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Oct 9, 2019

Where federal political parties stand on affordable housing crisis

Published in The Lawyer's Daily | Wednesday, October 09, 2019

It’s about time that all federal political parties started focusing on the issue that affects all Canadians: the lifelong need for affordable housing.

According to the Global Real Estate Bubble Risk Index 2019, published by UBS on Sept. 30, 2019, Toronto is the second biggest housing bubble in the world. In a nutshell, the average cost of a house in Toronto has basically tripled over the past 20 years, and new restrictions and regulations have not done much to slow it down. Vancouver holds sixth place on the UBS survey.

The skyrocketing cost of housing in the major urban areas across Canada and in particular, the two most populous urban centres, being the Greater Toronto and Greater Vancouver areas, has finally focused voters’ attention on what should be a very critical issue to them: affordability of housing, whether buying or renting. 

All three major parties have finally gotten on the bandwagon to address the major purchase and the most expensive component of living (having a roof over your head) that affect people’s lives. 

I have been advocating consistently over the last year for the federal government to look at relaxing, but not eliminating, the various stringent mortgage stress tests that were implemented in October 2017, effective January 2018 to cool overheated housing markets in Vancouver and Toronto. 

Those tests, coupled with foreign buyer taxes proposed in Ontario and in Vancouver, resulted in a significant drop in new home sales and resales of single family homes in suburban areas, but did not have a huge impact on condominium sales. In fact, the inability to get higher mortgages on single family homes boosted the new condominium market which traditionally was a cheaper form of housing.

The Liberals have steadfastly refused to relax the mortgage stress test in any shape or form. Canada Mortgage and Housing Corporation (CMHC) CEO Evan Siddall went so far as to raise inflammatory alarm bells back in May 2019, that any adjustment to the mortgage stress rules would cause a housing Armageddon of frenzy buying.

Liberal affordable housing program

The Liberals previously created a “let’s pump billions of dollars into the system” proposal to provide second mortgages to first-time buyers which would allow CMHC to share in the upside of any price increases within the maximum 25-year term. The original maximum mortgage amount of $480,000 meant that Greater Toronto and Greater Vancouver first-time purchasers would be largely eliminated as average house prices in those two municipalities were far above that. 

So, the Liberals’ recent election proposal to increase affordability was to raise the threshold for those two cities to $750,000 leaving the $480,000 cap for the rest of the country. Many industry experts have already commented that the process is very cumbersome, but more importantly, we use billions of taxpayers’ money (and increasing the ballooning deficit) to help first-time buyers buy their properties. 

I believe that this is an inefficient and expensive way to use taxpayer dollars and governmental resources. It also creates a very complicated process that many mortgage brokers indicated is unworkable. Any time the government gets involved in the free market, it rarely accomplishes its goals and usually at a high cost.

Conservative affordable housing program

The Conservatives, who have been uncharacteristically quiet in this election campaign on this issue, have finally come out with proposals which would relax the mortgage stress test in modest ways that will have significant impact on expanding the ability of new buyers to buy houses without costing the taxpayer any money. 

Andrew Scheer promised to increase the amortization period for mortgages from 25 to 30 years, which could potentially increase the mortgage amounts available to homebuyers from seven per cent to 10 per cent. This will increase the eligibility of buyers to find houses that they can afford at no cost to the taxpayer.

Scheer has also addressed a glaring inequity in the current stress test. Mortgage renewals are not subject to the stress test; this is only applicable if mortgage is not renewed with the same lender. If the homebuyer goes elsewhere, he is now subject to the stress test. 

What this means is that homebuyers are held captive to their incumbent bank for no good purpose other than circumstances do not permit meeting the new stress test at another bank. Scheer has proposed extending the exemption to renewals with other lenders, but presumably without increasing the principal amount being refinanced.

NDP affordable housing program

The New Democrats to their credit, have come up proposals that also would relax the mortgage stress test apparently. However, the more significant component of their housing platform is that they will build $500 million worth of affordable housing units as well as doubling the current tax credit for entry level homes to go from $750 to $1,500. Where is the $500 million going to go? How is it going to be used and administered? The NDP is short on details. Quite frankly, they are not going to be the party in power so it is easy to put forward a grandiose plan.

The Globe and Mail had an editorial on Sept. 24, 2019, berating both the Liberals and Conservative plans for potentially fuelling a massive spike in buying without assisting anywhere on the rental side. 

I disagree with the Globe and Mail editors for the following reasons:

1) The Liberal plan will be generally ineffective as it will have only a modest impact on enticing first-time buyers to buy homes given the complexity of the program;

2) The Conservative proposal only marginally relaxes the stress tests. Scheer said that he might adjust the two per cent threshold, but that remains to be seen. He certainly will not eliminate it. The proposed changes will have a modest impact on expanding the mortgage ability on first-time buyers and increase fairness for existing homeowners on renewals; and

3) As for helping rental affordability, to the extent that more home buying is encouraged for new homebuyers under either plan, most of these homebuyers are renters. When they leave their rental accommodation to buy a new home or a resale, they now free up rental accommodation for others. This will help expand the supply of the reality of renters and hopefully have a cooling effect on rising rental rates.

Finally, none of the parties has addressed what is one of the major reasons for lack of affordability, particularly in the Greater Toronto Area. That is the high cost of municipal, provincial and federal fees and taxes. 

A recently released report from Altus Group confirms that the average detached home in Greater Toronto includes $222,652 worth of government imposed taxes and fees. Comparative Canadian cities studied being Vancouver, Calgary, Ottawa and Montreal averaged $128,788. Major U.S. cities averaged $69,347. 

Maybe governments should start looking in their own backyard if they want to find ways of making housing affordable.


Where federal political parties stand on affordable housing crisis - The Lawyer's Daily

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