Fred Hirtle is president of the Nova Scotia Home Builders' Association.
The unintended consequences of the federal government's preoccupation with ensuring that the Vancouver and Toronto real estate markets cool down will have a very negative effect on the housing industry in Atlantic Canada. It will jeopardize the ability of prospective buyers, often young buyers, to start to build equity in a home.
Ottawa's fall sledgehammer will needlessly crack Atlantic nuts.
Housing economists have long recognized that housing markets are largely driven by local, metropolitan and regional economic progress and demographic change.
The Atlantic Canada home builders' associations do not have an issue with the changes proposed regarding foreign ownership rules, nor would we have an aversion to a significant inward flow of foreign housing investment capital in our provinces. But, with one city as an exception, Atlantic Canada has not had an overheated housing market in more than 20 years. We believe that past Canada Mortgage and Housing Corp. rule changes for first-time home buyers have unnecessarily slowed housing market growth in our region.
Where metropolitan housing markets are not closely synchronized in timing or amplitude, as in Canada, monetary policy regulations are crude instruments for addressing regional differences. We believe that expanding "stress tests" will further dampen activity in our relatively slow-moving local housing markets and take buyers out of the market. It will also affect employment in the construction industry and the demand for building materials.
What the federal Department of Finance seems to have missed in its deliberations over housing is the extraordinary benefit for first-time home buyers in building equity in an environment of low interest rates. When interest rates are low, a bigger portion of monthly debt service goes toward principal reduction. The government is not only needlessly restricting home ownership growth in Halifax, but ensuring that future home buyers will pay more when rates rise in the future. Has Finance Minister Bill Morneau considered how these measures will affect family formation, savings and consumer spending over the next two decades?
If you are going to put more restrictions on young people taking on debt, then why not restrict them from buying a depreciating asset, such as a car. The point is that if there is not a forced savings plan, then you cannot guarantee that the first-time home buyer won't squander their money, and if you make it harder to get into the market, you will squander their opportunity to pay a higher percentage of their monthly debt service toward principal reduction.
If first-time home buyers default in their ability to maintain mortgage obligations at the same rate as the general public – which is less than 1 per cent – then the government has decided that protecting young people from themselves is more important than giving the remaining 99 per cent a chance to pay down principal before interest rates go up. This will contribute to inequality by limiting access to home ownership and the benefits that come with it.
In addition to new buyers, this decision will have considerable impact on seniors in Atlantic Canada and will reduce the number of buyers seeking to purchase homes in established neighbourhoods. This will result in seniors' inability to access the equity built in their homes and thus interrupt retirement and downsizing plans when new housing arrangements are required.
Federal policies should not penalize secondary markets that have not reaped the benefits of a strong growth economy, year over year, by making it harder to get into the market in this low-interest-rate environment.
Rather than changing federal rules that slow Vancouver and Toronto, make those cities special housing zones and apply rules to them.
The Canadian home builders' associations of New Brunswick, Newfoundland and Labrador also contributed to this op-ed.