Behind the BC Liberals’ Taxpayer Sponsored Down Payment Loans

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The recent introduction of the B.C. Home Owner Mortgage and Equity partnership, a measure by the BC Liberals to help first time home buyers by providing zero interest loans to help with a portion of their down payment, was immediately panned by economists, commentators, and the opposition NDP.  Conversely, it was immediately (and curiously, in one case at the lighting speed of only 22 minutes following the official news release of the measure) praised by mortgage lenders, realtors, those in the construction industry, and the usual BC Liberal cheerleaders.  This initiative, as many have correctly pointed out, appears to be very ill-conceived (at best).  I won’t belabour that point as it has been made well elsewhere (see here,   here, here, and here).  What I do think has been missing from the discussion of this initiative though is an evaluation of the various potential factors behind the move (beyond it being an obvious election goodie for the upcoming election) and ultimately the exact intention of the move.  In that vein, I would like to point a few potential reasons as to why the BC Liberals have chosen to do this particular move at this particular time.

First, let’s consider the larger economic context of this move for the moment.  If addressing housing affordability was truly the reason behind this move, it appears very much that market forces appeared to be taking care of that by itself all on its own.

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Real estate sales were definitely slowing (plunging as much as 37% in Vancouver in November year over year) and house prices have been consistently trending downwards since their overheated peak, and would have likely have kept dropping if left to market forces.  In addition, many have suggested that the 15% tax had the desired effect in cooling the overheated market.  Perhaps a little too much.

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And at a rather an inopportune time for the BC Liberals and the BC economy to be sure given the impending election.  And that is perhaps one of the main reasons for this particular move at this particular time.  Let me explain.

It has been no secret of the past few months for anyone actually paying attention that the real estate and construction industries have been the only thing really supporting/propping up the BC economy with construction and real estate activity in the Lower Mainland specifically largely propping up the economy and masking massive job losses elsewhere and in other sectors of the economy (for example, due largely to the overemphasis on the “Trillion Dollar Bonanza” LNG industry, the unemployment number in the Northeast is now over 10% and if it wasn’t for the unnecessary government sponsored make work project [namely Site C], it would be much, much higher than that) (see below).

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As such, it is pretty clear that the last thing that the BC Liberals need or would want right now heading into an election is a failing economy and a sharp rise in unemployment numbers.  It is also no secret that the BC Liberals have now become addicted to the property transfer tax windfall, creating a surplus that can be used to fund pet (read political) initiatives such as this.  Moreover, this initiative can also be seen as a counter measure to placate the real estate industry by simultaneously paying them back for their generous donations,

placating them after their vociferous complaining regarding the 15% foreign buyer tax, boosting the sagging real estate market still reeling from the introduction of the 15% foreign buyer tax, while at the same time propping up the economy artificially.  Combine all that with the suggestion that the polling numbers for millennials, many of which are unable to purchase a home (those more likely to support the BC Liberals), must be really, really very bad and you have what the BC Liberals might consider a winner.

The B.C. Home Owner Mortgage and Equity partnership has been facetiously spun by the BC Liberals into a “who wouldn’t want to help first time home buyers?” but this is clearly not the way to do it: by providing essentially subprime mortgages to people who currently can’t afford down payments so that they can overextend themselves (thereby running completely counter to the intent of the recent initiatives brought in by the Feds via the Bank of Canada aimed at halting rising debt loads).  It also basically amounts to a $700 million windfall for developers and makes everyone in B.C. indirectly a participant/investor in the Vancouver Real Estate market.  This initiative appears to be at least in part a rather disingenuous political move on the part of government to appear to be doing something (read anything) to support those priced out of the market after neglecting the runaway real estate market (which primarily is the result of a lack of supply, geographic restrictions, loose regulatory oversight, and the infusion of offshore speculation and investment) for the past 15 years.  The true intention of this move however is to prop up real estate prices (read protect the equity of homeowners) which in turn will presumably encourage more and more construction, which will in turn keep the tax dollars rolling in and the economy artificially propped up by while retaining construction and construction related jobs, etc., etc.

Is this initiative a form of market manipulation?  You bet it is.  And nothing says “Free Enterprise” more than interfering in the open market using taxpayer supported subprime loans.  I swear if I hear one more person pontificating that the BC Liberals are the “Free Enterprise Party”, I will scream because by definition they are anything but Free Enterprise.  In fact many things that they do would in fact be considered socialist by outside observers.socialism

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The BC Liberals are now portraying the BCNDP opposing the program and threatening to cancel the program if elected as just another “No”, like they give for all other types of developments (i.e., Site C, PNWLNG, etc.), the “No Development Party” if you will.  First of all, I would like to point out that it is parliamentary tradition on the part of the opposition party to provide alternate viewpoints to the government of the day.  That is their job and that is why they are called the opposition party.  Really, does anyone really think that if the BC Liberals were in opposition that they would be saying “Yes” and supporting every initiative that the BCDNP would make?  Please.  I think not.  Second of all, I do have to say that if the BC Liberals would stop putting out ill-conceived, climate-destroying, and indigenous rights trampling ideas and policies then perhaps people wouldn’t often be so quick to oppose them.  I do wonder if that ever occurred to them?

Edit: The same day that this post was published, an article on Canadian Business appeared also suggesting that the real purpose of the loan was to prop up housing prices rather than help a narrow group of First Time home buyers.  It’s not just me then seeing it this way.

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In addition, again on the same day Bill Tieleman published an article also criticizing the initiative suggesting that the BC Government has become basically a “pay day loan company” as the 0% interest rate is only at 0% for 5 years.  After that, it becomes 0.5% plus Prime meaning that you will be paying 2022 interest rates for money borrowed back in 2017 at likely a far higher rate.  Some deal eh? No wonder the BCNDP and economists want to scrap this.  It is quite clearly a bad deal.  This is a huge misstep for the government and they can’t even see it (or refuse to see it as the party is always right don’t you know).  I have seen many fiscal Conservatives criticize this initiative but curiously no one associated with the party itself has even tacitly suggested that this may not be the best plan.  Reminds me of the dying days of the Federal Conservative party under Harper when ill-advised initiatives came out fast and furious and no one had the testicular fortitude to question them.  It was the party right or wrong.  And that didn’t turn out well did it. Just saying.  I’ll leave the final words on the topic to Rich Coleman who suggests that academics don’t live in the real world (although last time I checked they had to get mortgages too).  Nothing like bashing the educated elite.  Now where have I heard that before…

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