The election writ was dropped on Sunday, March 23, just one day before parliament was scheduled to resume. With the election scheduled for April 28, we expect to hear numerous proposals on how the federal government can address the housing crisis. Below, we examine two recent proposals from BC.
Addressing the down payment hurdle
Saving for a down payment remains a significant challenge for aspiring first-time homebuyers. According to RBC’s latest Home Ownership Poll, 62% of respondents say financial support from family is necessary to buy a home, while 19% have or will need to buy a home with their parents or other family members. However, that support may not be available, as 39% of respondents express a desire to provide financial support for housing or rent but cannot afford to do so.
In an op-ed for the Vancouver Sun, Jeff King, CEO of Greater Vancouver Realtors, highlights his organization’s proposed solution to this challenge: creating a community bond to help buyers secure their down payment.
The proposal works as follows:
- Investor participation – Canadian residents or corporations could invest in the housing bond using additional tax deferral room provided by the federal government.
- Investment management – Funds would be managed by a large, trusted entity such as CMHC or a federally regulated bank.
- Homebuyer support – The accumulated bond investments would act as “collective equity” to reduce the down payment required for qualifying buyers. This would lower risks for lenders and make home ownership more accessible.
- Social impact – Investors would earn a modest return while supporting a program aimed at helping more Canadians achieve home ownership.
Would this proposal work?
The illusion of this proposal is that it appears to treat equity as debt. In a typical home purchase, a down payment represents a home buyer’s initial equity contribution. To reduce the down payment, additional equity must come from another source, or the home buyer must be allowed to make a smaller down payment and take on a larger mortgage. The first approach, however, has not been well-received by homebuyers. CMHC launched a shared equity program in 2019, but by 2024, the program was discontinued due to poor participation levels from potential homebuyers.
Under the community bond program, the funds must be deployed as either equity or debt to finance the home purchase. If treated as debt, the funds effectively act as a second mortgage, but borrowers already face gross and total debt limits for high-ratio insured loans. If the funds are treated as equity, it is unclear how the investor would be compensated. Would they hold a partial interest in the home and receive their initial investment, plus any gains or losses, when the home is sold? Or is it a loan—if so what would the term and interest rate be? None of this is clear in the proposal, which only offers a high-level overview.
While it’s encouraging to see efforts being made to address housing affordability, particularly the down payment hurdle, the proposed solution doesn’t quite add up. If this is a form of social giving, there may be people willing to provide funds, but they are likely to prioritize friends and family first.
Encouraging foreign investment in the presale condo market
Bob Rennie, a prominent condo developer in Vancouver, has been advocating for Mark Carney to encourage foreign investment in rental housing development. The condo market in Toronto, and to a lesser extent in Vancouver, is facing a shortage of preconstruction buyers. Traditionally, these buyers have largely been investors who purchase these units as rental properties. The capacity to build more housing, particularly condominiums—which serve as starter homes for many first-time renters and home buyers—depends on the strength of the investor market.
On a recent episode of ConversationsLive, Rennie outlined his proposal: “[I’m]… working with Carney, surprise, and I’m trying to get a rental program in where people can buy, put it into a 25-year pool, a preferred rate from the CMHC, and let’s allow foreign buyers to buy it, they have to rent it out for 25-years, and it will show the world we are open for business.”
This proposal seems to mirror the Apartment Construction Loan Program managed by CMHC, where long-term, low-rate financing is offered, and the borrower agrees to meet affordability targets as part of the project’s design.
For this kind of funding to be effective, it would likely need to be managed at a building level, rather than on a per-unit basis. An arrangement could be made where there is a general partner overseeing the project and investors act as limited partners.
While capital is certainly needed to build more affordable housing, gaining public acceptance for targeting foreign investors may be a tough sell. That said, Toronto and Vancouver will face challenges building more condos until more presale buyers are found or alternative funding solutions are identified. As we noted in December, CMHC has supported condo construction financing in the past. What sets this proposal apart is that it doesn’t require presales as a condition for financing. Mr. Rennie believes that foreign investors are critical to restarting investment activity. While foreign buyers have certainly been an integral part of the condo market, a simpler solution might be to allow them to purchase new condo developments as presale buyers. There is a precedent for this approach: Australia bans foreign buyers from purchasing existing homes but does not prevent them from buying new construction homes.
Independent Opinion
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