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VANCOUVER (Reuters) - First-time home buyers in British Columbia, home to Canada's most expensive real estate market, started applying in small numbers for loans from the provincial government on Monday under a program it says will make ownership more affordable.
The Western Canadian province last month unveiled a plan to provide 25-year loans of up to C$37,500 ($28,480) to qualifying buyers to help with their first down payment. The loans are interest-free and require no repayment in the first five years.
British Columbia has said it would make available about C$703 million over the next three years to help an estimated 42,000 British Columbians buy their first home.
Twenty-nine applications were submitted and eight already been approved, Rich Coleman, British Columbia's minister responsible for housing, said.
The program has been criticized by economists and academics who say it will pile debt onto already financially stretched residents and raise home prices in a region where a supply shortage is the real problem.
Some have said the plan, launched four months before a provincial election, is politically motivated.
"If this program does anything, the only thing it can do is increase demand. It can't increase supply. That puts upward pressure on prices and ultimately harms affordability," said Joshua Gottlieb, an assistant professor of economics at the University of British Columbia.
Coleman said the number of people expected to apply for loans was small compared to the number of homes bought and sold in British Columbia annually. "This is not going to fuel the market," he told reporters.
The provincial government and Vancouver's municipal government have taken several steps in recent months aimed at cooling the red-hot housing market. Prices for a typical single-family home in British Columbia's biggest city surged 19 percent last year to nearly C$1.5 million.
Most notable was a 15 percent tax introduced in August by the province on house purchases by foreigners in Vancouver after many residents and housing advocates complained that international buyers, especially from China, were driving up prices.
The tax has damped sales and led some real estate agents to forecast near double-digit percentage declines this year in prices, which until now have remained resilient.
For prices to become more affordable, however, supply needs to be increased, Gottlieb said.
"The city government should make it much easier to increase density. And the provincial government should pressure the city to do that," he said.
Editing by Alan Crosby and Cynthia Osterman