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A for sale sign is seen in front of a home in Vancouver on Sept. 22, 2016.

Ben Nelms/Reuters

A new report urges the federal government to encourage more home ownership as a central feature of the upcoming national housing strategy.

Canada's home ownership rate stood at 67.8 per cent in 2016, down slightly from 70 per cent in 2011.

The report from the Macdonald-Laurier Institute acknowledges that its recommendations go against the grain of current thinking about how to address concerns about house prices and personal debt loads. Yet it takes the position that governments have gone too far in recent years to address these concerns, depriving many Canadians of the social and societal benefits that come from home ownership.

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"One gets the sense that this overemphasis on household indebtedness in bureaucratic circles is partly a result of looking at the Canadian market through a U.S. lens despite our clear differences," the report states.

Unlike in Canada, the United States allows for tax deductions on mortgage interest. The policy has been criticized by economists and is currently being debated south of the border as part of a proposed tax reform.

The global financial crisis of 2008 began in the U.S. housing market, where risky subprime mortgages were common. Canada's housing market withstood the crisis, avoiding a major spike in mortgage defaults during that period.

The authors of Wednesday's report also express concern that the federal government appears to be overly focused on boosting social housing and is not doing enough to address affordability issues in the broader housing market.

The report is written by Macdonald-Laurier Institute senior fellow Sean Speer, who held senior fiscal policy positions in the Stephen Harper Conservative government, and Jane Londerville, a retired University of Guelph professor who specialized in real estate finance and affordable-housing issues.

Federal officials across several departments have been working for months on a national housing strategy that will be revealed shortly by Jean-Yves Duclos, the Minister of Families, Children and Social Development.

The federal strategy is widely expected to be announced on Wednesday Nov. 22 to coincide with National Housing Day.

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Mathieu Filion, a spokesperson for Mr. Duclos, said the strategy will be wide-ranging and will address both affordable housing and market-based housing.

The strategy has already received a budget of $11.2-billion over 11 years in the most recent budget and the policy document will show how that money will be spent.

Municipalities and social-housing advocates have urged the government to focus heavily on the housing needs of low-income Canadians through transfers for social housing. The Macdonald-Laurier report notes that while those issues are important, social or affordable rental housing represents only 6 per cent of the housing market.

Preliminary reports from the federal government on housing suggest the strategy won't give enough attention to that broader market, they warn.

"It is difficult not to read the [federal government] materials as a manifesto on social housing at the expense of new thinking on how to support home ownership in the market-based part of the housing market," the report states.

The federal government's role in housing is largely through the Canada Mortgage and Housing Corporation. The CMHC provides mortgage insurance for purchases where the down payment is less than 20 per cent of the purchase price.

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Last year, Ottawa required all insured borrowers to prove they could still qualify at the posted five-year rate, which is typically higher than negotiated rates. The federal Office of the Superintendent of Financial Institutions has proposed to extend this stress test to all uninsured mortgages, meaning it would affect purchases where the down payment is 20 per cent or more.

In terms of specific recommendations, the Macdonald-Laurier report urges Ottawa to shelve that plan. It also says CMHC's mortgage insurance fees are too high and lower fees should be considered. Another recommendation calls for existing tax breaks to be repackaged so that they help Canadians save for larger down payments on their first homes.

"We recognize that some economists are critical of using public policy to encourage home ownership. They see it as distorting the market and nudging people into homes that they cannot afford when savings might be put to better use elsewhere. These are legitimate objections," the authors state. "But we do not believe that it is a basis to eliminate housing-related incentives – especially in light of the overwhelming evidence that home ownership is associated with a raft of economic and social benefits."

Drawing Conclusions: Understanding the new stress test for uninsured mortgages
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