So, who are you going to vote for in the upcoming Federal Election? It doesn't matter to us - as long as you just VOTE!
With the high cost of housing outpacing the incomes of many citizens in Canadian cities, the issue of housing affordability is on the radar of a lot of voters in the upcoming election. It's a factor that weighs heavy on middle-income households (Here's my post on Toronto Real Estate & The Missing Middle: Part One - and - Part Two), and millennials who are facing ongoing challenges trying to buy their first home. (This is from my Dear Urbaneer series called How Can Millennials Possibly Afford To Buy Real Estate?”).
Image courtesy of Macleans
Government intervention and support in the Canadian housing market isn’t anything new, with measures, policies and programs playing an integral role in pulling the market back or in pushing it forward. Today, our housing market is linked more than ever to the general health of the overall Canadian economy, as this piece in Better Dwelling called "Canada’s GDP Gets A Boost By Deepening Reliance On Real Estate" demonstrates. While there are differing opinions on how much Government intervention is appropriate or even possible, no question that the public needs some assistance in keeping homes affordable, all while keeping the free market healthy.
Here is a summary of some of the finer points around the election campaigns political promises and some of the press circulating.
The Liberals are planning on expanding on some of the existing programs that introduced while in office these past four years, including the First Time Home Buyer Tax Incentive (FTHBI). The argument was that this First Time Home Buyer Tax Incentive does little to help first time purchasers in pricey cities, because the cost of housing generally exceeds the cap limit. For expensive cities like Toronto, Vancouver and Victoria, the Liberals are saying they'll increase the cap to $800,000.
This party are also addressing the impact foreign buyers have had buying Canadian real estate at a time when we've been experiencing a supply crunch in many parts of the country. At the moment only the Provinces of Ontario and British Columbia have a foreign buyers tax on property purchases within portions of the provinces (in and around the urban centres of Toronto and Vancouver). Their platform includes introducing a 1 percent tax to foreign buyers who don’t reside in Canada. They also propose changes to the tracking of foreign ownership, in an effort to close loopholes which purport fraud and contribute to the erosion of affordability. I’ve written a great deal about the impact of foreign ownership. Click here to read Foreign Buyers, Property Prices, And Toronto Real Estate and Foreign Buyers, Inadequate Policy, And Canadian Real Estate.
Recognizing the need not only to mitigate climate change, but also to reduce the operating expenses of property ownership, the Liberals have also proposed a grab bag of environmentally-friendly promises to appease socially (and fiscally) conscious real estate owners. They will offer interest free loans to home owners and landlords for retrofitting existing dwellings; they will offer grants (up to $5000) for property owners to buy newly build net zero homes; and they will offer homeowners free energy audits as an incentive to help jumpstart their goal of retrofitting 1.5 million homes over the next five years. They will also require all new appliances to be made ENERGY STAR® Certified.
The Liberals also recognize the necessity of a low-cost flood insurance program to help those prone to natural disasters. The damage and devastation from flooding is increasing in numerous pockets around the country, year after year, and voters are recognizing government programs like this are important.
As the Liberal platform is about trying to encourage homeowners to be proactive improving with the environment and their dwellings, the Conservative Party are largely about implementing policies that ease affordability and home ownership. Instead of tax credits, they propose changes that will make home ownership (and the debt burden that goes along with it) more economical in daily life.
This party propose extending mortgage amortization from the 25 year time frame conventional financing now requires to 30 years for first time buyers, which will reduce monthly payments. Although extending the maximum amortization is beneficial to those who are comfortable spreading out their housing costs over a longer period, it still ultimately translates into higher interest costs for the buyer. Nevertheless, in expensive markets it can make the difference between being able to purchase a property or not.
They also want to eliminate the mortgage stress test for existing property owner when their mortgage comes up for renewal. Right now all homeowners with 20% equity or more are required at the time of refinancing to re-qualify their mortgage debt using either the 5-year benchmark rate published by the Bank of Canada or the mortgage interest rate plus 2% that the homeowner has with their existing lender, whichever is the higher. In a changing economic climate or personal challenges, retaining the current policy could impact the ability for some current homeowners to retain their homes.
Also proposed as part of their platform is the commitment to launch an extensive inquiry into money laundering within the Canadian real estate market (including the loopholes that exist around reporting) in an effort to expose those who have, and will, execute these means of fraud and crime to benefit.
The Conservatives also intend to offer tax credits for green home retrofits, and are committed to offering Federal land towards increasing the housing supply.
The New Democratic Party
To win more votes, the NDP is committed to improve housing affordability largely by focusing on supply, including creating 500,000 affordable housing units in the next 5 years. This coincides with a pledge to add $5 billion to an affordable housing budget within the first 18 months in office. In fact, to encourage developers to build more rental housing units, they also propose eliminating existing HST/GST (taxes) when constructing new rental housing units.
Like the other parties, they want provide mortgage and tax credit incentives to make housing more affordable for first time homebuyers, including extending the 25 year mortgage amortization to 30-years. And good news for the younger generation trying to push their way into the real estate market: the NDP propose doubling the existing First Time Homebuyer Tax Credit!
The NDP - in keeping with their social democratic philosophies - are also intending to earmark funds to help communities build co-ops and social housing, as well as invest in a federal Shelter Housing Program. I believe housing is a right and not a privilege, so I'd like to see more information on this!
The Green Party
The Green Party recognize shelter as a right, and not a privilege. They intend to propose legislation that would ensure affordable housing is a legally protected fundamental human right for all Canadians and permanent residents. This party wants to increase the Canada Mortgage and Housing Corporation's (CMHC) National Housing Co-investment Fund to escalate the supply of new housing in addition to increasing the Canada Housing Benefit to help with rent assistance. Furthermore, to encourage new rental housing creation, they propose restoring tax incentives for building purpose-built rental housing and remove the required “deemed” GST when a developer who has empty unsold condo units places them into the rental market instead.
The Green Party are taking the long view on a lot of housing matters including a massive energy efficiency retrofit of residential, commercial and institutional buildings by financing building retrofits and installation of renewable energy technologies such as solar and heat pumps through direct grants, zero-interest loans and repayments based on energy/cost savings. They also want to change the national building code to require new construction to meet net-zero emission standards by 2030 and work with the provinces to enact it.
The Green Party want to eliminate the first-time home buyer incentive, as they believe it exacerbates housing speculation and commodification.
To help the Indigenous population obtain homeownership, the Green Party proposes changing the legislation that currently prevents Indigenous organizations from accessing financing through CMHC to invest in self-determined housing needs.
*These articles give good summaries on the various parties and their platforms: “How Are The Federal Parties Promising To Make Your Life More Affordable?”, “Election 2019 Platforms: Here's What The Liberals, Conservatives, NDP And Greens Are Promising.” and "2019 Federal Election Platform Guide: Where the Parties Stand on Everything"
Do The Solutions Address The Problems?
Each of the political parties have addressed, to a certain extent, what is plaguing the Canadian housing market. That said, many questions remain, including: 'Do these election promises offer meaningful solutions?' 'Do they go far enough?' 'Are they viable?' The answers to these questions, of course, depend on who you ask and what your point of view is... and what promises are kept once said party is in office!
Take for example, the proposed changes to the mortgage stress test. The concern expressed by some is that the proposed changes to mortgage qualifications may pave a dangerous path for homeowners to overload themselves with debt. Homeowners could not only be looking at dangerous household debt levels, but if the restrictions become looser for buyers, it could fuel housing prices even further! This article addresses some of the perceived problems of eliminating the mortgage stress test and keeping housing prices under control: “Home Ownership Os A Hot Issue This Election. But Will Politicians’ Promises Hurt Or Help Prospective Buyers?". The article undermines the point that truly making Canada’s housing market affordable isn’t going to happen overnight. It’s going to take a concerted, concentrated effort from policy makers for years in order to effect real change. Furthermore, this article suggests that policy might be better utilized towards supply creation, contributing affordable housing options.
Evan Siddall, the CEO of CMHC, has passionately defended the mortgage stress test, believing that without it, dangerous debt is inevitable, as he discusses in “Lobby Is On The Wrong Side Of This Issue’: CMHC Head Takes On Real Estate Industry With Defence Of Mortgage Stress Tests”. He believes the focus seems to be about qualifying and affording housing right now, but there needs to be dual emphasis on keeping housing prices down in the years to come. The thinking is that if prices or interest rates go up, any relief a homeowner might have experienced isn’t going to be as useful.
There are many on the other side of this argument, including homeowners, realtors, and mortgage brokers who feel that the mortgage stress test is causing more harm than good to the housing market and are encouraging policy makers to loosen rules. Click here to read, “Real Estate Boards Call For Federal Candidates To Support Looser Mortgage Stress Tests”.
Personally, I'm risk averse and believe restraint for the collective good can ultimately serve the individual. But I'm also someone who had to bypass conventional financing in my youth due to my low down payment, low income and lack of an establiished credit rating. I purchased property by going to a mortgage broker who sourced private lenders who charged higher interest rates plus mortgage placement fees. I don't regret this in any way, but the price I had to pay for the privilege of buying my own home was significantly higher because of it. Today this is still done by those whom are considered to have marginal incomes or pose as higher risks. If someone is as committed to getting on the property ladder as I was, they will find a way to buy.
What Are The Costs?
This article, “Gimme Shelter: Breaking Down The Housing Promises On The Campaign Trail” looks at all the party promises and questions some of the logistics and the reality of the ideological execution. It's inevitable that all parties have some flaws in their platforms - namely that they fail to reveal how much these initiatives would cost taxpayers. The author of this article would also like more information - as would we - on the location of the Federal land that's is being promised to help with building supply. Is it where it is needed?
This article also highlights what isn’t in the election platforms: addressing rental housing equally, which is also in short supply and also figures into providing affordable housing. There has been little done to address policy that deters developers in the building of new units, like development fees and levies, rent control laws and capital gains tax.
When you break these promises down, there are nuggets of wisdom in all of them, but you need to consider the solutions from the perspective of the market, as opposed to political ideology.
A number of these suggested reforms will go a long way to helping with affordability, as this intelligent post in Realosophy's 'Move Smartly Blog' succinctly summarizes, “Five Changes To Help Canada’s Housing Affordability Crisis”. The author of this piece David Larock brings good insight into what voters should be looking for, if affordable housing is at the top of the change that they hope they will receive from our elected officials. At the crux of it, the promises that will help to alleviate financial strain on a monthly basis, let homeowners continue to stay in their homes and build equity in their homes and control criminal activity around the housing market are desirable and would be effective. It’s not wise either to have policy that allows people to take on more debt than is comfortable, because it’s not a stretch to consider that in the event of a market correction, homeowners who squeak through on affordability could easily find themselves in over their heads.
Larock suggests that the MQR should be lowered to reflect market conditions, but that it serves a purpose in terms of controlling how much debt can reasonably handle, while maintaining a cushion. He also supports the implementation of a 30-year amortization on insured mortgages, after a borrower has qualified (currently they must qualify with a 25-year amortization). Giving borrowers the choice to extend their amortizations out and keep their monthlies lower effectively builds in a cushion to absorb rising interest rates, or if a homeowner’s income changes (i.e. job loss, maternity/paternity leave, etc.).
He also agrees that homeowners shouldn’t be subject to the mortgage stress test at renewal, mostly because it deters competition and the ability for homeowners to shop around mortgage rates. If a homeowner wants to stay with their current lender, then they don’t have to re-qualify for a mortgage, but if they want to switch in favour of getting a lower rate, then they have to re-qualify and take the stress test. For those borrowers unable to “shop around” under the stress test, lenders are less likely to offer them lower rates, which is flying in the face of creating affordable housing.
Larock also supports a Federal foreign buyer/vacancy tax to curb speculation and keep house prices affordable and suggests that the Federal government needs to step up in a big way with reforms to money-laundering oversight.
I'm a fan of Larock.
When it comes to voting, please look beyond the smiles, the blanket promises, and the photo-ops with babies!
No matter what your political stripes are, the need for shelter impacts us all, so being well-informed on the political frameworks that help achieve housing equality for everyone is vote-worthy.
Rarely do I go on rants, but here is my post where I wonder aloud Why Homeownership Remains A Priority For Canadians, Despite The High Costs?
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With a multi-disciplinary education in housing - and 27 years experience in the property market - I believe the search for a property requires engagement on every level, and bringing to your attention when a property is not your ideal.
In fact, it's how I've achieved my place as one of Toronto's top producing realtors.
Here are some of my past posts on Canadian Housing, some of which are embedded in links throughout the post:
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