Mr. Speaker, I am pleased to speak today on budget 2019, a budget that makes it easier for Canadians to thrive and join a prosperous middle class.
Housing affordability is a large part of this budget. That is because Canadians have told us that the rising cost of housing is one of the biggest barriers to getting ahead in life. Housing supply has not kept up with demand, which has driven up costs to the point where an adequate place to call home has become out of reach for too many families. This means they do not have the safe, stable base they need to find work, study, raise their families and contribute to their communities.
This is why our government developed a national housing strategy, which includes a number of initiatives to boost the housing supply, focusing primarily on the needs of the most vulnerable populations. These programs are already having an impact on communities across the country by giving more Canadians safe, affordable rental homes. In fact, budget 2019 includes an expansion of the successful rental construction financing program, which will add significantly to the rental housing supply and, in turn, bring down the cost to rent.
Today, I want to speak about an innovative program in the budget that makes it more affordable for young Canadians to buy their first homes. While it is true that whether one rents or owns it is still a home, many Canadians aspire to own their own homes. When first-time homebuyers purchase a home, it frees up even more rental supply and leads to lower rental costs for those in housing need.
Unfortunately, for too many Canadians, home ownership is increasingly out of reach. Beginning in September, the first-time homebuyer incentive will help more young Canadians buy their first homes by reducing their mortgage payments. Eligible buyers who have the minimum down payment required for an insured mortgage will be able to finance a portion of their home purchase through a shared equity mortgage with the Canada Mortgage and Housing Corporation.
The new program will provide funding of 5% of the purchase price for existing homes and 10% for newly constructed homes. Rather than making ongoing monthly payments on the shared equity portion of the mortgage, the buyer would repay the incentive at a later date. This keeps monthly costs down for homebuyers so they have money for everyday expenses.
Details of the program are being finalized and will be announced at the end of the year. However, I can tell my colleagues in the House that for families a buying $400,000 home, this program could save as much as $228 per month and up to $2,700 per year per family.
Officials at the Department of Finance and CMHC have worked hard to develop a program that is balanced and achieves our objectives of helping first-time buyers without undoing the progress we have already made through measures that prevent excessive borrowing and limit house price inflation. It does this by focusing specifically on those who need help the most.
Younger Canadians who have a household income of about $120,000 a year or less have trouble affording home ownership. It ensures they do not take on too much debt by limiting total borrowing to four times their income. In addition, to be sure the program does not end up contributing to the house price inflation, we have capped it at $1.2 billion over the next three years. The inflation effect will be minimal, less than 0.5% at the most, if that.
This program will make home ownership more affordable for young Canadians in a way that is more effective than the measures some other people have suggested. Measures like reducing the mortgage insurance stress test or extending the maximum amortization period to 30 years would simply put Canadians into greater debt. The rate of home price inflation would be five to six times greater than the maximum anticipated by the first-time homebuyer incentive.
Finally, by doubling the incentive for the purchase of a new home, the new program will encourage new supply to meet housing demands, which in turn keeps prices down for all Canadians.
This program will work in all markets, including Vancouver and Toronto. Even with a cap of four times the household income, first-time buyers will have the option. It may not be a condo in Yaletown or a house in Riverdale, but there are starter homes in both metropolitan areas that could be purchased using this program. In fact, based on last year's activity, more than 2,000 homebuyers in Toronto would have been eligible for this FTHBI, and over 1,000 homeowners in greater Vancouver would have been eligible.
Budget 2019 will also establish a fund to help existing shared equity mortgage providers scale up their businesses and encourage new players to enter the market. The fund will provide up to $100 million in lending over five years and will be administered by CMHC.
Our support for Canadians trying to purchase their first home does not end there. Budget 2019 also provides first-time buyers greater freedom to invest their RRSP savings by increasing the homebuyer plan withdrawal from $25,000 to $35,000.
We have also proposed the new housing supply challenge. This $300-million initiative will help municipalities and other stakeholder groups to find ways to break down barriers that limit the creation of new housing.
Infrastructure Canada and CMHC will collaborate on designs for the new measures.