Canadians need more effective policy measures to stem the growing housing affordability crisis across the country and unlock the door to homeownership, right now.
At risk is the financial future of hundreds of thousands of younger and new Canadians who are working hard to become homeowners and join the middle-class. Equally at risk are the jobs of hundreds of thousands of workers in the residential construction sector, and frankly the Canadian economy at large.
The vast majority of Canadians link homeownership to being middle class, but a CHBA survey found that 76% think the way things are headed, only the rich will be able to own a home in an area they want to live. Most see this as a potential failing of Canada’s socio-economic system. And two-thirds of those polled think that younger and new Canadians should be given more flexibility when it comes to buying their first home.
While there has been broad concern over accelerating house prices in certain markets, it is now widely-recognized that curbing price escalation requires housing supply, not just excessive suppression of demand. In the meantime, locking out too many would-be homebuyers isn’t good for them, current owners, renters, or the economy.
To date, the federal government’s response has been to clamp down on mortgage rules, locking tens of thousands of well qualified would-be buyers out of the market. The mortgage ‘stress test’ introduced at the beginning of 2018 was, by far, the most impactful of these changes. CHBA members reported a 33 percent drop in first-time buyer activity this past year after the stress test was introduced. We are now seeing layoffs in the construction industry and, if current business condition continue, these will likely accelerate, potentially triggering a broader economic downturn.
Some 65 percent of CHBA builders surveyed have already laid off staff and 42 percent expect additional layoffs in the next few months. Trade contractors, employed by builders in the construction process, report similarly dismal trends. This at a time when we know we need more housing, not less.
There is a better way.
The federal government made housing affordability a major theme in its 2019 Budget. It introduced cautious, and welcome-as-a-start, measures that will eventually help a small segment of would-be buyers. But these measures are far from enough, and will leave many prospective and well-qualified first-time buyers on the sidelines.
More concrete actions are required now – actions with immediate positive impacts that mitigate against excessive consumer debt, excessive price escalation, and risky borrowing. Here’s what the federal government needs to do:
- Adjust the stress test to reflect current economic conditions;
- Restore 30-year amortizations on insured mortgages for well-qualified first-time buyers seeking entry-level homes; and
- Have all levels of government focus on getting more housing supply on-line, as quickly as possible.
These actions are prudent and can get new buyers into the market without driving up prices or causing undue risk. Younger Canadians have the lowest rate of mortgage arrears and the longest timeframe to pay off their mortgages. Their incomes also rise the fastest, making mortgage payments increasingly affordable over time. And first-time buyers seeking entry-level homes do not cause excessive house price escalation in any market, period.
It is time to unlock the door to homeownership now. We can no longer afford to it locked—there is simply too much at stake.
Kevin Lee is Chief Executive Officer, Canadian Home Builders’ Association