Housing affordability crisis

The housing affordability crisis is pushing the dream of home ownership beyond the realm of possibility for many Canadians. And while industry insiders believe short-term solutions should be adopted to offer some relief, the country’s housing agency chief disagrees. Canada cannot overcome its housing affordability crisis without increasing the supply of homes, but this will take years. According to a recent study by the Canada Mortgage and Housing Corporation (CMHC), Canada needs to add 3.5 million units by 2030 to restore affordability. “With interest rates at their current levels, and persistent inflationary pressures driving up the cost of living, many families and individuals trying to buy their first home need a break,” said Jasmine Tour, director of public affairs at Mortgage Professionals Canada (MPC). “We are in danger of an entire generation giving up on the dream of home ownership.” Relief measures to address short-term affordability challenges Tor argues that extending amortization periods to 30 from 25 years for borrowers with insured mortgages — those making down payments of less than 20% — should help more Canadians enter the housing market. As well as increasing the existing $1 million home price cap for insured mortgages to $1.25 million. “These policies will help remove some of the barriers to entry that cause young Canadians to give up on the dream of home ownership,” she says. But Romi Powers, CMHC’s president and CEO, disagrees, recently telling the Canadian Press that extending repayment periods “makes credit more available.” She argues that while the policy change would lower monthly payments for borrowers, it ultimately increases the cost to homeowners in the long run, which she fears will exacerbate affordability challenges. “My concern is that sometimes this feels like a quick fix,” she said. “If you just had a 30-year amortization, everyone’s mortgage payments would be $200 down and they could actually afford the house, but if you’re in a market with limited supply and this is your solution, it won’t solve the problem in the long run.” Instead, Bowers wants the industry to focus on increasing the supply of homes across a wide range of price points, with a better balance between the high and low ends of the market. While Tor agrees that the offering will help balance the market in the long term, she fears that Canadians need more solutions to mitigate affordability challenges in the short term. Besides extending amortization periods and keeping home price limits for secured mortgages in line with rates in Canada’s major cities, it says the federal government could also eliminate stress testing on mortgage transfers, switchovers and renewals. Toor also encourages the Canadian government to convene a permanent National Housing Roundtable with stakeholders from across the country to share best practices across jurisdictions. “Not much has been done to address the housing affordability challenges Canadians now face,” she said. “We believe the federal government — including the CMHC — can show more leadership in this area.” A 50-year amortization case While getting the government to accept a 30-year amortization for insured mortgages may be a challenge, some say they should go further. Dustan Woodhouse, president of Mortgage Architects, is calling for a maximum amortization period of 50 years for existing borrowers facing higher monthly payments. “No help is on the way; the cost of labor will not decrease, the cost of materials will not decrease, government fees will not decrease, the price of land will not decrease,” he told CMT. He continued, “I’m not saying extended amortization is the best thing, but nobody can deny that it’s a thing, it’s a good thing, it’s a good thing, and it’s going to relieve some very significant stress in the families of existing mortgage holders right now.” Woodhouse maintains that his proposed solution would only apply to debt servicing, and could not be used for qualification purposes, as that would only drive up prices. In the end, he believes it is better to allow Canadians to extend their repayment terms to what some would consider extreme lengths than to let them lose ownership of their home. “If you’re a renter, you pay rent for life; how is that better than owning a home with a 50-year amortization?” he says. Woodhouse explains that most lenders can extend the amortization period, but only offer it once borrowers have actually spent their savings in an effort to keep up with higher mortgage costs. “The majority of lenders are able to offer an amortization up to 40 years, which takes a huge advantage in a big way, but they won’t offer that unless you know to ask, and they usually only offer it to people who have missed a mortgage payment,” he said. “Shouldn’t we proactively try to help Canadians manage these payments before they go through a crisis?” Woodhouse also believes that if Canadians are given the opportunity to extend their repayments up to 50 in times of financial hardship, the majority will seek to repay them sooner once they are on a more stable financial footing. “For that person who’s reading this and saying, ‘It’s ridiculous that a 55-year-old should be able to afford 40 or 50, that’s just crazy, it’ll be 95 or 105 before they pay for their house,’” he said, “that takes things to an extreme.” rent when they’re 105, how could that be better?”

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