Calgary’s ‘Attainable Homes’ Program – “We give you the required down-payment (yes, it’s a gift!). You come up with $2,000 of your own money. You get a $240K home.”

Thanks to ‘Zerodown’ for (aptly, given his handle) pointing out the ‘Attainable Homes‘ program now running in Calgary. The following from their website:

“How it Works”

Over the last few years, housing prices have increased significantly yet Calgarians’ earnings haven’t kept pace. This has created an affordability gap. High rent payments and other monthly expenses leave little to no ability for many people to save for a down-payment and own a home. Attainable Homes Calgary is here to bridge the affordability gap and help hard working, middle-income earners like you, get out of renting and into home ownership.

Our Program

Through our program, we do three things a bit differently in order to provide Calgarians with attainable homes:

  1. We partner with reputable local builders to provide condominiums and townhouses at a price that is attainable for middle income Calgarians. We define ‘middle income’ as having an annual household income under $80,000.
  2. We give you the required down-payment (yes, it’s a gift!) and guide you through the entire purchase process. You will need to come up with $2,000 of your own money as a deposit, which is put towards the purchase price of your home.
  3. We re-invest a portion of your home’s appreciation back into the Attainable Homes program to help other Calgarians buy a home. You have the freedom to sell your home at anytime.

Let’s work through an example:

$240,000 Home at Market Value:

Attainable Home purchase price $220,000
Less 5% gifted down-payment* from AHCC ($11,000)
Your cost $209,000
Your minimum deposit $    2,000
Your mortgage (from lender) $207,000

*the gifted down-payment becomes a forgivable loan.

When you decide to sell your AHCC home, you and AHCC share the appreciation in value (you keep more, the longer you own your home):

Years of Ownership Appreciation to Home Owner
0 – 1 year 0%
1 – 2 years 25%
2 – 3 years 50%
3+ years 75%

Let’s say you stay in your AHCC home for four years and the appraised value is now $254,700.

Market Value of your AHCC home $254,700
Less your original deposit $   2,000
Less your first mortgage amount $207,000
Appreciation $  45,700

Your share of the $45,700 appreciation would be $34,275 (or 75%).
Our share of the appreciation, which we’ll reinvest in the program would be $11,425 (or 25%).
What a great opportunity… everyone wins!

Get on the path to home ownership! For more information or to book an appointment with a member of our sales team, contact us!

Our thoughts:
Not seeing it as sufficient to subsidize mortgage insurance through CMHC, governments are now gifting the down-payments on which those mortgages are extended. This is complete insanity. Leverage upon leverage.
Should anyone who can only come up with $2k ever be given a loan of $207K?
(Sub-prime, anyone?)

Clearly the government is also aiming to support “reputable local builders” and others. See the program’s partners and sponsors.

We note that there is no provisor on the “How it works” page for the possibility of future price drops. Possibly:
Let’s say you stay in your AHCC home for four years and the appraised value is now $140,000.

You still owe $200K on the mortgage.
You couldn’t come up with more than $2K to buy the home, but now you’d need more than $60K to sell it.
You mail us the keys and leave the province.
Everybody wins… (no.. wait..!)”

Homes will be more affordable for all when their prices fall to levels reflecting fundamental values.
Endeavours like the one above simply facilitate citizens overextending themselves to buy overpriced properties.
If the ‘City of Calgary’ understood the situation, and really cared about “middle income Calgarians”, they’d not promote this program.
– vreaa

37 responses to “Calgary’s ‘Attainable Homes’ Program – “We give you the required down-payment (yes, it’s a gift!). You come up with $2,000 of your own money. You get a $240K home.”

  1. “You mail us the keys and leave the province”

    Nope. Did they mention whether or not CMHC insurance is required?

  2. I dunno. That’s a lot to read through. They could use a far simpler layout to advertise this opportunity. Like the following:

    HOW IT WORKS:

    At some point, it doesn’t anymore.

    OUR PROGRAM:

    …is a Ponzi scheme.

    Let’s work through an example.

    On second thought, let’s not, because in any other industry this would be considered pyramiding, which is illegal. That’s why you need to jump on this offer now before it’s gone forever!

  3. And really who can fault anyone here. The permeating meme is financing as an affordability measure, to the point where policymakers are all but blinded from seeing anything else, mostly because any other answers are too great to undertake without dire and coordinated action; in other words close to impossible.

    I hope Greenspan and his flock can sit back and wallow in the fact that someone, somewhere, is taking his mantra to heart after it being thoroughly discredited in his own country. Maybe the Canadians can get it right.

  4. I would guess every city in Canada has something like this.

    Saskatoon has one titled “Mortgage Flexibilities Support Program”
    http://www.saskatoon.ca/DEPARTMENTS/Community%20Services/PlanningDevelopment/NeighbourhoodPlanning/Housing/Pages/MortgageFlexibilitiesSupportProgram.aspx

    The city gives a 5% down payment to eligible buyers.

    The problem with getting marginal buyers into home ownership is that marginal buyers are usually the ones who will be first to lose a job if the economy sours. Most likely, these people live cheque to cheque and the more buyers that enter the housing market this way, makes the housing market that much more vulnerable. If these people can not save for a 5% down payment, how in the heck can they save for home/car repairs, job loss, retirement, illness, divorce, etc? This won’t end well for many highly leveraged buyers.

    I suspect that Canada has more and more buyers that are highly levered entering into the housing market. Since 2007, the average house price has increased from about 300,000 in Canada to about 360,000 now. Interest rates have decreased and consumer credit has slowed to a snails pace. One would think with rising home values, lower interest rates ( this would allow people to pay down more debt) and consumer credit slowing ( not borrowing against the home as much as before) home equity would be increasing

    But home equity has DECREASED from 71% in 2007 to 66.8% as of the 4th quarter of 2011.
    http://tinyurl.com/89qxwta

    To me, this is a sure sign that more highly leveraged buyers are entering the market all over Canada. And the last thing we need is more subsidies for marginal buyers.

    • Kevin, that is the same equity number that I came across on the Canadian Bankers Association website. It is a number that is expressed as a percentage relative to first mortgage debt only though. Total debt registered against homes may be another matter. As I have discovered, when we include Helocs, the true equity value takes a plunge that would make any rider of a roller coaster sick to his stomach. Maybe you can comment if you have good data.

      • The numbers I have from stats canada include all home owners, people with mortgages and people without mortgages. I would love to see home equity numbers for people with mortgages only. That number would be less than 50% I’m sure

    • Hi Kevin,
      Could you provide insight to my post. You make some valid points and I am doing some investigation before I enter into the program.

      Thanks

  5. As a policy goal, getting middle income people from renting to owning is a little weird given the ownership rate at all-time highs (is that statistic true for 25-35 year olds?).

    These would be great institutionally-owned rentals that could provide quality, stability, affordability, and amateur-landlord-proofing without the attendant leverage in vulnerable hands. Why not make projects like this available to some kind of “regulated” residential REIT at 7% cap rate (or is Boardwalk that evil in its current form?). Investors certainly have money to go at that rate (Calgary numbers work much better than yvr) so it doesn’t have to be low income people taking the risk. The political risk is it looks like a subsidy to rich corporations instead of to renters. The city could just own them too, North Van just started doing that in a small way.

    Ultimate question is who wants to own the equity – answer should be one that can afford potential losses and who has a low cost of capital. Bizarrely, individuals have a super low cost, lower than a REIT, because of crown mortgage insurance.

  6. What if you lose 50K on your home after 2-3 years?

    Does AHCC cut you a cheque for half your losses?

  7. What this program is REALLY about:

    (1) The “partner” builder increases the sale price by $10,000 above market; they win.
    (2) The appreciation example leaves out the real estate commission of $10,000 on the purchase (paid by the happy builder) and the $10,000 paid by the owner on sale; the realtors win
    (3) If the property fails to increase in value by the amount of the real estate commission ( or even decreases in value!!!) by the time the owner wants to sell there’s no equity and the owner can’t sell or defaults.
    (4) The risk of any default is on the taxpayer through either this program (it’s funded by the City of Calgary) or CMHC.
    (5) Can anyone explain why all the taxpaying home owners and renters and rental companies (Boardwalk) should pay taxes to support people who can’t save a small down payment?
    (6)Sure CMHC could get a judgment if there’s a shortfall on the foreclosure but what likelihood is there they would ever be able to collect from someone who can’t save even a modest downpayment?

    • ag might have a usa analog for you when he gets to cruising by. this has toxic mortgage asset writ all over it. the business interests involved here have figured (or at least think they have) some way to unload the hot potatoes. it’s probably cmhc. i’d be curious to know how many are left willing to pay $2k to stick nuts in the fire.

      add. when the banks aggressively push helocs on everyone, they obviously assume they will be backstopped. how do they know that?

    • It sounds like these are backed by Genworth. Through this scheme the City of Calgary coughs up most of the DP and is likely subordinate to the mortgage writer and the mortgage insurer. If anything is left over after the vultures pick over the carcass the city gets whatever is left.

      But, as I read it, there is little taxpayer exposure here beyond Calgarians. While prices are still high, it’s not like Calgary real estate has been going gangbusters in the past few years the same way other parts of the country have. This sounds like a ploy to kickstart the construction industry and it sounds like their mayor has been in contact with people in the UK where similar schemes have been in place for at least a year.

      Won’t help IMO

      • Some of us prudent, and I might add fully paid-off, owners in Calgary are taking a 20% increase in property taxes this year and are glad to subsidize the working poor ($80,000???)who are actually making more than us.

        Glad that the ponzi does not discriminate…..

      • That’s the spirit LJ! Taking it like a champ.

    • Hi Amazed,
      Could you provide insight to my post. You make some valid points and I am doing some investigation before I enter into the program.

      Thanks

  8. That kind of leverage for home ownership is insane. Excess leverage was a big factor in the crackup of 2008. What will those proud new homeowners in Calgary and Saskatoon do once rates rise?

  9. Insane. Insane. As I’ve noted, we were living (and renting!) in CA during the boom and initial bust period. This is all so reminiscent that it give me intense deja vu.

    Also… $80k is low enough income for this? I mean, really. At $80k you should be doing pretty well in most places. Well enough, anyhow.

    • Basement Suite

      Not in these times, even for a single person. Yet somehow, there is no inflation, right?

      • Not in Vancouver, you mean. Just about anywhere else

      • Our family income is twice that and we’re not comfortable owning. I think we should be very careful calling 80k plenty of money for a family. Half of the Calgary buyers so far have kids. I completely agree with them that this is a good income bracket to target for help – just not by encouraging late cycle, hyper-extended homeownership.

  10. what’s that saying … the cheese is free in the mouse trap?

  11. This scheme might not be as bad as it sounds. For starters, it has built in flipper proof mechanisms i.e. the length of time one has to wait before selling. This type of project will likely attract owner occupiers who want a place to call home and not a stucco piggy bank.

    Also, the Calgary housing market has something for everyone. Those who want to spend a million can go to places like Bayview. A blue collar family starting off can go to a place like Bowness or some of the neighbourhoods in the NE. Therefore, I doubt if these scheme will really impact prices across the board. Besides Calgary has a great deal of urban sprawl going or with lots of new subdivisions.

    So, if a family could end up paying a mortgage that is not significantly higher than rent I do not see the problem. Mind you these are decent $240k homes and not the overpriced Poco bungalow.

    • Too bad there is no edit feature. The homes that can be purchased under such schemes are in a market of their own and can only help drive down prices in the regular market. Why pay for an overpriced condo by Omni when I can get a low income unit for a lot less. Other cities like Toronto also offer such schemes through organizations such as Options for Homes. These homes are actually built and designed with the low income buyer in mind. Wish vancouver had such projects.

    • “Decent homes?” They are hastily built pressboard shacks with a pretty veneer.

      My friend’s son is working on the project. At 18, he is freshly out of high school, untrained, second in command and is appalled at the workmanship.

  12. I have $2000 rolled up in quarters. Where do I sign?

  13. Unbelievable. I guess the city is not satisfiied that prices have gone nowhere over the past 4 years. Now they want to push prices down. Perhaps it is a good thing if it makes condos and townhouses cheaper. I’ve always wondered why people in Calgary buy a condo when a house is only $75-$100K more. Basically, the polar opposite of Vancouver.

  14. Why don’t bubble cities ever adopt policies that discourage home buying?

    • Those with vested interests make the policies.

    • This scheme shares similarities to public housing boards of Hongkong and Singapore.
      – A housing grant of $30k provided by the government.
      – No renting and a resale levy before the 5-year Minimum Occupation Period is up.

  15. CanuckDownUnder

    “Over the last few years, housing prices have increased significantly.”

    Their definition of few must differ to mine. Calgary house prices peaked in June 2007.

  16. Hello everyone,
    I am a little nervous to post a comment as many of the comments seem hostile. I am “thinking” of joining the attainable homes program. My situation is as follows and I would like your feedback, please no cursing just respectful opinions:
    – 28 femaile
    – Educator
    – Earn $55K/year before taxes
    – Debt load <$35k (Student loan debt- no credit card nor line of credit debt)
    – Savings $2000 (you may ask why so low, just completed a second degree, April/12 and used all my savings- currently working fulltime saving $1400/month )
    – currently renting at $525/month including utilities + $1075 additional expenses ( i..e. groceries, gas, car insurance, renter insurance, health insurance, etcetera). I Will rent at this rate for another 7 months then I will have to move as the property is meant for students.

    1. Why shouldn't I join the program now?

    Currently, the cost of properties is relatively low in comparison to recent years. I am a bit nervous about waiting until next September when I will have about $20K saved and may be forced to buy property at $400,000. I would prefer to buy something at $200,000 and keep my mortgage payments low (i.e. my current rent ($525). I could put a lump sum payment from the $20K on to my student loan plus additional savings and cut the $35K that I owe down to $20K. I would like to pay off my loan within 3 years that way, I could potentially sell my property in 4 years time, be debt free, and take away a good chunk of money from the property appreciation.

    2. If the property loses value then I can live with the consequences of that and stay there longer until the value goes up, but what if I take on a property with a higher mortgage in the 7 month time and it loses its value, then am I not left with a higher mortgage to carry and a higher risk for loss of cash?

    PS Living with parents while saving is not an option. I do not want to move back home and they live out of the province.

    Thanks for your feedback.

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