Finance Minister Bill Morneau recently announced some dramatic changes to Canada’s mortgage rules. This includes a stress test for all insured loans, and the removal of a tax loophole that has enabled non-residents to avoid paying tax after the sale of a property.
Although the federal Liberals believe these adjustments will benefit the real estate market, the government is wrong. They will ultimately have the opposite effect, and help cripple the Canadian economy.
My family has been involved in mortgages and investments for more than 50 years. In my view, implementing artificial controls on mortgage rules will unnecessarily throw cold water on a hot housing market. Ottawa’s manufactured real estate slowdown will also hurt businesses related to this industry (including construction companies and manufacturers), and lead to a significant reduction in jobs.
That’s what is beginning to happen in Vancouver.
This summer, the B.C. Liberal government announced a 15 percent tax on properties purchased specifically by non-residents to artificially slow down the city’s surging real estate market. This reportedly led many foreign buyers to rush out and close mortgage deals before the Aug. 2 deadline.
The result? Vancouver experienced a 33 percent drop in home sales in September. Purchase prices remain unchanged – since this surtax is only a month old – but will gradually decrease as sales stagnate, and the demand for building supplies and part-time/full-time labour for new homes and condos diminishes.
The mortgage industry in Vancouver is also starting to sputter. While this may not necessarily disappoint a typical home buyer or home seller, it’s reducing the available amount of financial options that foreign buyers have to get a suitable mortgage. Hence, they’ve been looking at shifting to other cities, including Toronto, that don’t have this terrible tax.
Until the federal Liberals borrowed heavily from the B.C. tax model, that is, and took it several steps further.
Oh, the irony of Ottawa lecturing Canadians on how to manage debt by Charles Lammam, Hugh McIntyre and Ben Eisen
In particular, first-time home buyers across Canada are going to be in a real pickle. Many of them can’t afford to purchase houses and condos in today’s inflated housing market. The addition of a “stress test,” which will be used by banks to determine whether potential buyers can repay their loans if the five-year mortgage rate in Canada escalates will disqualify many people and crush their dreams of buying a home.
If a bank turns you down, and there are fewer mortgage brokers and agents dealing with private lenders, your remaining choices are friends and family. In other words, the two groups we’re always advised not to borrow from, or lend to.
There’s another possibility: move to a smaller city, town or village. Housing and condo prices are substantially lower, and far more affordable for first-time and existing buyers. For example, the average price of a detached home in Toronto is around $1.2 million, whereas it’s a little less than $320,000 in the Niagara Region.
Unfortunately, you have to factor in other parts to this equation. This includes the length and cost of travel time (if you continue to work in a bigger city), the possible wear and tear on your vehicle, and the geographic distance from your immediate family’s location.
Some people will consider this option, bite the bullet and make the move. Others will stay in their current situation – which is not ideal, but may make more sense for a healthier work-life balance. No matter what their decision is, this important choice must be left to home buyers and sellers.
Finally, and most importantly, the federal government shouldn’t be interfering in real estate and mortgages. Instead of creating restrictive, artificial conditions to reduce the housing market and grind everything to a halt, Morneau should have allowed the free market to determine if and when Canada’s housing boom ends.
Alas, the federal Liberals’ historical inclination is to meddle in the affairs of the nation’s business. Our real estate market will suffer as a consequence of their actions, and Canadians will suffer with mortgage rules that will badly hurt them in the long run.
Michael Taube, a Troy Media syndicated columnist and Washington Times contributor, was a speechwriter for former prime minister Stephen Harper. He holds a master’s degree in comparative politics from the London School of Economics.