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,”
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.”