Canada's housing crisis and mortgage stress test are officially election issues

Debate was sparked on Thursday by an NDP motion calling on the government to create 500,000 affordable housing units in the next 10 years

Nationalpost.com
February 1, 2019
Stewart Thompson

If housing affordability is destined to be an election issue in 2019, Canada’s political parties are already fine tuning their arguments for how they will fix the problem.

In a debate in the House of Commons on Thursday, the Conservatives took aim at the mortgage stress test that requires Canadians to show they can withstand higher interest rates.

“The stress test is a one-size-fits-all tool that punishes Canadians from coast to coast to coast, regardless of conditions in their local market,” Conservative MP Tom Kmiec said in a speech in the House. “It’s a deal for big banks, not Canadians.”

With most of Canada’s housing problems centered in Vancouver and Toronto, Kmiec said the stress test is having a destructive effect on his Calgary riding.

Homeowners renewing their mortgage financing who fail the stress test are confined to their original mortgage lender, without the opportunity to shop around. Kmiec said he’s heard stories of people being forced to sell their house because they can’t refinance after failing the stress test. Others are underwater on their mortgages thanks to the dampened market in Calgary, he said.

Debate was sparked on Thursday by an NDP motion that tackles the housing issue from the other side of the ideological spectrum, calling on the government to create 500,000 affordable housing units in the next 10 years, with half of them completed in five years. NDP leader Jagmeet Singh, who is vying for a seat in the upcoming Burnaby-South byelection in British Columbia where housing concerns dominate, has also called on the government to double the first-time homebuyers’ credit.

The Liberal government has suggested it will do something for first-time home buyers, but has remained vague on the details with a budget and election campaign approaching. There are a number of policy options the government could take advantage of in the short term, including longer amortization periods for mortgages, richer credits for buyers and even a cap on the stress test.

“We see how failure to address needs of people at one end of the housing continuum affects people all along it,” said Jean-Yves Duclos, the minister of families, children and social development, said during the debate. The government’s 10-year plan focuses mainly on affordable housing units, which it hopes will juice supply and help housing affordability more generally. That’s an argument echoed by Singh while he campaigns in B.C.

Notably, none of the parties is in agreement with accountants and economists who argue that just because Canadians want more debt, doesn’t mean the government should help them get it.

“If you increase the amortization period you’ll have people taking on more debt and as a result you’ll increase prices. It’s hard to say if those are the right solutions,” said Kyle Dahms, an economist at the National Bank of Canada. “The data seems to be saying that there’s going to be an improvement in affordability in the short-term.”

It’s a deal for big banks, not Canadians

The housing issue also suffers from a vexing catch-22, where many of the measures designed to cool off the housing market, and therefore make it more affordable, have the consequence of shutting many younger buyers out of the market. The stress test, known as B20, requires borrowers to show they can handle interest rates two percentage points above the current rate and has resulted in about 20 per cent fewer mortgage originations among younger Canadians.

That’s been noticed by the Bank of Canada, which said in early January that “housing investment (has) been weaker than expected as housing markets adjust to municipal and provincial measures, changes to mortgage guidelines, and higher interest rates.”

As an election approaches in Alberta, opposition United Conservative Party leader Jason Kenney has vowed to fight Ottawa’s stress test on mortgage approvals, road-testing what could be the federal party’s message.

Kenney has been calling for the stress test to include exemptions for areas that aren’t suffering from the skyrocketing prices seen in Toronto and Vancouver.

In Ontario, Premier Doug Ford has a simpler solution to the housing problem: build more houses. Bloomberg News reported this week that the Ford government intends to give local government more power on the issue, allowing developers to boost the housing supply.