Canada's housing agency says new spending measures aimed at helping first-time buyers afford homes won't push prices up more than a few tenths of a percentage point.
A report Thursday from the Canada Mortgage and Housing Corp. estimates prices could go up between 0.2 per cent and 0.4 per cent — a tiny bump relative to other ideas the Liberals were pressed to enact to make homes more affordable.
The agency says loosening the mortgage-insurance stress test or allowing longer mortgages would have raised housing prices five to six times more than the measures in last month's budget.
Experts were split on the effect the new measures would have on prices. Some called them modest and expected little impact, while others worried they would undo federal efforts to cool housing prices in some of the biggest markets in the country.
Social Development Minister Jean-Yves Duclos said the mortgage program is part of a "balanced approach" that includes the stress test for buyers of higher-valued homes, and billions of dollars to expand the supply of affordable housing and rental units.
"For first-time home buyers, the ability to find the appropriate level of savings is very hard," said Social Development Minister Jean-Yves Duclos when asked about the program Thursday. "So more housing available and more affordable housing, but also a greater ability of younger Canadians to eventually have a home — and that's why I think this balanced approach is the right one."
The government says it will pick up five per cent of a mortgage on existing homes for households that earn under $120,000 a year, in exchange for a share of the home's ownership. For new homes, to spur construction, the government would be willing to cover 10 per cent, but either way the mortgage plus the CMHC support couldn't exceed $480,000.
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Despite the limits on the program, CMHC says it can work in all markets, including Vancouver and Toronto. The average price of a home in Canada is about $470,000, and the way the mortgage program is structured would allow participants to a buy an existing home whose value is up to about $505,000, once the buyers put in a five-per-cent down payment.
About 23 per cent of home sales in Toronto and 10 per cent in Vancouver are for under $500,000, CMHC said, estimating that more than 2,000 buyers in Toronto and 1,000 in Greater Vancouver would have been eligible for the federal mortgage help if the program had been available last year.
What the program will do is make CMHC a minority owner of units through "shared-equity mortgages," as they're known.
There is no interest on the loan. Instead, when a house or condominium is sold for a profit, CMHC shares in the gains; the opposite is true when a unit is sold for a loss. What happens to the extra cash in the former instance is still a matter of deliberations inside government.
CMHC said it expects the program to launch this September.