Anything for the housing sector.
That's our country's topline economic policy, federally and provincially. Our politicians take orders from the housing industry and long-time home owners. Whatever sells more houses and keeps prices firm is good.
It's such a flawed strategy. In coddling the housing sector, we've pushed prices higher and created a market that's increasingly inhospitable for first-time buyers. The big winners are the broad swath of the economy that profits from home sales, and the long-time owners who have doubled and tripled their money.
What's good for housing is supposed to be good for the country. This explains why the Conservatives announced a goal in the federal election campaign of creating 700,000 new homeowners by 2020. They'd help move things along with an upgrade of the federal Home Buyers' Program, which allows people to withdraw money tax-free from a registered retirement savings plan to use in house down payment. First-time home buyers would be able to take $35,000 out of their RRSPs, up from the current $25,000.
The HBP was introduced in 1992 – a Globe and Mail report from the day said the Canadian Real Estate Association and the Canadian Home Builders' Association were its chief promoters. The HBP is a present from government to the housing industry to support demand for homes and keep builders and real estate agents busy. It's also an avenue for buyers to inadvisably self-subsidize their home purchase. Can't swing a down payment? Just drain some cash from your retirement account.
Here's a random sampling of other measures taken over the years to support housing:
- The First-Time Home Buyers’ Tax Credit: Designed to offset closing costs when you buy a home.
- Ontario’s Land Transfer Tax Refund: The province may refund up to $2,000 of land transfer tax paid on the purchase of a first home.
- GST/HST rebates: People who move into a new or thoroughly renovated home may be eligible for a rebate of sales tax paid on the purchase.
- Lower minimum down payments: The minimum down payment was cut to 5 per cent from 10 per cent back in 1992.
- Lower down payments, continued: The minimum down payment required to be excused from paying mortgage default insurance premium was dropped to 20 per cent from 25 per cent several years ago.
We also saw the maximum amortization period for mortgages increased to as long as 35 and even 40 years in the last decade, and the introduction of zero-per-cent down payments. These options were later eliminated, but not before contributing in a big way to rising house prices.
There are some subtle ways housing is coddled, starting with low interest rates. By no means is it correct to say the Bank of Canada is keeping rates down to support housing. But raising rates will certainly upset this economically dominant sector. That has to figure into the bank's thinking.
Another factor is the passivity of the federal and provincial governments in coming to grips with foreign buyers who are helping to elevate prices in cities like Vancouver and Toronto. The Conservatives said they'd study the matter if re-elected. Up until now, we've seen politicians acting as if they're afraid to do anything that would upset baby boomers living in houses worth many times what they paid.
Yet another way we do backflips for housing: With price increases leaving income growth way behind in many places, parents are using their own savings to help their kids build down payments.
All the support for housing can be rationalized as helping people achieve the dream of home ownership in a market where prices have moved higher as a result of cheap mortgages, immigration, urban land scarcity and foreign money. What gets overlooked is how helping people buy houses also contributes to rising prices.
What we're in fact doing is overstimulating demand. If we really want to open the market up, we'd remove some of the supports for housing and let prices settle. Existing home owners would give back just a little of their gains, while new buyers would benefit from lower prices.
Tough love is what housing needs, not more measures that drive prices higher. Bury the HBP, boost interest rates a bit and let's have a debate on whether we should adjust the flow of foreign money into housing. Let housing sink or swim on its own merits, not misguided notions that what's good for this sector is good for the nation.