1970- Innovative Low Cost Housing Plan- Federal plan aimed at low income housing
($200 million). Funded nearly 10,000 low income ownership units.
1970- Lenders were allowed to make high-ratio conventional loans providing they were insured by a private or public mortgage insurance provider.
1971- Assisted Home Ownership Program- $100 million program provided loans at below the CMHC direct lending rate. Borrowers taking advantage of this program also could chose longer amortizations.
1971- Amendment to the Income Tax Act that excluded principal residences from capital gains tax.
1972- Gross Debt Service Ratio increased to 30 percent from 27 percent. Also, before 1972, only half of spouses income used for GDS ratio. Now all income used.
1973- Assisted Home Ownership Program ( AHOP) 5 per cent down, 35 year amortizations, lower interest rates for first time buyers. 8 percent interest rates, compared to 11 percent for conventional loans. By the mid 80's, 11% of these loans defaulted.
More on the Assisted Home Ownership Program.
From John Miron, House, Home, and Community: Progress in Housing Canadians, 1945 -1986
AHOP was a brave and and pathbreaking departure; it married large initial monthly subsidies to a mortgage design that differed radically from the standard, and it made new home ownership accessible to more families. Under AHOP, initial monthly payments on a new dwelling unit were cut by the use of a mortgage payment design under which payments gradually increased over time. Underlying this design were the assumptions that the rate of inflation would not fall, that the inflation premium on interest rates would not change upon rollover, that incomes would rise with inflation ( hence, the payment-to-income ratio under AHOP would remain affordable), and that house prices would rise ( hence home owner's equity would not fall)
These assumptions were not realized. This bad luck with imperfect design resulted in more defaults than had been foreseen. Of the 161,000 units funded by assisted home ownership programs over the period 1970-8, some 18,000 had defaulted by 1985, an 11% rate.What most people do not realize is that in 1983 the minimum down payment increased from 5% to 10% in response to the unprecedented volume of claims on CMHC's Mortgage Insurance Fund. Very high interest rates and the AHOP program were factors in the large volume of defaults at this time.
While no one can properly predict the future, we have ample evidence in the past that assisting people into home ownership that had trouble getting into home ownership by themselves, has not always worked as planned.
While there is not a national assisted home ownership plan, almost every city in Canada with a population over 30,000 has partnered with CMHC to "help" people into home ownership. In Saskatchewan we even have Moose Jaw with an affordability problem. And of course in Saskatoon we have the Mortgage Flexibility Support Program
The people using this program are people who are of lower income and first off the chopping block if the labor market turns sour. The more people that are "helped" into home ownership, the more that the housing market becomes vulnerable.
So are we repeating the same mistakes as before?