(1) Housing Supply*

Use federal infrastructure investment to encourage construction of new housing

When it comes to housing, local, provincial and federal governments each have specific roles to play. When all three levels of government work together, improvements can be made to increase supply and ensure all Canadians have a place to call home.

As municipalities request funding to complete critical infrastructure projects, CREA asks all political parties to commit to place conditions on federal infrastructure investments to encourage the construction of new housing. This will help address the current supply challenge.

We also ask for a commitment from all federal parties to work more closely with provincial and municipal governments and, where needed, develop new solutions to regional housing challenges.

(2) Rules and Regulations*

Reform the mortgage stress test

Many aspiring homeowners have been sidelined by the government’s B-20 regulations (the “stress test”) that came into effect in January 2018. Canadians in some markets are now forced to save more, over a longer time period, for a down payment or buy a less expensive home.

CREA data indicates sales activity for residential units in 2018 reached its lowest point since 2013 and the June 2019 forecast anticipates sales for the rest of the year will remain at 2018 levels. This indicates housing markets across Canada continue to struggle and are not adjusting to the policy change.

One of the unintended consequences of the stress test has seen borrowers move away from the regulated market to less-regulated options. This generates a greater potential for borrowers to pay higher rates of interest.

A balance must be struck to address the government’s concern with debt and the fulfillment of Canadians’ homeownership aspirations. Of particular concern is the restricted ability of first-time home buyers, including millennial and new Canadians, to enter the housing market. While new measures proposed in Budget 2019 will provide relief to some, additional measures are required.

This is why CREA calls on federal political parties to consider:

• All real estate is local and just as real estate markets vary across the country, so should the policies and programs that affect these housing markets. Adjusting the stress test to make it more regional in nature would allow the test to better fit with the realities of each real estate market across the country. A regional test would consider factors such as housing market activity, average cost of a home in that market, employment levels, average income and cost of living in the area. There is precedent for national programs to be tailored to address regional socio-economic factors. For example, there are regional applications of the Employment Insurance Program that reflect the realities of local or regional labour and employment markets.
• Allow existing mortgage holders to be exempted from the stress test at the time of renewal. Responsible borrowers who have demonstrated prudent debt management and are not increasing their loan amount should not be penalized and forced to stay with the same lender. Removing the stress test in these situations would lead to more competitive mortgage rates and allow borrowers to reduce their debt faster.

CREA acknowledges there may be other ways to reform the stress test to support Canadians on their homeownership journey. A comprehensive and transparent review of the stress test is warranted to allow policy makers to fully understand the impact and negative consequences it continues to have on housing markets across the country and address them.

Modernize mortgage lending practices

Each year, thousands of Canadians enter the ranks of the gig economy—a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.

The less predictable aspects of the gig economy, like fluctuating incomes, have made it difficult for these Canadians to secure mortgages. The criteria for mortgage borrowers typically favor applicants who can demonstrate financial stability and consistency—qualities which assure lenders that their borrowers will be able to keep up with loan payments.

CREA recommends federally regulated lenders be encouraged to accommodate the growing number of Canadian gig workers seeking to enter the housing market. Rules governing income verification and reasonability of income must continue to adapt to changing trends of employment.

(3) Affordability and Debt Reduction*

Increase the First-Time Home Buyers’ Tax Credit

Providing financial support to help Canadians fulfill their homeownership dream at a time when house prices are at a record high across the country is critical. The First-Time Home Buyers’ Tax Credit (HBTC) is a non-refundable tax credit available to Canadians purchasing their first home. It was originally designed to compensate for some of the costs associated with the purchase of a home. However, since the program was introduced in 2009, closing costs have continued to rise, yet there have been no changes to the HBTC. Closing costs can range from 1.5% and 4% of the home purchase.

CREA recommends the $750 non-refundable tax credit be replaced with a $2,500 non-refundable tax credit per qualifying home for first-time home buyers to better align with current closing costs.

CREA also suggests the Canada Revenue Agency (CRA) expand the definition of first-time home buyer to help more Canadians. Currently, it is defined as someone who “did not live in another home owned by them or their spouse or common-law partner in the year of acquisition or in any of the four preceding years.” In the United States the definition of a first-time home buyer includes:

• A single parent who has only owned a home with a former spouse while married; and
• A displaced homemaker who has only owned with a spouse.

CREA proposes that the definition of a first-time home buyer be expanded to include the above circumstances.

Reintroduce the 30-Year Amortization

While recent changes to mortgage rules were made to reduce risk and limit debt-to-income ratios, more can be done to help first-time home buyers under the age of 40 enter the housing market. Data from Equifax shows young Canadians represent the lowest risk in terms of mortgage arrears. Further data shows younger first-time home buyers at the beginning of their careers have incomes that rise sharply from their mid-20s through their late-30s. Their Gross Debt Service Ratio drops as their income grows, placing these potential home buyers in the best position to take on long-term financial obligations and manage them effectively.

CREA believes the government should reintroduce the 30-year amortization for insured mortgages to assist these young first-time home buyers. Extending the length of a mortgage improves affordability by reducing the size of monthly payments. For example, a $472,000 home with a 10% down payment and a 5-year fixed rate mortgage at 3.74% would have monthly payments of $2,242 on a 25-year amortization. The same mortgage with a 30-year amortization would have monthly payments of $2,019–a difference of $223.

This change would allow greater flexibility in mortgage choice and lower payments, providing first-time buyers more opportunity for saving, spending or investing. It would also increase the purchasing power of first-time home buyers by approximately 20% and allow an additional 15,000 to 20,000 potential home buyers to enter the market.¹

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[1] Professionnels hypothécaires Canada. Advice to Policymakers on How to Improve Housing Affordability for Canadians. Février 2019

*Information is taken from CREA’s election website: https://realideas.ca