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Finance Minister Bill Morneau said the government was trying very carefully to tweak policy to create more first-time home buyers without juicing the market too much.

“We’re exactly dealing with the challenge people face in getting into a new home,” Morneau said.

Photo by National Post

Under the $1.25-billion incentive program, prospective buyers who have the minimum down payment for a home can apply to finance between five and 10 per cent of their mortgage via a shared equity program administered by Canada Mortgage and Housing Corporation (CMHC). The 10 per cent cap applies to newly constructed homes.

Morneau said the larger credit on new homes should help increase the supply of housing in cities such as Toronto and Vancouver, where demand has caused prices to skyrocket. The money from the incentive program would eventually need to be repaid, but details about that process were not released.

The government is also increasing the amount that first-time buyers can withdraw from their RRSPs, from $25,000 per individual to $35,000 — or $70,000 per couple. That limit hasn’t been adjusted for 10 years, despite consistent growth in the housing market.

The finance department hopes legislation for the new program will pass in time for a September launch.

Some critics say the measures could actually make the affordability problem worse. “It’s more debt for a segment of the population that doesn’t need any more of it,” Francis Fong, chief economist with the Chartered Professional Accountants of Canada, said.