November 24, 2016
Will New Government Promises Improve Affordable Housing in Canada?
The sky-high cost of housing, coupled with growing debt levels, have been catching up to Canadian homeowners – and housing policymakers are determined to do something about it. Several proposals were announced this week with the goal of making real estate more affordable for buyers and renters.
The Canada Mortgage and Housing Corporation (CMHC) kicked off the initiative by releasing the results of its national consultation on the state of the housing market. Compiled by the Conference Board of Canada from over 6,351 survey results as well as social media, focus group and roundtable submissions, the report highlights the most urgent issues facing housing in Canada:
- Housing options must be improved and made more accessible in aboriginal communities
- Financial solutions are needed to help first-time homebuyers get into the market
- There needs to be better collaboration between various levels of government and communities to address top housing issues
- Existing laws need to change to support affordable housing for all Canadians
The federal government also announced it is moving ahead with a five-year plan to support affordable rental housing, with $2.5 billion earmarked to build 10,000 units across the country.
“Ensuring that Canadians have access to affordable housing, with all the socio-economic benefits that come with it, is a key priority for the Government of Canada,” said Yves Duclos, minister of families, children, social development, and the CMHC. “The input and ideas we received from Canadians will be invaluable in helping to shape a National Housing Strategy that delivers better housing, socio-economic and environmental outcomes for all Canadians.”
This initiative follows the province of Ontario’s efforts to improve buyer affordability by doubling the Land Transfer Tax rebate for first-time buyers earlier this month.
Could Higher Down Payments Be On the Way?
While support for a national housing strategy is ultimately good news for homebuyers, the CMHC is also mulling over a change some may not be too happy about: increasing the required minimum home purchase down payment. CMHC President and Chief Executive Evan Siddall alluded to the potential changes in a speech earlier this week, stating it could be an option as outright hiking mortgage interest rates would be too drastic a measure.
“(The CMHC) needs to explore a potential future path to higher minimum down payments,” Siddall said. It would be the second time in two years the down payment threshold is changed; as of last February, buyers are required to pay a minimum 10% down on the portion of a home purchase exceeding $500,000, and a minimum of 5% below that.
And, while Siddall was clear that “…additional measures are not currently on the table,” they would follow other recent mortgage rule changes from the Department of Finance designed to keep overly-leveraged borrowers out of the market.
Will The Changes Really Help Canadian Homebuyers?
Both the CMHC and the Department of Finance point fingers to historically low mortgage rates as a main culprit driving housing prices. With such cheap borrowing opportunities available, it’s not surprising many buyers are taking out massive mortgages to pursue the Canadian homeownership dream. Cheap rates are allowing buyers to break into the housing market at all costs, which has only driven demand and real estate prices.
However, once ensconced in homeownership buyers are finding those large mortgages are considerably limiting their financial freedom, according to a recent debt survey by Manulife Bank. The survey finds that 38% of homeowners with mortgage debt are having difficulties paying for the costs associated with home ownership, such as payments, utilities, and maintenance. Three in 10 mortgage holders report paying 30% of their net income on their payments, and one third said they’d have difficulties keeping up with payments within three months if their household’s main breadwinner lost their job.
Homeowners also reported being extra vulnerable to rising interest rates, with one in six saying they’d have financial difficulty if their borrowing costs became more expensive. Lack of extra cash has also impacted homeowners’ abilities to set aside rainy day funds for financial emergencies, putting them at even greater risk.
“It’s undoubtedly stressful living paycheque-to-paycheque,” said Rick Lunny, president and chief executive officer of Manulife Bank of Canada. “If you don’t have extra cash at the end of the month, it’s very difficult to build a rainy-day account. For those who find themselves in this situation – a good place to start is working with an advisor to create a budget. Many people are surprised at how much of their money is going toward things that they don’t consider that important.”
Are you worried rising mortgage rates would hurt your ability to pay the bills? Share your thoughts with us in the comments.