The headline from the Department of Finance press release sounded so promising by declaring: “Government announces boldest mortgage reforms in decades to unlock home ownership for more Canadians.”
The new mortgage rules introduced last week by federal Finance Minister Chrystia Freeland will undoubtedly provide help to some home buyers, but they’ll only be able to do so much to address this country’s housing crisis.
As far as I’m concerned, the new rules are an acknowledgment by a government in freefall that housing has become so prohibitively expensive on its watch that it’s been forced to throw a lifeline to those it’s left floundering. It’s also an attempt to curry favour with young voters by a party that could well be obliterated in the next election.
The new rules expand eligibility for 30-year mortgage amortizations to all first-time homebuyers and to all buyers of new builds, which the government rightly says will reduce the cost of monthly mortgage payments.
What it doesn’t say is that the homes are more affordable, because they’re not, it’s simply allowing buyers to finance that purchase over a longer period, which means they’ll pay even more interest.
The government contends that by helping Canadians buy new builds, including condos, it’s incentivizing more new housing construction to tackle what it acknowledges is a housing shortage. That’s true, but you could also argue that getting more home buyers into the current market, where supply is woefully insufficient, will put greater pressure on prices, pushing them even higher in the short-term. That’s hardly a desired outcome.
Moving to a 30-year amortization will help those who can’t afford payments based on 25 years, but those buyers who are pushing things to the limit in that way will also be at the mercy of ever-fluctuating mortgage rates, which could prove disastrous down the road.
The other reform is an increase for insured mortgages, from $1 million to $1.5 million, which makes sense given that figure hasn’t been adjusted for over a decade despite a sharp rise in house prices.
It originally puzzled me as to who this change would help, given that if you can’t come up with a 20 per cent down payment, how can you afford a home north of a million bucks, but it’s since been explained to me that it would likely apply to a household with a high salary that can handle a large monthly mortgage payment but doesn’t have the requisite down payment.
There are only so many of those folks around, so as much as the insurance threshold increase brings it more in step with soaring prices, it’s not likely to move the needle on the housing crisis to any extent.
There’s no denying the reforms to amortization periods and mortgage insurance will help get more buyers into the market, but until the supply end of things catches up, that might exacerbate the problem as much as anything.
Building more housing and dialing back immigration levels are the real keys to addressing our housing crisis, but those long-term solutions won’t be ready before a staggering government must face voters, so tweaks to mortgage rules are what we’ve been left with.