Charles Ungerleider, Professor Emeritus, The University of British Columbia
[permission to reproduce
granted if authorship is acknowledged]
B.C. NDP Leader David Eby has made a $75 million election promise of loan forgiveness to attract doctors, nurses, and other health professionals to rural communities in British Columbia. The initiative is designed to address staffing shortages that have caused emergency room closures in rural hospitals. Health-care professionals who commit to working in a rural area for at least five years would be eligible for student loan forgiveness ranging from $10,000 to $20,000. Eby emphasized that this program is designed to make rural B.C. a more attractive option for both national and international health workers.
If
elected, the NDP might use the $75 million to conduct a public policy
experiment. Instead of dedicating all the funds to loan forgiveness, the
government might offer health professionals a choice between loan forgiveness
and a mortgage forgiveness system.
There is some evidence that homeownership tends to reduce the probability of homeowners leaving an area compared to renters. This is often referred to as the "lock-in effect," where homeownership creates financial and psychological incentives for individuals to stay in place. One key factor is the significant financial commitment involved in owning a home.
I am writing about this in a blog about education because, like health services, education suffers shortages of teachers in rural and remote areas, and in specialized instructional subjects. Given the costs associated with teacher turnover, mortgage forgiveness may be an approach that school districts might employ to attract and retain teachers.
A variation on mortgage forgiveness is employed by an Ontario engineering firm. The firm has fostered employee loyalty by offering up to $20,000 in down payment assistance for staff who are first-time homebuyers, a benefit that has helped 36 employees since 2021. The program, created in response to housing challenges, has improved employees’ housing security and built long-term retention, as employees must stay with the firm for three years after receiving the assistance.
Homeownership entails mortgage payments, maintenance costs, and property taxes, all of which create a higher barrier to moving compared to renting. Homeowners also face transaction costs when selling a property (realtor fees, moving expenses, and sometimes capital gains taxes). These costs can act as a deterrent to relocation. Renters, on the other hand, typically have fewer financial constraints and transaction costs, allowing them to move more easily in response to changes in employment or life circumstances.
Beyond financial factors, homeownership is also linked to stronger social and psychological ties to a community. Homeowners are more likely to invest in local social networks, participate in civic activities, and develop a sense of emotional attachment to their homes and neighborhoods. This sense of belonging can make it harder for homeowners to consider leaving the area compared to renters who may have less attachment due to the temporary nature of rental agreements.
Homeownership provides stability in housing costs for the owner, especially for those with fixed-rate mortgages. Unlike renters who are subject to potential rent increases or market fluctuations, homeowners with fixed mortgages have predictable housing expenses, which can encourage them to stay in the same place.
In sum, homeowners are less likely to move compared to renters. Financial commitments, social investments, employment-related factors, and stable housing costs all contribute to this dynamic. This suggests that policies encouraging homeownership, such as a mortgage forgiveness program, could help retain professionals in rural and remote areas by increasing their investment in staying for the long term.
To entice professionals to move to rural and remote communities in British Columbia, a mortgage forgiveness system could be implemented, structured over five years with graduated benefits. The program would be directed to essential professionals such as medical personnel, teachers, and other critical roles, offering increasing interest forgiveness for those committing to stay in these areas long-term.
My back of envelope financial model assumes a house costing $500,000, with a 90% mortgage ($450,000) amortized over 25 years at an interest rate of 5%. This results in a monthly mortgage payment of approximately $2,617. Over the 25-year amortization period, the total interest paid amounts to $338,950.
Over the first five years, the total interest paid is $109,200. The mortgage forgiveness schedule would begin modestly in Year 1 and increase each year, incentivizing long-term retention. In Year 1, the system would forgive 10% of the interest paid, or $2,276. This provides a modest relief to help professionals settle into their new community. In Year 2, the forgiveness rate would increase to 15%, covering $3,349 of the $22,324 in interest paid. As the program progresses, the rate increases to 25% in Year 3, forgiving $5,466 of the $21,863 in interest paid. By Year 4, forgiveness would cover 30% of the interest, which amounts to $6,414 on $21,379 of interest paid. Finally, in Year 5, the program would forgive 50% of the interest paid, providing $10,435 in relief on $20,870 in interest.
Over five years, professionals would receive about $27,940 in interest forgiveness, making the program more financially rewarding as they continue to stay in rural or remote communities. The increasing forgiveness rates each year make staying for the full five years attractive, helping to ensure retention of essential professionals in these underserved areas. This graduated model would provide immediate and long-term benefits, balancing modest early support with more significant rewards for continued commitment. Professionals who remain in place receive the full financial advantage, which may help to address the staffing shortages in rural and remote communities.
Without special legislative provisions, the forgiveness program, whether mortgage or student loan, would likely be considered a taxable benefit under CRA guidelines. However, if the forgiveness is structured as part of a government program aimed specifically at economic or workforce development in underserved regions, it is possible that special tax treatments or exemptions could be developed.
If
the government pursues my suggestion that health professionals be given a
choice between loan forgiveness and a mortgage forgiveness system, my
prediction is that those who choose the mortgage forgiveness option will likely
remain in the community longer than those who select loan forgiveness.