Making Housing more Affordable: Canada’s First-Time Home Buyer Incentive

Ottawa, April 4, 2019

The recent federal Budget proposed a series of incentives that demonstrates the government’s commitment to housing affordability, and CMHC is proud to take a leading role in many of them. We know that you’re particularly anxious for details regarding the new First-Time Home Buyers Incentive (FTHBI).

Affordable home ownership is a pressing concern for many young Canadians. This program was designed to help you without undoing the progress we’ve already made through measures that prevent excessive borrowing and limit house price inflation.

Like other Budget incentives, the proposal requires some government approvals. We also plan to consult with lenders and other industry participants to make sure the program works as intended. As a result, we still have work to do. While we can’t yet share all program specifics, we can nonetheless elaborate on the program’s intent and some of the rationale behind its design.

A partner for your home purchase

The FTHBI is a program that will assist qualified first-time home buyers without adding financial burden. As there are no monthly payments, it will free up income to pay for other everyday expenses. Unlike some of the other assistance programs tried in the past, the FTHBI will also require borrowers to meet minimum insured mortgage down payment requirements, ensuring they are invested in their purchase.

Supply measures moderate price growth. By doubling the incentive for purchasers of new homes, it encourages new supply to meet housing demand.

Indeed, by helping first-time home buyers purchase homes, we will free up rental supply, easing pressure on rents. This, along with the expanded Rental Construction Financing program, will add to the supply of affordable rental housing. Core housing need is four times higher among renters among homeowners. (26.4% versus 6.5%)

Targeted to avoid increasing house prices

We have carefully targeted the FTHBI to help younger Canadians having trouble affording home ownership. The program is capped at $1.25 billion over three years. The incentive will be limited to households with a maximum combined income of $120,000 and total borrowing is limited to four times income.

We do not expect the FTHBI’s inflation effect to be beyond a maximum of 0.2-0.4 per cent.

Limiting house price inflation will keep housing more affordable, more so than some of the other suggested policy and regulatory changes. For example, a reduction of one per cent in the mortgage insurance stress test or an extended amortization limit of 30 years would have added to indebtedness and resulted in house price inflation of five to six times more than this maximum.

Available throughout Canada

Despite the income and borrowing limits, we are confident this program can work in all markets, including Vancouver and Toronto. The average insured home in Canada is worth $284,000, less than the national average house price of $470,000 and this program applies up to a house price of $505,000, assuming a 5% down payment. However, we shouldn’t confuse market average prices ($1 million in Vancouver and $770,000 in Toronto) with starter home prices.

It may not be a condo in Yaletown or a house in Riverdale, but there are options in both metropolitan areas to accommodate this program. In fact, around 23% of transactions in Toronto are for homes under $500,000 and 10% in Vancouver. It is very difficult to estimate the demand for the Incentive; however, based on last year’s activity — more than 2,000 home buyers in Toronto would have been eligible for the FTHBI and over 1,000 in Greater Vancouver.