Subsidy to build new houses.

A Sept. 25, 2024, CBC News article, "B.C. NDP vows to help middle-income homebuyers with 40% financing," outlines a BC NDP plan to deliver first-time house buyers to house builders.

From the macroeconomic perspective, NDP's plan to finance 40% of the "market" price for first-time house buyers shares a flaw with Margaret Thatcher's 1980 privatization of council housing ("right to buy") in the UK.

In the Thatcher case, "first-time buyers" did indeed, as "first-time buyers" will in this case, achieve their "dream" of owning their own house. Those same houses' prices upon sale in the future, however, were (and in this case will be) governed by the "market" (in quotes because there is no inherent necessity to treat houses as financial assets).

Council houses acquired for a song fetched prices, when sold, far beyond the price that fortunate original buyers paid.

The rule according to the NDP plan that when a first-time buyer sells their unit sometime down the road, the 40% of the original purchase price put up by the province must be repaid, plus 40% of any increase in the price of the house, does not prevent that price from becoming decidedly unaffordable for potential buyers in the future, which is precisely what happened in the case of council house privatization.

Historically, house prices in Canada increased 40% in just seven years, for example, from 2010 to 2017. A buyer who holds a unit, therefore, for seven years will realize a capital gain of 16% as the 40% original subsidy and 40% of the buyer (now seller's) capital gain will be covered by the "market price" at the time of sale.

The $1.29 billion per year in financing that the announced plan will provide to qualifying buyers of target houses amounts, in fact, to a pass-through subsidy to builders participating in the plan. Buyers will not even touch their 40% on its way into the hands of participating builders.

One hopes that details of the plan that were not announced will prevent that $1.29 billion from turning up on participating builders' bottom lines but obligate participants in the program to plow their 40% subsidy into the construction of additional housing units.

Best case would be, given the ridiculously inflated "market" prices for houses (which, by the way, the NDP subsidy will support since the actual price of a house – 40% from the province, 60% from the buyer – will be its "market" rate), that participating builders will sell their houses at a discount.

This would generate huge reputational benefit to the industry and could shame holders of existing houses to moderate their demands and actually slow the rate of increase of house prices in BC.(Estimates vary that from 10% to 25% of houses sold are newly constructed, the rest being existing houses.)