Analysis by Alex Johnson
The Saskatchewan Party may have missed the mark with their proposed Graduation Retention Program, aimed to keep post-secondary students living and working in the province. At first glance it looks like graduates will benefit from the incentive, but the real winners are existing homeowners, realtors, and lawyers.
Brad Wall announced that GRP recipients will be able to use up to $10,000 of their unused $20,000 non-refundable tax credits towards the down payment on their first home. The loan will be forgiven if they own the home for four years. Couples buying a house together will be able to pool their credits. If the Sask Party is re-elected, the program is set to begin on May 1, 2016.
Since 2006 the GRP program, has provided more than $200 million in benefits to 58,000 students who have stayed in Saskatchewan after graduation, according to the government of Saskatchewan. The new incentive will cost $900,000 in the first year, $1.8 million in the second year, $2.7 million in the third year, and $3.6 million in the fourth year.
The targeted audiences for this program are students and parents. It’s a gamble: Stats Canada reports that young people are the least likely to vote in an election.
Election experts interviewed agreed that targeting the younger voting demographic (ages 18 to 24) with this proposal is a good idea. Buying a home after graduation is a new cultural phenomenon.
“This is not the way it used to be. I know I had to save up a down payment for my house. I had to wait. I had to live in apartments for a while. Now we see the expectation changed, and because of the political process you’re going to get a change in policy to meet that expectation,” said Jason Childs, associate economics professor at the University of Regina.
Even with an economic downturn, jobs for grads are still relatively easy to come by, especially in government and education. But buying a home is tough.
From a political stand point, this is a good move for the Sask Party. The government listened to concerns of residents, implemented a plan and offered aid.
But will it keep grads in Saskatchewan? Since the GRP was introduced in 2006, Saskatchewan’s population and employment opportunities have increased.
Data shows economic growth for Saskatchewan, but the problem is we do not know if graduates have stayed because of the GRP or because of increased job opportunities. If better a job pops up elsewhere, will they move? Are those shopping for homes the type to leave or are they committed to saying?
Although there are benefits to the program, students are not the ones gaining financially from the GRP loan. Existing homeowners, realtors and lawyers are the real winners.
Realtors provide a more timely way to sell homes, and are paid based on commission of the sale price. Traditionally, the commission is anywhere between one and six per cent, split between the buying and selling agents.
Hiring a lawyer is essential in the process of purchasing of a home. They are the ones who sign off on the purchase.
Economics 101 teaches many university students the basics of supply and demand. With an increase of potential homebuyers in the realty market, the price of housing also increases.
A flood of students increasing the demand for homes with access to a $10,000 down payment loan will increase the prices of properties around the province.
The GRP $10,000 home down payment will ease the burden that students face when purchasing a home. However, it’s unclear if this plan is more of a subsidy for those students who want to purchase homes right away than a way to keep graduates in Saskatchewan. In any case, at least some of the financial spin-off will remain within the province, and is perhaps part of the gamble, too.