A new report urges the federal government to encourage more home ownership as a fundamental feature of the forthcoming national housing plan.
Canada’s home ownership rate dropped at 67.8 percent in 2016, down slightly from 70 percent in 2011.
The from the Macdonald-Laurier Institute admits that its recommendations go against the grain of current thinking about how to deal with concerns about home prices and private debt loads. Yet it takes the position that authorities have gone in recent years to address these issues, depriving many Canadians of their societal and social benefits that come from home ownership.
“One gets the feeling that this overemphasis on household indebtedness in bureaucratic circles is partially a consequence of looking at the Canadian market via a U.S. lens despite our apparent differences,” the report says.
Unlike in Canada, the United States allows for tax deductions on mortgage interest. The policy was criticized by economists and is now being debated south of the border as part of a proposed tax reform.
The international financial crisis of 2008 started from the U.S. housing market, where risky subprime mortgages were common. Canada’s housing market withstood the crisis, preventing a significant spike in mortgage defaults during this period.
The writers of Wednesday’s report also express concern that the federal government seems to be focused on fostering social housing and isn’t doing enough to address affordability problems in the wider housing market.
The report consists of Macdonald-Laurier Institute senior fellow Sean Speer, who held senior financial policy positions from the Stephen Harper Conservative government, and Jane Londerville, a retired University of Guelph professor who specialized in real estate finance and affordable-housing difficulties.
Federal officials across many departments have been working for months on a national housing strategy which will be revealed shortly by Jean-Yves Duclos, the Minister of Families, Children and Social Development.
The national strategy is broadly expected to be declared on Wednesday Nov. 22 to coincide with National Housing Day.
Mathieu Filion, a spokesperson for Mr. Duclos, said the plan will be wide-ranging and will handle both affordable housing and market-based housing.
The strategy has already got a budget of $11.2-billion over 11 years at the latest budget and the policy document will show how cash will be invested.
Municipalities and social-housing advocates have urged the authorities to concentrate heavily on the housing needs of low-income Canadians through transfers for social housing. The Macdonald-Laurier report notes that while those issues are important, social or affordable rental housing represents just 6 percent of the housing industry.
Preliminary reports from the national government on home suggest the strategy will not give enough attention to this wider market, they warn.
“It’s hard not to read the [federal government] substances as a manifesto on social housing at the expense of new thinking about the best way best to encourage home ownership in the market-based area of the housing market,” the report says.
The federal government’s role in housing is mostly through the Canada Mortgage and Housing Corporation. The CMHC provides mortgage insurance for purchases in which the deposit is less than 20 percent of the purchase price.
This past year, Ottawa required all guaranteed borrowers to prove they could still be eligible in the posted five-year pace, which is typically greater than negotiated rates. The federal Office of the Superintendent of Financial Institutions has proposed to expand this stress test to all uninsured mortgages, meaning it might impact purchases where the deposit is 20 percent or more.
Concerning specific recommendations, the Macdonald-Laurier report urges Ottawa to shelve this plan. Additionally, it states CMHC’s mortgage insurance fees are too high and reduced prices should be considered. Another recommendation calls for existing tax breaks to be repackaged so that they help Canadians save for bigger down payments in their first houses.
“We realize that some economists are critical of using public policy to promote home ownership. They view it as distorting the market and nudging people into houses they can’t afford when savings may be put to better use elsewhere. All these are valid objections,” the authors say. “But we don’t feel it’s a basis to get rid of housing-related incentives — especially in light of the overwhelming evidence that home ownership is associated with a raft of economic and social advantages.”
Courtesy: The Globe And Mail