THE LIBERALS EARMARKED $11.2 BILLION FOR HOUSING IN THE LAST BUDGET, AND WILL SPELL OUT THEIR PLANS THIS WEEK. EXPECT HELP FOR THE HOMELESS, BUT NOT FOR THOSE PEOPLE STRUGGLING TO AFFORD A HOME.
The Liberals will make public their longawaited National Housing Strategy this week — specifically, how they will spend the $11.2 billion earmarked in the last federal budget.
Details on the strategy will be announced by Social Development Minister Jean-Yves Duclos as early as Wednesday. But we already know the Liberals want to build more affordable housing, cut the level of chronic homelessness in half and repair existing affordable housing stock.
The focus on the most vulnerable is laudable. But the emphasis on social or affordable rental housing means that housing affordability for the vast majority of Canadians inevitably becomes a secondary consideration.
As a new report by the Macdonald Laurier Institute makes clear, social housing represents just six per cent of the market, while homeowners make up the other 94 per cent.
The debate about how to get on the bottom rung of the housing ladder, and then how to cope with rising interest rates, has become a national pastime.
A Nanos Research poll for Bloomberg last week suggested 88 per cent of Canadians are concerned about the price of housing.
The MLI report, by former Conservative economic adviser Sean Speer and Jane Londerville, a retired University of Guelph professor who taught real estate finance, points out that Toronto and Vancouver have become two of the least affordable cities in the world, with Toronto prices jumping 33 per cent in 2016 alone to an average of $875,000 and prices in Vancouver rising to over $1 million on average.
The federal government has a minimal ability to grow housing supply — provinces and cities control land use regulation — but it can affect demand through a mix of public policies.
The U.S. banking crisis has been cited as evidence of the dangers of government promoting home ownership. But Speer and Londerville suggest it is entirely possible to support home ownership without creating a housing bubble.
One of the most comprehensive but least understood ways Ottawa impacts the housing market is through the Canada Mortgage and Housing Corporation, created 70 years ago to provide low-cost mortgages and support for returning veterans.
These days, CMHC sells insurance to residential mortgage lenders to protect them against default. Any residential loan of more than 80 per cent of the value of the home must be insured. CMHC dominates the mortgage insurance market and charges fees that have been rising, in an attempt to cool a market judged to be in danger of overheating.
On a 90- to 95-per-cent loan, homeowners saw fees rise to 4.5 per cent, up from 3.85 per cent. It’s still unclear whether this had much impact on the market but it bolstered CMHC’s bottom line to the point where it will be able to pay the federal government a special dividend of $4 billion over the next two years.
The premium rate charged by CMHC is one area where the government could take action by ensuring the Crown corporation charges just enough to cover its costs and risks, without penalizing firsttime homebuyers, who are currently subsidizing government spending. More likely, that revenue will be eyed as a source of funds for more social housing spending in the new plan.
Ottawa’s most direct lever on housing demand is control of mortgage rules that stipulate the minimum down payment; equity requirements for re-financing and maximum amortization periods.
Finance Minister Bill Morneau has already used this mechanism to try to curb the market and there is speculation he may do so again.
We are a long way from the heady days of 2007, when buyers were allowed to buy a house with zero down and an amortization period of up to 40 years. Further tightening could block entry to the housing market for some first-time buyers and the authors recommend Morneau stays his hand for now.
A further federal government policy lever on the housing market is fiscal policy.
The First Time Home Buyers’ Tax Credit (to help defray transaction costs), the Home Buyers Plan (which allows individuals to borrow from RRSPs to buy a house) and non-taxation of capital gains on the sale of a principal residence cost around $6.1 billion a year in forgone revenue.
Speer and Londerville recommend policy changes that encourage savings, higher down payments and equity accumulation. That might include rethinking the mortgage insurance model, for example, by reducing fees for first-time buyers.
Another suggestion is a savings vehicle similar to a Registered Education Savings Plan, where qualified households pay into a TaxFree Savings Plan and receive a matching contribution from government that can be used as a down payment.
The authors may be on thin ice when they suggest consolidating existing proownership tax policies — any attempt to tax capital gains on home sales would probably lead mild-mannered suburbanites to take to the streets with pitchforks.
But the Liberals have committed to a review of all federal tax expenditures and it is conceivable that a new tax credit that helps defray the cost of buying a home could be designed in a revenue-neutral way.
Mathieu Filion, Duclos’ communications director, said the strategy will cover the “full continuum of the market.”
But the focus on affordable housing, rather than housing affordability, means there is likely to be more talk about building social housing units than easing the anxieties felt by almost every middle-class homeowner — and those working hard to join them.