Battling on the homefront
Bidding war for votes
Former prime minister Kim Campbell’s glib quip about general elections being no time to talk about serious issues applies doubly when it comes to political parties meddling in the housing market.
The 2019 campaign has become a bidding war, as the contenders jostle for the votes of cashstrapped millennials, keen to get a foothold on the first rung of the housing ladder.
Andrew Scheer is the latest leader to pledge to make housing more affordable for first-time buyers. At a campaign event on former farmland in the suburbs of Toronto, where $1-million townhouses are springing up like mushrooms, Scheer said a Conservative government will “fix” the stress test that requires buyers of both insured and uninsured mortgages to prove they can afford a home at an interest rate two percentage points higher than the one committed to.
The Conservative leader will also increase the amortization period on insured mortgages for first-time buyers to 30 years from 25 years, lowering monthly payments.
The NDP has committed to a similar increase to the amortization period, which was lowered by former Conservative finance minister Jim Flaherty over concerns of an overheating housing market.
The Liberals have chimed in with a sweetening of the FirstTime Home Buyers Incentive that was unveiled in the past budget. That proposal offered a “shared equity mortgage,” where the government gives first-time home buyers five to 10 per cent towards the value of their home, with no interest required. The catch is that when the house is sold, the government takes back the same percentage, which doesn’t sound like a great deal for anyone planning on renovations (the government gets a cut of the upside for no investment). The new, improved version increases the value of the mortgage covered to $789,000 in value in markets with sky-high prices like the GTA, Vancouver and Victoria. But the terms and conditions mean applicants in higher income brackets are not eligible.
It is indicative of this campaign that none of the parties has anything substantive to say to voters, so they are all offering variations of the same policies — witness the Liberal tax package released Sunday, which increases the basic personal allowance that workers can earn before paying tax by nearly $2,000 to match the Conservative universal tax cut that would cut the lowest tax bracket from 15 per cent to 13.75 per cent.
Who can keep track on this constant dribble of deficit-funded largesse? Not voters, one suspects.
Scheer said that “people are getting excited” about his plan. But there is scant evidence of that on the Conservative tour or in the polls.
The most recent Abacus opinion poll suggests Justin Trudeau’s personal ratings have slipped in the wake of the release of the blackface photos. But approval for Scheer, NDP Leader Jagmeet Singh and Green Leader Elizabeth May has also deteriorated.
Voters know that these “jam tomorrow” promises have to be paid for some day.
The difference from most of the trivialities the parties have been trading is that messing around with the housing market is fraught with the possibility for unintended consequences that could devalue the single largest investment of most Canadians — their home.
Scheer blamed Trudeau for taking home ownership out of the reach for many first-time buyers by introducing the stress test. The Conservative leader’s “no place like home” announcement offered a sentimentalized portrayal of Canadian life — “road-hockey tournaments in the driveway, important conversations round the dinner table, (a place) where friends and family come together.”
But anyone who cherishes that idyll should beware politicians shopping for votes.
Scheer was careful to say he would “fix” or “review” the stress test, rather than kill it, but he blamed the more stringent criteria for making it more difficult to qualify for a mortgage.
However, the test was introduced at a time when there were concerns about a housing bubble that could burst with such a pop that it would ripple throughout the economy, destroying value, jobs and lives.
Real estate agents, banks and home builders blame it for creating a chill on sales, but the regulator of the financial system, the Office of the Superintendent of Financial Institutions, and the chief executive of the Canada Housing and Mortgage Corporation say the rules are working. Banks are not lending to as many over-leveraged borrowers — the proportion of uninsured mortgage loans that exceed 450 per cent of income has fallen to 14 per cent from 20 per cent.
Debt as a percentage of disposable income remains high in Canada — around 178 per cent — but mortgage delinquency rates remain extremely low (around 0.18 per cent) because of sound regulation.
Central bank rates are starting to ease and prices are declining, absent further government intervention. That’s true, even in hot markets like Vancouver, after the introduction of a tax on foreign buyers.
At the risk of stating the obvious, the reason that home ownership is out of reach for many Canadians is that prices are too high. The stress test has kept prices lower than they would have been and “fixing” it could inflate them again.
Interest rates are still low by historic levels, so if buyers can’t afford to fulfil the conditions of the stress test, they shouldn’t be borrowing.
Politicians of all parties are pandering to an impressionable demographic just long enough to extract their votes. But policies that encourage taking on more debt for longer are dangerous.
This election has settled into a cycle of uninspiring policy, punctuated by periods of undignified smearing. Voters are not impressed.
POLICIES THAT ENCOURAGE TAKING ON MORE DEBT FOR LONGER ARE DANGEROUS.