This article originally appeared in the Globe and Mail.
By Daniel Dorman and Peter Copeland, September 18, 2024
The federal government just announced what it is calling the “boldest mortgage reforms in decades to unlock home ownership for more Canadians.” Unfortunately, there are good reasons to be skeptical that the proposed measures will help anyone buy a first home.
The government is implementing two new measures: increasing the $1-million price cap for insured mortgages to $1.5-million and expanding the eligibility for 30-year amortizations to all first-time homebuyers and all buyers of new builds.
The first is meant to address the fact that mortgage insurance is mandatory when the down payment is less than 20 per cent of the sale price; that affects many prospective buyers in markets where the average home price is more than $1-million.
The second measure, expanding the eligibility for 30-year mortgages, stretches the loan over a longer period and therefore allows buyers to make lower monthly payments.
Both are flawed. The message, “Don’t worry, millennials, you can buy a home, you’ll just have a lot more debt for a lot longer,” isn’t the winning policy the government seems to think it is. Providing more paths to finance million-dollar homes is simply failing to address the core issues of limited supply and out-of-control prices.
In essence, Canada has a lack of housing supply, not a lack of demand. These measures seem likely to simply widen the pool of eligible buyers without concretely increasing supply or dealing with the residential construction industry’s productivity problem.
When the government first announced limited eligibility for 30-year mortgages in June, it claimed the measure was targeted enough to avoid creating demand: “To make it easier for younger Canadians to reach the dream of home ownership and to encourage new supply, while avoiding inducing housing demand, the government has carefully designed this measure to only apply to first-time buyers purchasing newly built homes.”
But now they’re throwing caution to the wind. And, as we know, when demand goes up, so do prices. It is conceivable that these measures will do more harm than good.
Counterproductive housing policies are also not without precedent. The First Home Savings Account, which offers an attractive, tax-advantaged way to save for a down payment, is another example of a solution destined to simply drive demand.
Where to from here? The government should start by following its own advice and sticking to measures that won’t increase demand.
Many of the most important levers to address housing supply lie at the provincial and municipal levels. However, local politicians often lack the incentive to expand urban and suburban boundaries, amend zoning laws or streamline permit processes. These decisions can spark backlash from voters concerned about environmental issues, urban sprawl or high-rise developments in their neighbourhoods.
Provincial governments could mitigate these concerns by implementing targeted regulatory changes in specific municipalities, thereby distributing the responsibility for development more evenly. If the federal government were serious about tackling the housing crisis, it could work with the provinces to break the political deadlock where needed policy changes are often avoided to appease well-housed voters. In exchange, Ottawa could offer provinces much-needed infrastructure funding to incentivize reforms that, while unpopular with some, would be embraced by voters eager to enter the housing market.
Moreover, the federal government needs to take a hard look at its immigration policy over the past few years. Our policy can’t be considered “compassionate” if newcomers struggle with housing insecurity. We’re letting in a great deal more people than we’re building houses for. With its focus on mortgages and lending policy, the government is only making it look like it’s doing something.
These latest mortgage reform policies will only spur demand – and demand is already spinning out of control.
Daniel Dorman is the managing editor and director of operations at the Macdonald-Laurier Institute and a contributor to Young Voices.
Peter Copeland is the deputy director of domestic policy at the Macdonald-Laurier Institute.
