The government’s support of shared equity mortgages was announced with great fanfare in the budget of March, 2019.Fred Lum/The Globe and Mail
Three years after the Liberal government’s 2019 federal budget promised to help first-time homebuyers with a major push in support of shared-equity mortgages, records show the take-up to date is far below expectations.
A $100-million program called the Shared Equity Mortgage Providers Fund has approved just $17-million in applications, and paid out $1.3-million. A much larger fund of $1.25-billion that is scheduled to expire in September is also well below expectations as of Dec. 31, with $270-million in approved shared-equity mortgages, of which $253-million of the federal funds have been paid out.
That means just more than 20 per cent of the $1.25-billion fund has been distributed so far and 1.3 per cent of the $100-million fund. The larger program is for three years, and the smaller one will run for five years.
The Canada Mortgage and Housing Corp. (CMHC), the federal housing agency that handles the programs, said delays between approval and disbursement of the funds are normal.
In a shared-equity mortgage, the government or a mortgage provider covers part of a first-time buyer’s home purchase. However, the repayment is based on the percentage of the incentive, rather than the dollar amount. The provider of the shared-equity mortgage shares in any appreciation or depreciation based on the fair market value of the home at the time of repayment.
With the Liberal government signalling that housing will be a major plank in Finance Minister Chrystia Freeland’s coming 2022 federal budget, opposition critics say the government’s track record in following through on previous spending promises for housing shows big budget announcements should be greeted with some skepticism.
Promises to boost spending on housing were also a key element of the Liberal government’s recently announced confidence-and-supply deal with the NDP, in which the smaller party has vowed to keep the Liberals in power until June, 2025 in exchange for policy action on NDP priorities.
The government’s support of shared-equity mortgages was announced with great fanfare in the budget of March, 2019, which outlined the two similar but separate programs. The $1.25-billion First-Time Home Buyer Incentive program promised to provide shared-equity mortgages directly from the federal government for first-time homebuyers.
The separate $100-million Shared Equity Mortgage Providers Fund promised to flow the federal tax dollars through existing or new providers of shared-equity mortgages. The third parties could use the federal funding to start new housing developments that provide shared-equity mortgages or to lend money to first-time homebuyers via a shared-equity mortgage.
Bill Morneau, the finance minister at the time, said in his 2019 budget speech that federal support for shared-equity mortgages would deliver “real help for people who want to own their own home.”
Under the larger program, the CMHC provides five or 10 per cent of the home purchase price, and the buyer would repay the incentive at resale or within 25 years, whichever is sooner. The program is aimed at people buying their first home who have household incomes under $120,000 per year. The 2020 fall economic statement announced that the limit would be raised to $150,000 for applicants in Toronto, Vancouver and Victoria.
“We recognize that the uptake for this program has not yet reached its highest potential,” CMHC spokesperson Brie Martin said of the $1.25-billion program. “We continue to see uptake.”
John Dickie, president of the Canadian Federation of Apartment Associations, said the “pathetic” amount of take-up in the program is to be expected, given the way it was structured.
“We’re not particularly surprised,” he said, adding that people don’t like the idea of the government becoming a kind of co-owner of their home.
“The government provides the funds to close, but then gets a share in the increase in the appreciation value of the home,” he said. “Whereas when you buy a home these days, you’re buying both a place to live and you’re buying an asset that seems to be forever increasing in value, and that value comes to you without being taxable.”
The latest spending details related to the smaller program were recently tabled in the House of Commons in response to a written request by Conservative MP Adam Chambers.
The government’s response states that $1.3-million has been distributed to date through the Shared Equity Mortgage Providers Fund. It also says it received nine applications, five of which were approved. The answer says this funding will “support the creation of 700 new housing units.”
In an interview, Mr. Chambers said the results to date – three years after the program was announced – illustrate the Liberal government’s poor track record when it comes to delivering on big promises.
“As is typical with this government, it’s all about the announcement,” he said. “There’s an execution problem that the government has.”
Mr. Chambers said the concerns expressed by some experts in the housing sector three years ago were accurate.
“This is clearly not working and it’s clearly been a failure, which I think just confirms it’s viewed as a bad deal for borrowers. I don’t think it’s a good deal for taxpayers and they should probably just admit failure and move on,” he said. “And I think the government should probably stop bringing forward policies that will just further stoke demand, and focus primarily on supply.”
Canadian Home Builders’ Association chief executive officer Kevin Lee said the issues with the program were clear when it was announced. Based on the criteria, he said, most people who would qualify for the program could likely also get a mortgage without it.
“Obviously, most Canadians, if they already qualify, would rather keep the equity opportunities to themselves. That was part of our commentary right from the start when we saw the design,” he said.
Mr. Lee noted that the 2021 Liberal election platform included a pledge to make the First-Time Home Buyer Incentive program “more flexible” by allowing applicants to choose between the current shared-equity approach or a loan that is repayable only at the time of sale.
“That may hold some more opportunity for more take-up,” Mr. Lee said.
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Bill Curry