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Are current mortgage rules too strict? Yes

Toronto Star logo Toronto Star 2019-03-05 Christopher Alexander - Opinion
a man and a woman looking at the camera: “With the housing affordability crisis in many of Canada’s largest urban centres, younger first-time buyers need a break and they need it now,” writes Christopher Alexander.© Provided by Toronto Star Newspapers Limited “With the housing affordability crisis in many of Canada’s largest urban centres, younger first-time buyers need a break and they need it now,” writes Christopher Alexander.

The housing market has always been a hot topic and the past several years in particular have been a whirlwind of sky-high home prices, record-low interest rates, the constant beat of pundits warning of a potential real estate bubble, and prudent interventions by provincial and federal governments to sustain some semblance of market equilibrium.

As late 2018 and early 2019 have demonstrated, balance has indeed returned to the housing market, with sustainable, low single-digit price growth projected across Canada.

This is a very good thing, and it asks the question: are the egulatory measures introduced by the government still needed? For first-time homebuyers who are burdened by the mortgage stress test, the simple answer is “no.”

I am 100 per cent supportive of responsible debt levels and policies to ensure that goal, bet let’s be realistic. Things have changed since the stress test was first introduced in October 2016 and expanded in January 2018.

The economy has started to soften. The Bank of Canada is expected to cut interest rates before the end of 2019, and rates are only projected to rise by one per cent in the next five years.

In light of this new reality, requiring homebuyers to qualify at a higher rate is simply unrealistic and not necessary. Particularly with the housing affordability crisis in many of Canada’s largest urban centres, younger first-time buyers need a break and they need it now.

Even the rental market is in a frenzy due to the stringent stress test, since those who no longer qualify for a mortgage are forced to rent. One problem has now begot another.

Not to mention that real estate in this country continues to be one of the safest and most reliable financial investments for Canadians.

Homebuyers deserve an opportunity to climb the property ladder as much as previous generations and the Office of the Superintendent of Financial Institutions (OSFI) mortgage stress test is currently a major obstacle in what’s become an elusive dream.

Recent research conducted by Leger on behalf of RE/MAX shows there are two reasons Canadian millennials want to own a home: 30 per cent say it is a good investment and 41 per cent say it is a good plan for their future. They’re right.

No one is suggesting Canadians should purchase homes they cannot afford, but the stress test in its current form isn’t solving the housing affordability issues in our country. Quite simply, the circumstances under which the stress test was introduced is no longer the reality that we’re seeing across the country.

Looking more deeply into some of the unintended consequences of the stress test in recent months, we see a foundation for this argument.

As of early 2018, inventory levels have either tightened or expanded depending on the segment of the market. Ten per cent of Canadians no longer qualify for a mortgage with banks. Many first-time homebuyers have been cut out of their chosen markets, which has caused a ripple effect through every tier of homebuyer.

As we look toward October’s election, it’s even more crucial to consider how government intervention will help or hinder Canada’s housing market for the remainder of 2019 and beyond. Certainly, housing is one of the most important issues facing Canada.

Between the Liberals’ renewed focus on making housing more affordable for millennials, the federal NDP’s recently defeated proposed measures to increase supply with 500,000 new affordable units over the next decade, and the Conservatives sympathizing with Canadians about a so-called housing crisis, it’s clear that they’re just as uncertain about the market as Canadian homebuyers are.

I propose that this quandary around housing affordability needs to be addressed head on, rather than encouraging a “wait and see” approach.

The Canadian government needs to incentivize homebuyers in Canada now rather than penalize them as the context has entirely flipped since it was implemented.

Now other problems, such as affordability, are starting to manifest in unhelpful and preventable ways, so let’s not wait to make some crucial changes.

Christopher Alexander is executive vice president and regional director for RE/MAX, Ontario-Atlantic Canada.

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