Benefit or boondoggle?

Photo: The Canadian Press

Economists are panning the British Columbia government's recent pledge to help first-time homebuyers get into the housing market by pitching in for the down payment.

Experts say the policy could end up doing more harm than good, boosting demand — and therefore prices — by encouraging even more people to vie over the same number of homes.

B.C.'s Home Owner Mortgage Equity Partnership program would provide loans that are interest-free and payment-free for five years to residents buying their first home, capped at five per cent of a property's purchase price to a maximum of $750,000.

Thomas Davidoff, an economist at the University of British Columbia, says the announcement sends mixed signals to the market because it counters the federal government's move earlier this year to tighten mortgage lending restrictions, which was intended to cool Canada's already piping-hot housing market.

Joshua Gottlieb of the Vancouver School of Economics says instead of promoting home ownership, the province's policy promotes owning a small fraction of a home while taking on big risks with borrowed money, a risk that taxpayers could be on the hook for if buyers default on mortgage payments.

Representatives of the real estate and construction industries applaud the measure, including Neil Moody of the Canadian Home Builders' Association of B.C., who says anything that helps young people get into the housing market is a good thing.