BC home loan pro­gram bumps prices up by 0.5%

Econ­o­mist says the im­pact could be big­ger

Metro Canada (Vancouver) - - Vancouver - Wanyee Li

A pro­gram in­tro­duced un­der the BC Lib­er­als that gives first-time home­buy­ers an in­ter­est-free loan to help on a down pay­ment has in­creased hous­ing prices by half a per cent, a new re­port shows.

But at least one econ­o­mist says the im­pact may be higher.

In the BC Home Part­ner­ship pro­gram, peo­ple are el­i­gi­ble to re­ceive up to $37,500, in­ter­est­free for five years, if they are ap­proved for an in­sured high­ra­tio mort­gage where the down pay­ment is less than 20 per cent of the home’s pur­chase price.

Nearly 1,400 house­holds took ad­van­tage of this deal in the pro­gram’s first nine-months, ac­cord­ing to a re­port by the BC Real Es­tate As­so­ci­a­tion. One-third of those trans­ac­tions took place in Metro Van­cou­ver and was re­spon­si­ble for boost­ing apart­ment prices in that re­gion by 0.55 per cent and town­home prices by 0.57, ac­cord­ing to the re­ports’ au­thors.

“We found the im­pact was quite neg­li­gi­ble…there were rel­a­tively few sales (in the pro­gram) com­pared to to­tal mar­ket trans­ac­tions,” said Cameron Muir, chief econ­o­mist at the BC Real Es­tate As­so­ci­a­tion.

Condo val­ues in­creased by as much as 40 per cent in some parts of Metro Van­cou­ver in 2017, ac­cord­ing to BC As­sess­ment.

Muir’s team looked at the re­la­tion­ship be­tween home prices and home sales, and mod­elled what prices would have looked like if the sales made pos­si­ble by the pro­gram did not hap­pen.

But Tom David­off, a pro­fes­sor at UBC’S Sauder School of Busi­ness, says that anal­y­sis does not take into ac­count the pos­si­bil­ity that peo­ple who re­ceived an in­ter­est-free loan would be will­ing to pay a higher price than usual.

“Imag­ine if you have five first­time buy­ers com­pet­ing for an apart­ment and now three of them can af­ford to pay more. I don’t see where (the re­port) has han­dled that,” he said. “This method­ol­ogy doesn’t rule out some­thing closer to three or four per cent (price) in­crease.”

About 30 per cent of peo­ple in the BC Home Part­ner­ship pro­gram had less than five per cent down pay­ment prior to re­ceiv­ing the gov­ern­ment loan, ac­cord­ing to the BC Real Es­tate As­so­ci­a­tion.

If in­ter­est rates go up sig­nif­i­cantly, “th­ese (mort­gages) are primed to de­fault — it’s quite likely,” said David­off.

Jen­nifer Gau­thier/metro

Al­most all of the home sales bought in the BC Home Part­ner­ship Pro­gram were for apart­ment or town­houses, ac­cord­ing to the BC Real Es­tate As­so­ci­a­tion.

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