Subsidy to build new houses is a bad idea.
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 long-term 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 same will be true here.
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.
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 comparable years will realize a capital gain of 16% as the 40% original subsidy will be covered by the unit's "market price" at the time of sale and 40% of a 40% increase in price is 16%.
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.
Note that the median price of a newly constructed house is down 10% from the rarified height it reached in late 2022 and that the median price of an existing house is at its all-time high. (Between 10% and 25% of houses sold are estimated to be newly constructed, the rest being existing houses.)
The actual price the NDP subsidy to "help middle-income homebuyers" pay for a newly constructed house 40% from the province, 60% from the buyer amounts to its "market" rate, conveniently propping up the flagging price of newly constructed houses.
Many finance sector interests not least municipalities, whose budgets depend on property taxes benefit from policies that prevent house prices from correcting, but it is households struggling to make their mortgage payments and rents who keep the party going .