Why make housing markets worse?

If recent i nterest rate hikes and dozens of new rules affecting the housing market weren’t enough, there’s a new threat to affordability for first-time homebuyers, one that is completely avoidable.

The Office of the Superintendent of Financial Institutions recently proposed a new rule for homebuyers who do not need mortgage insurance — those making down payments of more than 20 per cent of the purchase price of a home. It would force these homebuyers to prove they can afford not just the actual interest they negotiated with their lender, but a rate that is two full percentage points higher. Even for a fixed- rate mortgage.

When I ask homeowners, and aspiring homeowners, what concerns them most about the housing market, they tell me it’s stability. Young people making the biggest investment of their lives worry that the neighbourhoods they have their eyes on will be suddenly out of reach, while at the same time they’re concerned that after they finally buy the perfect home, it might suddenly be worth less than they paid. And they worry that after years of saving and planning, the rules will suddenly change, so that their first home will be even further away.

That’s why the combined effect of so many recent changes should concern us all. With the average home price in the Greater Toronto Area now down 20 per cent from April’s peak, a government agency wants to apply yet another new rule to make it even harder to get a mortgage. And this rule makes home ownership harder for the very people who have already been the most careful planners, by saving for a down payment of over 20 per cent.

The effect of this kind of measure can be dramatic. When new restrictions were applied for insured mortgages (with down payments of 20 per cent or less) last October, the number of new mortgages insured by the Canada Mortgage and Housing Corporation dropped 44 per cent, and throughout 2017 it has remained significantly lower than a year earlier.

This creates real risks for the broader economy. We have different levels of government, and different agencies, all looking at ways to cool down the housing market… six months after it already cooled dramatically. Even before this proposal, the Bank of Canada warned about the overall effect of previous housing- finance rules, saying “their adverse near- term impact on residential investment could be larger than anticipated” and “outsized negative effects could occur.”

So is there a good reason to introduce new rules, and new risks, in a market that has already slowed? Actually, the evidence says Canadians already take great care to make sure they can afford their mortgage payments. A report just last month from consumer- credit- reporting agency TransUnion found that even as interest rates and the size of mortgages have gone up, fewer and fewer borrowers are behind on their payments, with delinquency rates falling to 0.56 per cent for the third quarter in a row.

The goal of policy-makers should be to bring home ownership into reach for more families, while actually decreasing volatility and risk. And the way to achieve this is by encouraging more housing supply. Governments can do a lot to speed up approvals, to accelerate water, sewage and transportation infrastructure for land designated for development, and to modernize zoning laws that limit supply and innovation. They should pay particular attention to the “missing middle” — housing types like duplexes and townhomes that provide the first step to home ownership for many families.

With the housing market down, and interest rates beginning to rise, we need stability, not even more uncertainty. Governments should put the brakes on rule changes that further destabilize housing markets and put the dream of home ownership further out of reach. Tim Hudak is CEO of the Ontario Real Estate Association.

THIS RULE MAKES HOME OWNERSHIP HARDER FOR PEOPLE WHO HAVE ACTUALLY BEEN THE MOST CAREFUL.