Canadians looking for student loan relief have a new ally—Ontario’s real estate industry. The Ontario Real Estate Association (OREA), a trade organization representing 90,000 Realtors, released a new report called The ˆImpact of Student Loan Debt On Homeownership. Many students feel their loans are yet another hurdle to ownership, and the organization has a few suggestions, including what is essentially a trade of student debt for down payment funds.
Canadians Claim Student Loans Are Preventing Them From Buying A Home
The report was conducted by Abacus and asked 1,500 young adults about student debt and home buying. Half the students chosen had no debt, and the results are region-weighted, giving Greater Toronto respondents a stronger voice in the results. That last part may be important when discussing housing costs, since the region is much more expensive than the rest of the province.
Key findings include insights on outstanding credit and home-buying intentions. Students with more than $5,000 in student debt tend to claim the debt makes it difficult to save for a home. Students with debt hold about $14,500 on average, and most plan to repay it within 5 years.
As for home-buying intentions, most (75%) plan on becoming homeowners. Despite this, only 3 in 10 were optimistic about their ability to buy. Half of the young adults see themselves stuck living with their parents for at least another decade. Then there’s the outflow issue—over 2 in 5 (42%) plan to move to another province due to affordability.
A few immediate questions come to mind. Is 5 years that much of a burden? Are borrowers struggling to repay an average of $15k already for a mortgage at current values?
National Bank estimates it takes an average of 24 years to save a down payment in Greater Toronto at the current price level. Historically, the average since 2000 has been 6 years, largely boosted by recent data. Would $15k reasonably close this gap?
The answer to most of these questions is “probably not.” However, they do have a few suggestions, so let’s check them out.
Subsidies. Subsidies. Subsidies.
Most of the OREA recommendations involve subsidies, but a few are based on harmonizing systems and leveraging existing resources.
Federal and provincial subsidies for saving a downpayment.
The first and most surprising recommendation is government matching for the new Federal First Home Savings Account (FHSA). For every dollar contributed to the FHSA, OREA suggests a dollar of student loan debt is forgiven. It effectively translates into taxpayers indirectly providing downpayment funds, making a demand inducement scheme even more powerful. This is a surefire way to provide upward pressure on home prices since inefficient markets absorb incentives.
In plain English? It’s pouring gas on a fire.
Eliminate student interest on provincial debt.
This move would see the province follow the Federal government, and eliminate interest accumulation. It’s an idea that still has a taxpayer cost (the province covers the interest) but leaves the student to decide where the cash goes.
It may have moral benefits, but central bank research found that lower interest costs didn’t translate into savings when it came to home prices, but instead sellers captured the additional funds. Measures to prevent institutions from capturing the additional tuition debt servicing capacity would also have to be made, or taxpayers would just be indirectly inflating tuition too.
Assuming that’s resolved, there’s still the primary issue. If an average of $15k is a hurdle to repay, a mortgage in Ontario is likely to be an impossible task.
Increase the repayment grace period.
Current provincial loan recipients get a 6 month grace period before interest payments kick in. OREA’s findings have led them to suggest more time is needed to find stable employment, and the period should be extended to 1 year.
It’s a relatively low-cost way to help students, but the point that jumps out is, this conflicts with the labor boom narrative that’s helped to drive home prices higher. The narrative is there’s so many skilled and well-paying jobs that Canada has to search the globe for talent to fill the roles… but also, it’s difficult to find employment after graduation? Okay.
Automatic repayment assistance upon tax filing.
Graduates should be qualified for the repayment assistance program (RAP) automatically when filing their income taxes. The RAP covers interest payments for low-income students, but it currently requires an application submission. The automation would help to increase uptake.
Partner with the National Student Loan Service Center to create an online hub
The creation of a centralized repository for provincial and federal student loan information, including costs and repayment.
The last two points make sense, but is this actually the barrier to homeownership?
The issue of student loan forgiveness is two discussions—one of moral obligation and one of business. If society deems the cost of post-secondary necessary, the justification of loan forgiveness makes sense. However, it should require controls that limit the amount institutions can yield from taxpayers, or risk becoming a source for industry to exploit. Public institutions and private colleges, the latter of which have little regulation.
As for OREA’s argument that student debt is the barrier to ownership? It falls flat and appears to be a feeler to see how much support can be captured for further industry subsidies. It’s also a stretch when compared to housing costs. Home prices have increased roughly 60% since 2020—sometimes hitting growth greater than the average student debt over just a single month.
