and the need to ensure people unable to afford homes don’t take on unmanageable debt. The government expects to loan more than $700 million to new homebuyers over the next three years.

But who cares if Clark thinks it’s a vote-getter for six months?

You might question her priorities and ask why, when 13 people died on Thursday from fentanyl overdoses, her government still hasn’t banned pill presses that let ruthless drug dealers make their evil products, as proposed in the summer by the BC NDP? (The federal government announced tighter restrictions on pill press imports last week.)

But the homebuyer plan is about getting re-elected; action on fentanyl isn’t seen as a vote-getter.

Or ask why this same government idly watched without lifting a finger as foreign nationals bought up huge swaths of Metro Vancouver housing — nearly $13 billion worth in 2015 alone, the National Bank of Canada estimated — driving the Greater Vancouver real estate board’s composite benchmark home price up 32 per cent between June 2015 and June 2016.

And anyone who raised concerns that most of the foreign buyers hailed from just one country, China, was falsely accused of racism.

Only when the housing pot boiled completely over this summer was Clark finally forced to bring in a 15-per-cent foreign buyers property tax in Metro Vancouver after rejecting the idea for years.

Of course, Clark doesn’t see it that way.

“We must make sure it is easier for first-time home buyers to find their way into a really tough housing market right here,” Clark said Thursday. "Our B.C. government wants to be your partner, if you want to buy your first home."

In other words, that was then, this is now — and now is pre-election time.

There are two clear answers why they didn’t give a tinker’s damn about making housing affordable or dealing with other crises.

First, this is a government deeply beholden to the real estate industry that gave the BC Liberal Party $12 million in the last 10 years — more than even mining or forestry companies. This homebuyers plan is another golden goose that will line the pockets of Clark’s financial backers as demand is driven up, more buyers enter the market and more units are sold at higher prices.

Second, this plan is only about getting re-elected — just as the way too late foreign buyers tax was.

When the only people praising your scheme are those whose names and faces you see on “For Sale” signs on lawns and condos, it’s obvious who’s really benefiting from this plan.

Don’t think prices will go up that much as a result of the homebuyers plan? The government scheme only provides loans for homes worth less than $750,000. There are only about 700 condos below that price available in Metro Vancouver, and just four houses. Those new buyers will all be chasing a small number of properties and bidding up prices.

The sad thing is that for many young people unable to buy a first home, this may look like a good deal.

It’s not. It’s a deceptive scheme, but that will only be fully apparent years after the May 2017 election.

But the BC Liberals may have been too clever by half with this plan.

It is being roundly condemned by housing experts who have no axe to grind with the government.

Tom Davidoff at the University of British Columbia’s Sauder School of Business is one among many.

“Big picture, it’s a step in the wrong direction. We have too much demand chasing too little supply,” Davidoff said, adding that the government may be trying to prop up the industry in the face of a potential slowdown in 2017.

UBC economist Joshua Gottlieb sums up the effect on housing prices simply.

“The easiest way to think about it is with an analogy to a store having a sale. If they raise all of their prices by $200 and then give you a $200 discount, are you any better off?” Gottlieb asks.

BC Housing Minister Rich Coleman claims the opposite, somehow.

“All it does is allow people to get into the front end of the market and what it will do is there’s going to be some supply added that’ll be added to the marketplace which will be great because if we can get more supply that means I can also pick up some other rental product,” Coleman told host Mike Smyth on CKNW radio last Thursday.

Not logical, and Coleman told CBC Radio that Davidoff is “completely wrong” on the supply issue. Of course, Davidoff has been an incisive critic of the government’s housing policies.

Even Jordan Bateman — Canadian Taxpayers Federation B.C. director and Coleman’s former BC Liberal constituency president — calls the program “disappointing.”

What Clark has done is dramatically increase the saliency of the housing affordability crisis for voters by pumping up the volume with her plan — without convincing key third party validators it’s a good idea.

Yes, desperate buyers looking for any hope in a bleak market may — temporarily — see it as a positive move.

But if Clark’s homebuyer plan fails to do anything but put more money in developers’ pockets while jacking up prices, voters could be looking for a different kind of house party than the BC Liberals in May 2017.  [Tyee]

Read more: BC Politics, Housing

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