Canadian federal politicians know only two things about housing: that it’s too expensive in many parts of the country, and that voters wish it wasn’t.
The politicians aren’t wrong. According to Statistics Canada, one in four households spends more than 30 per cent of its annual income on shelter and related costs, such as utilities, fees and taxes – an amount the Canadian Housing and Mortgage Corporation (CHMC) considers “not affordable."
In the Toronto and Vancouver census metropolitan areas, the squeeze is even tighter. In those places, home to almost a quarter of all Canadians, a third of the households are above the “not affordable” benchmark.
That’s a lot of voters looking for relief, and that’s what the parties are pitching in this election campaign.
But that relief is mostly a set of quick-fix policies geared toward one thing: making it easier for Canadians to spend more money on a home in the short term, with no thought to the broader implications of those policies, or for the troubles faced by the 33 per cent of households that rent.
The policies of the two main parties focus on the levers available to the federal government: CHMC, which among other things insures mortgages for borrowers who make a 5-per-cent down payment on a home; and the Office of the Superintendent of Financial Institutions (OSFI), which regulates the financial industry.
OSFI requires federally regulated banks to a test a borrower’s ability to repay a mortgage in the event of a rise in interest rates. In January, 2018, it toughened its so-called stress test in response to overheated housing markets in Vancouver and Toronto.
On Monday, Conservative Leader Andrew Scheer said, if elected, his government would “fix the mortgage stress test” to make it easier for people to buy their first home, and eliminate it altogether for people renewing their mortgage.
He also said his government would allow 30-year amortization periods on insured mortgages for first-time home buyers, a move that would allow them to lower their monthly mortgage payments in exchange for paying more in interest costs over a longer term. The current maximum amortization period is 25 years.
The Liberals are taking a different tack to achieve a similar outcome. Under their rather complex housing scheme, the CHMC would give an interest-free loan worth 5 per cent of the cost of an existing home, and 10 per cent of a new construction, to buyers eligible for an insured mortgage. The loan would form part of the down payment.
In hot markets such as Toronto and Vancouver, the maximum eligible mortgage would be $750,000; in the rest of Canada, it would be $480,000. The homeowner would have to repay the loan after 25 years or when they sell, whichever came first.
The Liberal and Conservative policies both appear to make it easier to buy a first home – and that’s solid-gold politics. But look a bit deeper.
Both policies would create more buyers, with more money to spend. That would increase demand, which would in turn raise home prices. No wonder the financial and the real estate industries are applauding the proposals.
But the last thing Canada’s big cities need is for hot housing markets to get even hotter, and the last thing Canada’s economy needs is for people to pile up more personal debt. The Conservatives in particular are courting danger by threatening to tinker with OSFI’s stress test, the role of which is to prevent banks from making risky loans and people from taking them.
Plus, neither party’s platform will do much for Canada’s 4.6 million rental households, which are faced with their own severe affordability issues.
In Ontario, for instance, almost half of all renters spend more than 30 per cent of their income on rent and utilities, according to the Canadian Rental Housing Index. In some Toronto neighbourhoods, up to a quarter of the renters must spend more than half of their income on shelter.
The two parties’ platforms fall short because they focus on only one element of the housing market: access to purchase financing.
That’s a rich political vein to mine, but it’s simplistic. Interest rates, supply, demographics and the availability of rentals are all critical elements, too, and all are interlinked.
Mess with one part, as the two main parties are doing, and you affect the rest. Their policies designed to allow people to finance more expensive homes today could make it harder for them to afford those homes tomorrow.