Homebuying incentives need to come before the home is bought

From time to time, you hear politicians talking about improving housing affordability by providing tax incentives or tax credits or rebates to first-time homebuyers.

From my point of view as a first-time homebuyer who received a number of different tax incentives/credits/rebates, I can tell you with confidence that this will do nothing to improve affordability.

First, let's look at what goes into affordability. To buy a home, you have to not just actually be able to afford it, but also be considered on-paper to be able to afford it. 

To be considered on-paper to be able to afford a home, you need a combination of down-payment and mortgage that will add up to the price of the home, and you need to have this at the moment you seek approval for a mortgage, which comes before the purchase. 

Your mortgage eligibility is calculated based on your current salary and debt load. The amount of downpayment you have is determined either by having to show proof of your bank balance or having to literally write a cheque, depending on whether you're buying pre-owned or pre-construction.

And, at no point in the process, do they look at any tax incentives or other incentives that might be forthcoming in the next year.

I bought pre-construction in 2012, and the sale closed in 2017. I had about $5000 coming to me in rebates from my realtor and my developer (which I received when the sale closed), and further $5000 in tax credits/rebates/incentives (I forget exactly how they were classifed), which I received in spring 2018 after doing my 2017 taxes.

But affordability was calculated at the moment I committed to the purchase in 2012. I had to get a mortgage commitment letter from a bank, which looked at how much money I had immediately on hand to use as a downpayment, and then plugged my income (and, possibly, my debt - I didn't have debt at the time so I'm not certain) into a mortage calculator to determine how much I could afford on paper.

They didn't look at and didn't care about these rebates that were coming to me. If the bank's total of what they thought I could afford had been $10,000 short of the condo's sale price, they wouldn't have cared if I pointed to the rebates that were coming to me. They had no mechanism to plug the rebates into the spreadsheet they used to determine affordability, which, ultimately, meant that these rebates did nothing to make a home more affordable to me. If that $10,000 had been make-or-break, it would have come too late in the process to make the difference between not being able to buy a home and being able to buy a home.

If governments want to provide incentives to make homes more affordable to first-time buyers, any measures they implement need to come into effect before the point at which affordability is calculated. That might mean delivering the incentive payments earlier. That might mean making mortgage lenders change how they calculate affordability. That might mean fixing the economy so that ordinary people with ordinary jobs can afford ordinary homes with no drama. 

But, in any case, a tax rebate over a year after the sale has closed isn't going to improve actual in-real-life affordability. Incentives to improve affordability need to be in the buyer's hands a the moment affordability is calculated.