By Jim Adair

In a column published by the National Post in December, CREA CEO Michael Bourque wrote that government bears much of the blame for the housing market imbalance of rising prices and lagging supply.

“A narrow focus on suppressing household debt has dominated the policy mix while the root causes of undersupply – including excessive red tape, fees, taxes and nimbyism – have gone largely unaddressed,” wrote Bourque. “If we want to address housing affordability in Canada, governments need to redesign the policy mix to confront these factors. For its part, the federal government could start by developing a more nuanced mortgage stress test.”



CREA and other housing industry groups have long argued that the “one-size-fits-all” stress test is hurting markets that are experiencing poor economic conditions. The test is also driving consumers to unregulated lenders that typically charge higher interest rates.

“Given the current environment, we must ask if the marginal improvement in mortgage credit quality created by the stress test is worth the many unintended consequences it causes,”
wrote Bourque.

His article prompted an immediate response from Evan Siddall, president and CEO of Canada Mortgage and Housing Corp., who wrote on Twitter, “(CREA) want us to ease credit standards and increase prices further. Our analysis calculates that the proposals they favour (a rolling back of the stress test AND extending mortgage amorts) would increase house prices by $20,000 each in Toronto and $40,000 in Vancouver.

“Sellers make even more capital gains, tax-free, agents earn an extra $1,000 – $2,000 and first-time home buyers have to borrow even more to buy a house,” wrote Siddall.

“To call our policy ‘demand suppression’ is disingenuous when the federal government offers tax-free capital gains, mortgage insurance at five-per-cent down, the Home Buyers Plan AND shared equity mortgages. We are obliged to ensure that our demand-stoking policies are not excessive.”

Siddall has not been shy about criticizing the housing industry. In a speech in December, he said, “We need to call out the glorification of homeownership for the regressive canard that it is. Renting is a perfectly valid option and may in fact be the best long-term option for many households. Over-promotion of homeownership is both economically and socially counter-productive, contributing to the increasing division between rich and poor.

“We have our work cut out for us, especially in a country where the dream of a single-family home in the suburbs still burns strong for many – and fire fanned by the real estate industry that is drunk on its excess.”

In an interview with REM, Bourque said, “Look, I’ll be the first to acknowledge that of course we want real estate sales and we want Realtors to be successful. But people who think we are just self-interested on this are not seeing the bigger picture and don’t think that we can see the bigger picture.”

He says he agrees that more affordable housing is needed and there are not enough rental properties, particularly in Toronto. He agrees that more density is required and more mixed-use projects are needed.

“Having acknowledged these things, we don’t agree with those who say that because you need more of those things, you should have less homeownership. It’s nonsensical.”

Bourque says a survey conducted for CREA shows that 77 per cent of Canadians want to see changes to the stress test so that it reflects their market conditions.

During the election campaign, the Conservatives proposed eliminating the stress test for anyone refinancing their mortgage, not just those who are returning to their current lenders. “The feedback we get from Realtors is that there is definitely a disadvantage if you have to stay with your own bank, because they are less motivated to give you the best rate,” he says.

“The other thing that Siddall likes to talk about is the 30-year amortization (proposal), but both the Conservatives and the NDP had the extension to 30 years in their platforms, reflecting what they were hearing from Canadians across the country.”

Bourque says studies have shown that most Canadians pay off their mortgages early, and that those taking a 30-year mortgage would likely need a much shorter term by the time they renewed in five years. “Effectively what the 30-year amortization does is allow people to have a lower monthly payment, which allows them to get into the market. It’s substantively no different than the First Time Homebuyer incentive – except that it doesn’t require a program.”

Another idea: “Why isn’t the government looking at things like seven-year terms, where you could qualify for a 30-year insured mortgage if you took a seven-year term? Nobody can predict where the rates will be in seven years, but you can pretty accurately predict the person is going to be better off from an income standpoint in seven years,” says Bourque.

“We’re just finding that there’s a lack of imagination being applied to these things. And that’s why we would like to open them up for review.”

18 COMMENTS

  1. Bourque should fix his own house #webforms….I do think we need a regional or market stress test, and less red tape from all levels of government.

  2. Rental property’s are a viable solution, as most of us have to rent at some point in our lives. Everyone is wondering why there is a rental crisis ( at least in BC) in the shortage of available properties to rent. Our NDP government proudly advertises about all the changes it has done to the Tenancy Act in favor of tenants. Yes they have likely done a 10:1 ratio of changes in favor of tenants versus landlords over the past 10 years. Has it ever occurred to anyone that they maybe they went over board in favoring tenants versus landlords; ie: 1/2 months rent as a damage deposit, tenants don’t respect it, Alberta at least allows a full months rent. Here is a novel idea – why have a limit on a damage deposit? Its a competitive world out there folks – compete, make a damage deposit negotiable. I have been a tenant myself for at least 8 years, and have been a landlord for 35+ years. I have lost all interest in being a residential landlord and have one residential rental property left which I am gunning to get out of. I could write a book on nightmare stories of being a landlord. Try renting a nice clean home for 3 years at $1000.00 per month and collecting $36,000 in rent during this time to only have to spend the same amount cleaning and repairing the home after 3 years of the tenant being in there. The only way I will rent a residential property in the future is short term / Airbnb. Fix the Tenancy Act.

  3. It is amazing that neither one of these guys can address the real problem. It is foreign investment, AKA CASH, they do not need to borrow money; so the stress test no matter what high priced market has nothing to do with it other than opening up the market for the foreign investment to get homes at a lower price. The only other people that this has hurt is the little guy who struggles to get enough of a down payment saved up.

      • Betty, you are absolutely correct. I “farm” a neighbourhood in Oakville. In 2017 a subdivision of 2000 homes saw 77 sales and rental units in that year. Fifty five (55) homes sold. almost all over list price, and clearly to one demographic. Most sales were firm no conditions. Local buyers were driven out of the marketplace. Resale prices spiked by over 20 percent. Forty of the homes that sold came back on the market within days after closing as rental properties. I would be surprised if even one of these buyers paid the Foreign Buyer Tax as their foreign investment funds had already been sitting in Canadian banks for years.

  4. Siddall […] said, “We need to call out the glorification of homeownership for the regressive canard that it is. Renting is a perfectly valid option and may in fact be the best long-term option for many households. Over-promotion of homeownership is both economically and socially counter-productive, contributing to the increasing division between rich and poor.”
    – Say WHAT?? Home ownership increases division between the rich and poor? I guess people who own multiple rental units are way worse than anyone expected.

    As long as this discussion evolves around the stress test it is going nowhere. The real problem is undersupply, the red tape that ties up the development. The so called consumer protection laws that make building and development more expensive and unaffordable for small firms. There used to be time when entrepreneurship was being encouraged and supported, but now it is all about big boys.

    The only way that the housing can become affordable is by cutting red tape, which in turn will increase supply. Only then the balance between the supply and demand can be restored, and housing will become affordable once again. If this is not done only the tent cities will grow.

  5. TREB’s call for lowering or eliminating the stress test is entirely self-serving and a red herring. TREB does not consider the potential severe consequences. As a realtor, the stress test is definitely impacting business. As an investor and Canadian though, the stress test is essential for minimizing the possibility of a repeat of the 2009 USA sub-prime debacle that sent the world’s economy into a tailspin. Canadians have a higher debt load today than any time in history and a minor increase in interest rate would result in calamitous powers of sale.

    Everyone talks about housing affordability and availability but few understand it and none of the politicians get it. Tenants, politicians and most of the media equate affordability with rent control. In my book, The Dark Side of Residential Landlording, I identified the Rent Control Paradox: the more controlled the rent is, the higher the rents will be. That is, as rent prices decrease the number increases of the people who can afford those affordable rents. This creates high demand but the low rents mean low profit so very few private sector investors build them.

    The stress test backlash though is that, while the stress test stopped 200,000 families from buying homes that they might not be able to afford to carry, it also kept those 200,000 families mostly in rental properties that they otherwise would have vacated. Consequently those preparing to enter rental housing are held back. The most affluent renters are the most likely to obtain the vacant rent units and affordability for lower income tenants disappears while affluent renters use rent control as a cost-cutting measure or a savings plan.

    The office manager of one very large brokerage stated that they saw a 50% increase in the number of tenant placement applications in the past year. Realtors have no idea the tremendous risk they’re undertaking for an average fee of one month’s rent. You’re going to see a lot more RECO and Human Rights Code violations and a spike in related insurance claims.

  6. Considering how varied markets are in Canada, I cannot fathom the reason to have a single stress test housing policy Punishing the rest of Canada to contain a couple of out of control markets maintains the status quo and only exacerbates the future situation. The policy ensures that the big get bigger and the small stay smaller. As we move forward to lessening our carbon footprint, commuting for hours every day makes no sense. Government housing policy ensures this. Let the smaller centres grow while the out of control markets simmer.

  7. Amazing that the head of CMHC responds to a comment that the stress test should be regional with the same Toronto Vancouver argument. Typical Liberal elite that doesn’t know the rest of the country exists and wouldn’t care if he did. He needs to move on.

  8. Last year, (at what turned out to be my peril) I wrote two letters to the Editor of REM criticizing CREA’s lobbying efforts on this very issue (the Stress me out Test). Mr. Bourque’s response was pretty strong but assured us all that CREA had this issue on the radar and asking for our patience. Therefore – credit where due – I applaud the fact that CREA has taken direct and constructive aim at this, and the suggestions put forward by the National Assoc. are for the most part – pretty sound. However, I can’t resist the opportunity to draw a few additional facts to Mr. Siddal’s attention.
    1) In rural Alberta – I struggle to obtain sales for my elderly clientele, wishing to sell their modest, older or mobile home properties in order to enjoy a retirement based upon the one major asset they have acquired: their home, paid off with the help of a CMHC insured long amortization mortgage. Had they rented, as Mr Siddal suggests, then their landlord(s), would be the beneficiaries of the accrual in equity and value that their 25 years of sweat (and the market) have produced. This savings account is now difficult to cash in for two reasons: a) these properties are entry level, starters for the most part and the stress test plus the d/payment requirements have decimated the buyer pool and b) CMHC have virtually abandoned high ratio financing on these properties and anything approaching even 20 year amortizations. Mr Siddal – your tweet belies CMHC’s lack of perception on this – your focus is clearly on two regional markets at the expense of the rest of the nation and is EXACTLY what Realtors are complaining about. I hope that you can see that a 5% increase in my client’s $120,000 property is unlikely to enrich me (or them) to that point that it’s likely to imperil National Monetary policy.

    2) As Mr Siddal seems to have a rather jaded view of Realtor’s motivations (generally greed, so it seems) I’d like to point out that even if he thinks I’m a parasite, me and my 125,000 colleagues perform an very important function in the Public interest: we create at least 90% of the housing market liquidity in this country. If Mr Siddal doesn’t find that important – then consider what happens if all Realtors take February off? I submit that CMHC’s concerns about rising household debt would pale in comparison to the Banking crisis that would result from a mere 28 days without a single MLS sale, nationwide. The point is – mortgage debt is but half of the peril, because the crash comes when the market has no uptake (liquidity). I agree that inflationary lending policies are a danger – but so are social experiments based upon a big data macro-economic model – so some balance is required, I think. Real Estate is a local issue – sales, solutions and polices occur at the kitchen table in Calgary, half-ton hood in Brandon, and the Pent-House suite in Toronto. And they all pose different challenges. The problems are complex and they may require some complex thinking to deal with them.

    3) As to Mr Bourque’s suggestion inre: 7 year terms – good idea but here’s the problem. Back in the day when I had hair – 5% downers had to a) qualify for the 5 year rate and b) take the five year term, Then CMHC approved mortgage clauses that permitted ‘total interest differential’ penalty clauses based on posted, rather than the discounted rates. In other words -if you take out a five year mortgage today at the best rate, and need or wish to pay it out two months from now (even if the rate is unchanged) – your penalty will be roughly 2% times five years – that’s ten grand per $100K. So – Mr Siddal if the sincere objective is to reduce national household debt – then why not make it less expensive to shed? This would encourage first time buyers to take longer terms and avoid the rate shocks you fear, while avoiding the prospect of bankrupting themselves to pay out an insured mortgage to the lender’s sole benefit. Voila – you’ve created liquidity and reduced lending risk – all without unduly applying inflationary pressure to the market.

    In closing – I’m prepared to believe that CMHC aren’t just a group of cloistered bureaucrats bent on protecting banking interests above all else – if CMHC are prepared to accept that Realtor’s aren’t just a gang of mindless, rapacious pirates bent on destroying the financial system.

    David Lowe

    P.S. – I forgot to mention that the Home Equity mortgage and Home Buyer’s Plan are of such marginal practical benefit and create such a tangle of paper, that I haven’t found a single Mortgage Broker who doesn’t find them a waste of time – but thanks anyway.

      • Evan Siddall is really not looking at the ask from CREA appropriately. The fact thY he was quoted as saying that Sellers will earn more tax free and Realtor will make more is short cited and as always based on Toronto & Vancouver markets. The collateral damage from these policies are in communities all over Canada from coast to coast. This test should have only been applied to Toronto & Vancouver and not in other markets that are not over inflated. Provinces in recession have declining property values already. No one seems concerned about the Sellers who are facing real capital losses not tax free gains. This policy does nothing but take fair competition in the banking market away for people who own homes now, have no problems making their mortgage payments but may not qualify for their current home under the stress test these folks are stuck with their current mortgage company no matter the rate. Not a good thing in an economy purported to be a free economy.

    • Thank you David Lowe! Mr. Siddal is most likely referring to a very small percentage of “bad apple” Realtors. The majority of Realtors across Canada are probably making a much lesser Net income than Mr. Siddal is. Focusing on solutions for the vastly unique Real Estate issues locally instead of solutions that are mainly Toronto and Vancouver based, is the answer. I fully agree with David that home ownership creates equity and appreciation of value if held for the right amount of time. For renters to create the same equity/appreciation on value, they need to be saving aggressively. Both serve a purpose – the government should be lessening control for renting or home ownership to create more options for individual regions and issues.

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