It seems hous­ing will al­ways be a prob­lem

The Compass - - Editorial -

By the fed­eral govern­ment putting a “means test” on po­ten­tial home buy­ers it is com­pelling many po­ten­tial buy­ers to be renters dis­tort­ing the sup­ply de­mand ra­tio of renters vs buy­ers to the dis­ad­van­tage of renters.

As I looked through some old files I came across a “Re­port from Par­lia­ment” dated July 1982 by Jim McGrath, then MP for St. John’s East. At that time, he said “the in­fla­tion rate is presently 11.3 per cent and mort­gage in­ter­est rates con­tinue to climb above 19 per cent.”

What at­tracted my at­ten­tion was the fol­low­ing quote ad­dress­ing hous­ing.

“The se­ri­ous hous­ing prob­lems have de­vel­oped in Canada dur­ing the past three years - avail­abil­ity and af­ford­abil­ity. The ma­jor cause of both these prob­lems is record high in­ter­est rates.”

One could re­phrase this quote slightly and ap­ply it to to­day’s hous­ing prob­lems: The se­ri­ous hous­ing prob­lems have de­vel­oped in Canada dur­ing the past three years - avail­abil­ity and af­ford­abil­ity. The ma­jor cause of both these prob­lems is record low in­ter­est rates.

In an­other quote from the same re­port: “Be­tween June 1st and Oc­to­ber 31st of this year (i.e. 1982), 490,000 fam­i­lies will be forced to re­new their mortgages at these un­bear­able rates. At in­ter­est rates above 19 per cent it is es­ti­mated that be­tween 30,000 and 40,000 home­own­ers could be faced with the prospect of los­ing their homes.”

In­ter­est rates are ris­ing again. I won­der, in three years’ time will the above sta­tis­tics still ap­ply?

Prob­lems arise also when mort­gage in­ter­est rates are be­tween 3 per cent and 19 per cent. In 1971 I came to St. John’s from New Brunswick, where I had ac­counts with two of the ma­jor Cana­dian banks.

I wanted to rent an apart­ment but could not find a suit­able one within rea­son­able dis­tance from em­ploy­ment. I looked around for a house to buy and even­tu­ally found one. I went to one of the banks in St. John’s that I had deal­ings with on the main­land and talked to the man­ager. I out­lined to him that the house was rel­a­tively new (built in 1965) and I was pre­pared to pay 30 per cent down pay­ment.

With­out any dis­cus­sion he stated “sorry, no mort­gage money.” I pushed him fur­ther but got the same re­ply. Then I went to the other bank that I had deal­ings with on the main­land and pre­sented my case. I got the same re­sponse. How­ever, just as I was about to leave the man­ager asked where the house was in which I was in­ter­ested. I told him and he re­sponded “I can­not prom­ise any­thing but come back to­mor­row af­ter­noon.” I did as he asked and I got the mort­gage.

That even­ing I went around to have an­other look at the house. The man in the next house was mow­ing his lawn, saw me and came over. He was the bank man­ager to whom I was talk­ing a few hours ear­lier!

I got my mort­gage at 9 per cent with a lot of hag­gling and with a fu­ture friendly neigh­bour. It seemed very strange to me at the time that with a down pay­ment well above the min­i­mum, in a rel­a­tively new hous­ing de­vel­op­ment, I had dif­fi­culty buy­ing a house sim­ply be­cause banks were ra­tioning mort­gage money.

It seems as if hous­ing is a prob­lem when in­ter­est rates are high or when they are low or at points in be­tween. And four decades later Canada still has not re­solved its hous­ing prob­lems.

Whether one rents or buys ac­com­mo­da­tion in which to live, the cost of ac­com­mo­da­tion should not be too dif­fer­ent (as­sum­ing the size of ac­com­mo­da­tion and qual­ity in each case are about the same). By the fed­eral govern­ment putting a “means test” on po­ten­tial home buy­ers it is com­pelling many po­ten­tial buy­ers to be renters dis­tort­ing the sup­ply de­mand ra­tio of renters vs buy­ers to the dis­ad­van­tage of renters. Hence the dis­pos­able spend­ing money by renters is re­duced. In ad­di­tion, renters have had rent in­creases at a time when many renters have had wage freezes (or worse, lay­offs). In try­ing to re­solve an ac­com­mo­da­tion cri­sis the fed­eral govern­ment has per­haps made af­ford­able ac­com­mo­da­tion much less af­ford­able.

Those un­fore­seen side-ef­fects!

Ian McMaster St. John’s

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