Tweaking the market

The Province of British Columbia has implemented a program to assist first time home buyers in the BC real estate market: Real estate pros see risks and opportunities in B.C.’s no-interest loan scheme. The form of assistance that the government has decided to adopt is a slow amortization interest-free loan. You can see from the article that I have linked that there are mixed reviews of the program out in Shangri-la. I don’t get it. Really, the issue continues to be one of Canadians taking on too much debt. We are world class borrowers when it comes to personal debt, no one can beat us. So here we have the provincial government encouraging more borrowing.

This is politics as usual. Rather than addressing the issue of affordability, increasing the supply of housing, the government decides to add more fuel to the fire. Make it possible for buyers to buy what they otherwise cannot afford by offering them more debt. Genius! offering loans to first-time buyers just as the BoC issues a debt warning is another indicator of how screwed up this country is. Instead of working towards reducing the levels of personal debt, give them some more.

The fact of the matter is that when lenders look at these first time home buyers, they will notice the fact that they have some additional debt to carry regardless of whether or not it’s an interest-free loan. Remember that at current interest rate levels even assuming a 5% interest rate translates into annual interest saving of less than a couple thousand dollars or about $150 per month. If this makes or breaks you, well you are in trouble already.

Politics trumps common sense. But who ever accused our politicians of having common sense. Not I! Get the cost of housing down and stop monkeying around with half-witted schemes.

Here is an excerpt from another article that summarizes the point bang on:

Yet just two weeks earlier, the head of Canada’s housing agency warned against the wrong kind of help.

“Ample support exists already for first-time homebuyers,” Evan Siddall, president of Canada Mortgage and Housing Corp., said in a speech in Vancouver. “Too much encouragement to buy homes exposes vulnerable people to excessive financial risk, pushes prices higher where acute supply inelasticity exists – like here in Vancouver – and jeopardizes our economic prospects.”