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The announcement came at a time when there are signs that the Vancouver housing market had been starting to finally cool off. The most recent Bank of Canada Financial Sector Review had noted a downturn in resale activity in the region after the B.C. government introduced the foreign-buyer tax. That had some calling for Ontario to bring in a similar tax in the heated-up Toronto market. And yet, experience shows that B.C.’s plan to subsidize buyers will only inflate prices again.

Policies supporting first-time homebuyers are specifically designed to raise prices

In fact, policies supporting first-time homebuyers elsewhere were specifically designed with the goal of increasing prices. In 2008, the U.S. Congress passed legislation in 2008 to try stabilizing the housing market’s slide by providing a new refundable tax credit for first-time homebuyers of US$7,500. As housing demand sagged in the financial crisis, the tax credit was increased and even extended to people who weren’t just buying for the first time.

The plan all along was to put upward pressure on prices by subsidizing down payments. The widespread collapse of America’s real estate market was obviously unstoppable, but later evaluations did suggest that the tax credit appeared to shore up prices somewhat because there was a significant fall in housing demand as soon as the tax credit ended, after costing the government considerably more than its original budget.

An initiative by the Australian federal government also resulted in upward pressure on home prices. The First Home Owner Grant (FHOG) scheme was introduced in 2000 to offset the effect of the GST on home ownership. The amount of the grant was boosted between 2008 and 2010 in response to the global financial crisis. One study found the scheme to be a major contributor to housing-price increases and concluded that “the FHOG has been effective in driving home sales and construction … however if the success or effectiveness of the policy is to assist new home buyers into (getting into) the market, this policy may have resulted in the opposite effect.”