Over at Municipal Matters Sean Shaw has an interesting piece questioning the merits of the city (or I suppose any level of government) encouraging or even supporting people who are “unable to meet minimum mortgage requirements”.
I’m sure we could get into a long drawn out political / economic discussion over the moral hazard of any type of subsidy, but I don’t really want things to degenerate to that. I’ve had this type of debate before and it usually ends up with me pointing out the hypocrisy of the ardent anti-subsidy type (that helps average people) supporting subsidies for businesses, farmers, etc.
To me the more important question is whether or not society and our community is better off with it or without it. I have to confess my own personal potential bias here. Years ago my family bought our first house with the help of the Affordable New Home Development Foundation. We received a forgivable grant that covered the down payment on our house. The program we participated in was funded by the provincial government, but was similar to the mortgage flexibilities program offered by the City of Saskatoon mentioned in Sean Shaw’s blog.
I don’t know all the parameters of the City’s program so I’ll speak to the program I actually participated in. Targeted at families who had gross income under $45,000 and had the cash flow to pay a regular mortgage but who struggled to save for a down payment, mainly because it cost far more to rent than to buy.
We still had to qualify for a regular mortgage under the same total debt ratio (TDS) and gross debt ratio (TDS). Like any other borrower, we had to qualify for a 5 year term, 25 year amortization, fixed rate mortgage (at the posted rate). This point often seems lost on those that criticize” loose” mortgage rules like longer amortization periods and lower minimum down payments. Virtually all financially institutions that I am aware of require a potential borrower to qualify for a 5 year, 25 year amortization fixed rate mortgage before they will even consider offering a longer amortization period, different term, a discounted rate, or a variable rate.
Participants also had to participate in an educational component that taught new homeowners all the details of getting a mortgage, debt ratios and the like. Along with the other responsibilities of being a homeowner that renters maybe don’t think of. Property taxes, cost of house and yard maintenance, insurance, etc.
Becoming homeowners also drastically increased how much we care about our neighbourhood and community. I need only look around at my neighbourhood and it’s not hard to pick out which houses are rented and which ones are homeowners with reasonable accuracy. Would I be volunteering for my community association if I was changing neighbourhoods every year or two? Probably not. Did I care about my neighbourhood before becoming a homeowner? Not particularly. I had no vested interest.
Further, based on information I could find at the time we participated in this program, participants in this program (and similar ones) have significantly lower default rates than the general population.
Because of this “subsidy” I was able to have a stable and secure home for my children, save money with a stable and predictable mortgage payment instead of paying rapidly increasing rent and not knowing whether a landlord with evict us or sell the house out from under you. I know more than a few people who have faced that situation over and over again. I have no doubt that this stability and cost savings led to improving my education and allowing myself and my wife to attain long-term, stable employment. That subsidy paid off for the taxpayer too. I think I paid more in income tax last year than the entire subsidy we received. And I’ll probably continue to do so for the next 25 years.
Housing stability was the key to improving my family’s financial well being and increasing our involvement in the community.
The “housing first” model for dealing with homelessness is gaining momentum. This model advocates that getting the homeless into stable housing first, then addressing issues of alcoholism, treatment for mental illness, etc. after. Rather than the traditional model of “you don’t get a roof over your head unless you are sober” model that has worked so well <sarcasm>. This kind of program is effectively nothing more than “housing first” for lower middle income families. And not to dissimilar from what Habitat for Humanity does. Get people into stable housing and the rest will follow.
Sean closes his piece with the question “should the City of Saskatoon be encouraging and financially supporting homeownership for those unable to meet minimum mortgage requirements?”
For the people who were in the program I was part of, and all others I am aware of, the only requirement they have difficulty meeting is the down payment. Especially when rents are rising rapidly and it costs substantially more to rent than to buy.
The answer to Sean’s question is yes. At least for people who are in similar circumstances to mine. I believe the benefits far outweigh the cost, even if some of those benefits are intangible. “Housing First” lead directly to substantial benefits, both for my family and for the community. Unfortunately for some, if you can’t put a dollar value on it, there are no benefits. I don’t think Robert F. Kennedy would agree with the latter.