With housing affordability dominating discussions in living rooms and coffeeshops across the country, policy wonks in Canada’s political parties are looking for some way to turn the issue in their side’s favour in the federal election scheduled for the fall.
“I’m not sure there will be direct measures” on housing in next month’s budget, Finance Minister Bill Morneau told reporters in Victoria, B.C. a few weeks ago. That could mean the government is saving popular policies for an election campaign later this year, that it will stand pat on the house market, or that it is considering some kind of indirect measures.
Whatever the plan, here are a few policy ideas the government could consider.
ALLOW LONGER AMORTIZATION PERIODS
Since 2012, a 25-year amortization has been the maximum for anyone looking for a CMHC-insured mortgage. As housing affordability worsens, some have called for the government to reintroduce the option for 30-year terms.
A longer amortization period will increase the amount of interest the buyer pays, but it also allows people to spread the mortgage cost over more years. For example, a hypothetical $300,000 mortgage on a 30-year amortization period with an interest rate of four per cent would result in a monthly mortgage payment about $150 cheaper than a mortgage on a 25-year term. However, the buyer will end up paying about $40,000 more in total interest payments over the life of the loan. Some potential buyers struggling to get into the market might jump at that deal.
STORY CONTINUES BELOW
ADJUST THE STRESS TEST
The stress test, known as B20, requires borrowers to show they can handle interest rates two percentage points above the current rate and has resulted in about 20 per cent fewer mortgage originations among younger Canadians.
Some home builders and mortgage professionals have called for the stress test to be reduced by a half a percentage point or a whole point, which would boost the spending power of most buyers. Others have called for scrapping the test entirely.
The stress test doesn’t just affect new buyers, but anyone renewing their mortgage. If a homeowner is renewing their mortgage and fails the stress test, they lose the ability to shop around and have to renew with their current lender, potentially costing them a discount.
BIGGER FIRST-TIME HOME BUYER CREDITS
NDP Leader Jagmeet Singh — campaigning for a byelection in the housing crisis ground zero of Burnaby South — has urged the government to double the first-time home buyer’s credit, taking it from $750 to $1,500.
Singh also proposed some relief to renters by proposing a subsidy for anyone paying more than a third of their income on rent payments.
Conservative MP Tom Kmiec, the party’s deputy finance critic, repeatedly refers to the distinction between housing affordability and affordable housing. Housing affordability refers more generally to the state of the market and whether a family making an average income can reasonably expect to purchase a house. Kmiec says the government’s policies to cool off the housing market have actually hurt the average Canadian’s chance of affording a house.
Affordable housing refers to government-subsidized housing for low-income people which can help housing affordability more generally, as the supply increases and prices come down.
Singh’s NDP have promised to build 500,000 affordable housing units over a 10-year period, if elected. The Liberal government’s $40-billion housing strategy is based around a “right to housing,” and the plan hopes to get 500,000 Canadians out of housing that is either unaffordable or inadequate. Oppositions parties say the plan has been moving too slowly to have a tangible effect on broader housing affordability issues.
It may not be sexy and, in fact, it may not even be possible for vote-hungry politicians to pledge to do nothing, but some experts say it’s the right path.
Policies that affect the housing market, like the stress test, take time to work, and even longer to show results, and it might be safer to wait for more data before making any policy changes, said Kyle Dahms, an economist at the National Bank of Canada, in a recent interview with the National Post.
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