Canadian real estate went from boom to bust—but the biggest risk lies ahead. Ontario is the latest province to offer rebates for first-time buyers of new homes, building on recent federal incentives. Framed as affordability, these programs resemble US housing bubble schemes—designed to shift risk from investors to families, who absorb losses rather than default. In Canada, first-time buyers now appear to be the exit strategy for investors and lenders increasingly propped up by inflated appraisals.
Ontario Joins Ottawa’s HST Scheme For First-Time New Home Buyers
Ontario just announced a new HST rebate for first-time buyers of new or “substantially renovated” homes. The program rebates the 8% provincial portion of HST, up to $80,000, and stacks on top of the existing Ontario HST rebate of up to $24,000—which isn’t limited to first-time buyers.
It builds on Ottawa’s First-Time Home Buyer GST/HST rebate announced back in May, rebating the 5% federal portion of sales tax under similar terms. Ontario joins BC, Quebec, Saskatchewan, and Nova Scotia—bringing the total to five provinces with provincial and federal relief. Alberta has no sales tax. The four remaining provinces only benefit from Federal relief, but may announce provincial programs in their fall budgets.
Sounds a little too generous? That’s what US first-time buyers thought when similar demand-generating schemes were rolled out during its housing bubble. If history serves as a guide, it should now be crystal clear that free money is rarely just a gift—unless you’re an insider or former politician.
Canada Is Embracing US Housing Bubble-Style Demand Stimulus
The buyer stimulus is known as demand inducement schemes—or capital cushioning—tools to lure late-cycle buyers. They’re framed as risk mitigation, but the real question is: whose risk is being mitigated?
Canada is taking a page directly from the US housing bubble’s playbook. From the early 2000s to mid-2010s, US policymakers—and the predatory lenders who love them—used inducement schemes to shift homes from “low-use” owners (investors) to “high-use” ones (families). Here are a few notorious examples.
The American Dream Downpayment Act (ADDA), launched in 2003, offered up to 6% of the purchase price. Rolled out after mortgage lending tightened, it was pushed by industry lobbyists to keep credit flowing—recklessly. It’s now seen as a key precursor to the housing bubble that wiped out record household wealth. The kicker? The firms that lobbied for the program got bailouts. Buyers got the losses—plus they’re stuck with the cheque for the bailout. Risk mitigation, amirite?
In 2007, with home prices down a shocking—uh, 5%—then-Fed Chair Bernanke declared the crisis “contained.” Soon after, the First-Time Homebuyer Credit (FTHC) launched, offering up to 10% of the purchase price. It briefly boosted sales, shifting homes from investors to families. But the real benefit was slowing price declines—families with underwater mortgages can’t sell as easily as investors. Risk mitigation.
Then came the California New Home Credit (2008), Florida’s FHFC Program (2008-2012), and the list goes on. After investors drove prices to unsustainable highs, policymakers needed someone to hold the bag—enter first-time buyers, framed as a solution to housing affordability. Risk mitigation? Bingo—the goal was offloading risk, or in financial terms: finding the greatest fool.
Canadian Policymakers Want YOU—To Absorb Investor Risk
The predatory nature may seem coincidental—unless you know what actually happened during the subprime crisis. Nearly a decade later, researchers found the data didn’t match the narrative of subprime borrowers buying too much house. Subprime borrowers performed as expected. The surge in defaults was investors with high credit scores who used subprime lenders, as they extended more leverage with fewer barriers.
This makes sense when considering what a recession means to households: unexpected job losses, surprise bills, unfavorable financing, and general economic instability. It’s a shock to the average Middle Class household, but just a routine Tuesday for the poor—which makes the latter an ideal capital cushion to soften the impact for investors.
This isn’t just about class—it’s about financial sophistication and resources. Sophisticated investors hedge risk, which can leave lenders with losses. End-users can’t. First-time buyers who needed help and are underwater would need to save just to sell. They have to ride out negative equity, often at the expense of their long-term financial health. They aren’t broke, broke is aspirational at this point—they would need to save to get there.
Even the US Federal Reserve flagged this issue. By late 2009, CoreLogic found 23% of American mortgages were underwater using market appraisals. By Q4 2012, Zillow reported 27.5% had negative equity—on average owing 42.6% more than their home’s value. That’s staggering considering home prices fell “only” 23%, suggesting these buyers either entered with inflated appraisal values, had to use high-rate financing, or both.
And now, Canada is setting up a similar trap.
Canadian Lenders Increasingly Reliant On Inflated Values To Close New Home Sales—It’s Perfect For First-Time Buyers
The price of a typical Toronto condo apartment as a share of new condo prices. Policymakers want to help first-time buyers purchase the latter—for affordability?
Source: CREA; Better Dwelling.
Canadian home prices peaked just over three years ago and have since fallen sharply—especially in high-priced markets like Toronto, where investors made up over 70% of buyers until new home sales collapsed to record lows. Many are now struggling to close, forced to top up down payments after the correction wiped out much of their equity.
In response, lenders are increasingly relying on blanket appraisals for new homes—treating the original purchase price as market value for financing. It’s a problem the bank regulator has acknowledged, but lacks the power to act. While it sounds like a good deal for buyers, they risk ending up with much less equity if they need to sell.
Canada’s policymakers are now ready to pour billions in taxpayer funds into helping first-time buyers snap up the new homes investors no longer want. Homes propped up by inflated appraisals to help peak speculators close, now skewing real values. In short, they’re looking for less informed buyers willing—or fooled—into absorbing the long-term loss.
Risk mitigation, eh?
To be clear, this isn’t a warning against buying a home. Many first-time buyers are ready, after having sat on the sidelines for years. But it is a warning to look past incentives and assess the real value, and maybe seek some professional help. Buying into an overvalued new build could turn years of planning and sacrifice into a long-term financial drag.
It’s also worth considering the resale market, which now trades at a steep discount compared new homes. Many of the listings are from recently completed buildings, and look barely used. Apparently, investors didn’t want them. It’s a mystery why.
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