Opinion | Time to unlock homeownership

The 2019 federal election is nearly here, and housing affordability is top-ofmind for voters. And party platforms truly can unlock the door to homeownership, in responsible fashion.

At stake are the financial futures of the next generation of Canadians, local economies, and hundreds of thousands of jobs.

Housing affordability is determined by three factors: income, house price, and mortgage rules. Addressing housing affordability is tricky business—the mortgage system is built to enable buyers to enter the market with a down-payment and long-term financing. Too loose a system

risks spurring price inflation; too strict a system and too many buyers are locked out.

Price inflation has been driven by many things in recent years, and certainly not just mortgage rules or low interest rates. Lack of supply has been a principle driver—not enough houses of the form people want drives up the prices of the few that are on the market (Vancouver and Toronto are perfect examples). Speculation, foreign investment, development taxes, and stricter codes are other factors that have all contributed to excessive price increases.

But today’s mortgage rules, after over 60 changes since 2009, including the most recent stress test, have done more than “take out the froth” in Toronto and Vancouver. They’ve overshot their mark and caused a housing recession across the country. They have slowed or lowered prices, but that does not equate to affordability: when prices drop because you’ve locked tens of thousands of Millenials out of the market, that’s not improved affordability. By definition, if mortgage rules lock out buyers, you’ve decreased affordability. The result is market instability, pent up demand, lowered homeowner equity, faltering local economies, and a whole generation of young and new Canadians with their financial futures hampered.

There is a better way.

Heading into the election, there are actions that the federal parties can introduce to tweak the system to enable access to homeownership while still mitigating against excessive consumer debt, excessive price escalation, and risky borrowing. These include: 1. Recalibrating the stress test; 2. Restoring 30-year amortizations on insured mortgages for well-qualified firsttime buyers; and

3. Have all levels of government focus on getting more housing supply on-line—a key factor, but one that will take time. These actions are prudent and can get new buyers into the market without driving up prices or causing undue risk. CMHC analysis shows that returning to 30-year mortgages for first-time buyers would only increase prices by 1 to 2.4%, a range that reflects normal appreciation; at the same time CHBA analysis projects this would allow some 33,000 well qualified first-time buyers into the market annually. Now that is improved affordability!

Younger Canadians are also the lowest risk group of buyers—they have the lowest rate of mortgage arrears and the longest timeframe to pay off their mortgages. Their incomes also rise the fastest, making mortgage payments increasingly affordable over time. And firsttime buyers seeking entry-level homes do not cause excessive house price escalation in any market, period.