National Post (National Edition)
Politicians in toxic dance with first-time homebuyers
How about a thought for the unionized autoworker, the smallish maker of vehicle parts, and the dairy farmer?
For much of the past few years, these extra special constituents of the political class were the centre of attention. Prime Minister Justin Trudeau’s government went out of its way to include them in various trade negotiations, while opposition parties were always on standby to help amplify their misgivings.
We’re now past the halfway point of the election campaign and we’ve heard very little about automobiles and milk. Politicians have a new crush: first-time homebuyers, the spoiled brats of special-interest politics. These voters already can claim $35,000 of their tax-sheltered retirement savings as a down payment for an asset that they can one day sell without paying capital gains taxes. Come next year, they likely will have even more incentive to convert their savings into a mortgage.
A Liberal government would make it easier for buyers in the most expensive cities to enlist Canada Mortgage and Housing Corp. as a co-investor, while the Conservatives and the New Democratic Party would lengthen the amortization period for initial home loans to 30 years from the current 25.
Conservative Leader Andrew Scheer also said he would make the stress test on mortgage applicants less stressful for first-time buyers. All those suggestions pleased the Canadian Home Builders’ Association, whose members have an obvious interest in policies that put upward pressure on prices. “We are glad to see that parties are listening,” Kevin Lee, the group’s president, said in a statement last month.
On the ideas spectrum, these proposals fall somewhere between bad and terrible. “People who can afford a down payment typically borrow as much as they can to get a foothold in the market — stretching themselves financially and contributing to Canada’s record-high levels of household debt,” economists from the International Monetary Fund wrote this week, flagging research they published earlier this year that shows Canada’s affordability crisis will only be fixed by adding supply, not encouraging more demand.
Humour me for a second. Instead of proposing longer amortization periods, let’s pretend the Conservatives and the NDP said they would order the Bank of Canada to raise its inflation target to three per cent from two per cent. You’d be aghast, right? If so, you should be appalled by the willingness of politicians to play so fast and loose with the measures that have been put in place to offset the stimulative effect of unusually low interest rates.
A five-year fixed mortgage rate was around 10 per cent in 1992, when the federal government introduced the Home Buyers’ Plan, which initially allowed first-time mortgage borrowers to withdraw $20,000 from their Registered Retirement Savings Accounts. That rate is now around three per cent, which is all the support the demand side of the housing market requires.
Remember when the real-estate lobby warned that the mortgage stress test and other new regulations were killing the housing market?
The benchmark price for a home in Toronto rose 5.2 per cent to $805,500 in September from a year earlier, the fastest rate of growth since 2017, while the price was within $10,000 of the record, according to Bloomberg. Separate data released this week showed the number of properties sold in Vancouver surged 46 per cent last month, the third consecutive increase. The housing market is fine. It always was.
Making it easier to borrow money only creates the illusion of addressing affordability. The supply of houses is fixed in the short term, “so any increase in households’ ability to borrow will increase demand for housing, and ultimately make houses less affordable than they otherwise would have been,” the IMF’s Michal Andrle, Cheng Hoon, and Troy Matheson said. If governments are inclined to rewrite housing rules, they should focus on regulations that constrain building and discourage rental housing, they said.
We also could get serious about innovation.
Canada’s productivity rate is notoriously weak, and one of the reasons is that we plow so much capital into an industry that is more interested in collecting rents than investing in research and development.
Statistics Canada’s latest figures show that labour productivity was little changed in the second quarter compared with a year earlier, while the construction and real-estate industries posted declines. On average since 1998, total productivity has increased 1.1 per cent; the numbers for construction and real estate are 0.3 per cent and 0.2 per cent, respectively.
Last month, Robert Price, a Calgary-based entrepreneur, launched Bode, a digital platform that allows users to buy and sell homes the same way Airbnb arranges short-term rentals and Lyft facilities taxi rides. Bode charges a one-per-cent commission, compared with the Canadian average of four per cent, which Price says is among the highest in the world. So if you bought a $750,000 house on Bode, you’d pay $7,500 in agent fees rather than $30,000.
However, upstarts are unwelcome in Canadian real estate. Agents and brokers benefit from regulations that were written for a time when a network of specialized humans was necessary to create a market. Technology can do that now, at a fraction of the cost, but authorities have been slow to change the rules to make that possible. For now, Bode is only available in Alberta.
“The existing way of doing business, the agent world, is really entrenched here,” Price told me in a phone interview. “We’ve been slower than other countries in evolving our regulatory environment and inviting new market entrants.”
Younger people who would like to buy a home are obviously frustrated, but keep a clear head about who benefits from the proposals to help them. There are ways to address affordability without piling on more debt, but the real-estate complex would have to be made to share its rents.