‘Terrible policy’: B.C. housing incentives widely panned by experts
It’s not every day economists agree on something but on Thursday, there seemed to be a clear consensus among Vancouver economic and housing experts that the B.C. government had made a wrong turn.
Thursday morning, Premier Christy Clark announced her government would use income from growing property transfer taxes to effectively get into the mortgage loan business.
Their plan is supposed to make it easier for first-time home buyers to enter B.C.’s hot housing market by using government funds to match down payments up to $37,500, or five per cent of the purchase price, for a maximum property value of $750,000. Clark says it’s an interest-free, 25-year loan with no payments due for the first five years.
An estimated 42,000 households are expected to take advantage of the perk.
The timing of the announcement, just months ahead of a provincial election, also comes several months after the Metro Vancouver housing market began to cool.
Sales have dipped since July while prices across most markets are dropping. Many residents have celebrated the industry’s stagnation after a sizzling three years, where prices grew by as much as 70 per cent, shutting many prospective buyers out of the market altogether.
Many also applauded the 15 per cent foreign buyer’s tax introduced in July that effectively cut demand in the detached home market across Metro Vancouver.
Even Clark admitted the slow down was a good thing.
“The market was incredibly overheated,” Clark said back in September. “I would argue it was distorted, the prices were going up way too fast, and if we have helped slow that down, that’s good.”
But now, experts say the B.C. Liberals’ new plan to aid first-time home buyers will do the opposite of what Clark was previously so proud of.
Global News spoke with four local economic and housing experts who all agreed Clark’s big announcement was a blunder. Here’s their take on what went wrong:
Tom Davidoff, associate professor of strategy and business economics, UBC
“[It’s a] terrible policy. There is of course some benefit to first-time buyers. But a lot of the benefit goes instead to sellers, since the cheap debt available makes people willing to pay more for homes. The share of the benefit going to sellers (and developers) is greatest in markets like Vancouver where too much demand chases not enough supply.
“If the province wanted to enhance affordability, it would have been better to cut income and sales taxes in Vancouver (possibly only income tax for renters to be targeted). Or they could force municipalities to allow more townhomes and apartments in currently single-family zones. That would be addressing supply rather than demand, which is a better choice when there’s too much demand and not enough supply.
“I have no idea who they listened to on this, [it’s] hard to think any economist would judge this to be a good use of taxpayer money.”
A direct transfer of money to Bob Rennie
David Eby, NDP MLA for Point Grey and official opposition housing critic
“This is a direct transfer of debt on to first-time home buyers and money to Bob Rennie and his pals. Nobody believes this government thinks the answer to the housing crisis is more debt for first-time home buyers already struggling with credit card debt and student loans.
“[The government is] selling off massive tranches of public land across the province, even in land-scarce Vancouver, where huge multi-income developments could be built (Jericho, Little Mountain and Oakridge) with incredible first-time buyer opportunities lost forever.”
Joshua Gottlieb, National Bureau of Economic Research faculty research fellow, UBC
“It’s a pretty bad idea. It is counter-productive and if you give people more purchasing power, they will be able to bid up the prices of the homes that they’re looking at, and that price increase will eat up any benefit from the subsidy. The same people who were going to compete for a home at $500,000 are still going to be competing for that same unit, but at a higher price. They’re just going to compete away the benefit. The only people who gain are existing homeowners or developers who benefit from these higher prices.
“This is not going to improve affordability anywhere in the market and if anything will make it worse, for sure in the lower end and possibly creeping up above that $750,000 [cut-off price]. Different parts of the government’s policies really don’t fit together. They claim to want to promote affordability but they want higher prices. Well, higher prices are the opposite of affordability, so it just doesn’t fit together at all.
“There is no way there was any serious analysis done on this. You can see that even from the press conference this morning which claimed that it won’t increase prices. Well, it’s not going to increase supply and it’s supposed to increase demand, so how is it not going to increase prices? There’s something missing in this analysis. There’s no way there was any serious economic analysis.
“It’s pretty rare that there are so many economists who agree on this. It’s just shockingly illogical.”
Not good economic policy
Francesco Trebbi, professor at Vancouver School of Economics, UBC
“It seems to me what they wanted to do was to kind of prop up the market, seeing that it has slowed down recently. That’s going to do it. I studied the financial crisis in the United States and there are some similarities in terms of household debt going to levels that aren’t necessarily sustainable and this goes a bit in that direction.
“I’m not particularly convinced this is a good economic policy at this point.”
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