Approach housing challenges with logic and leave out the bureaucracy

Lost in all the rhetoric, attacks and scandals of the federal election campaign has been the concerns of home builders, realtors, brokers and home buyers about housing.

It is getting less attainable, due in no small part by interventions of governments, their agencies and independent federal agencies such as the Office of the Superintendent of Financial Institutions (OSFI).

For some reason, they look at housing challenges with one-size-fits-all solutions, but all housing markets are different.

Something that people need to be aware of is that the only place that a “‘Canadian housing market’ exists is in the vaults of lenders.

The Canadian housing market is a very strange market, with weird things happening like Calgary’s housing market being negatively affected by the GTA (Greater Toronto Area), Vancouver and the Fraser Valley markets, (The Bottom Three).

The Bottom Three, (The GTA, Vancouver and the Fraser Valley) are the least affordable markets in all of Canada’s housing market, according to Zoocasa.

If you are wondering how unaffordable The Bottom Three is, Zoocasa made calculations based on statistics like benchmark home prices, and median incomes, this came with very interesting results.

“In Greater Vancouver, where the benchmark home prices costs $993,300, a median-income household earning $72,662 would qualify for a mortgage of only $241,994, leaving a shortfall of $751,306, a total of 76 percent of the total purchase price,” says Penelope Graham, managing editor at Zoocasa. “That would take a household setting aside 20 percent of their income annually a total of 52 years to save the required funds.

“Fraser Valley and the Greater Toronto real estate markets round out the steepest three, requiring median-income households to come up with 70 percent and 63 percent of total purchase prices of $823,300 and $802,400, respectively, requiring prospective buyers to save for 42 and 32 years.”

Now these are Calgary’s statistics.

With a benchmark price of $420,500 and median income (before tax) of $99,583, a buyer in our city qualifies for a maximum mortgage of $415,454, requiring a downpayment of $21,025 which, says Graham, would take about one year to save.

Now you’re asking how The Bottom Three markets affect Calgary’s housing market?

It's all because of this four word acronym. O-S-F-I.

People are currently having concerns that Canadian households are reaching and have reached record debt levels, however these concerns should definitely be taken seriously which OSFI did with a series of mortgage qualifying regulations, the most recent one that has been added being B20.

All buyers must go through a stress test, requiring them to qualify at a mortgage rate much higher than what they can negotiate with their lenders.

This idea was implemented in order to prevent people from purchasing houses that OSFI thought they would not be able to afford, especially in the The Bottom Three markets.

The latter is not a bad idea, but OSFI’s B20 is.

“You can’t compare Calgary to Vancouver or Toronto. We don’t have a problem, so why do we have a stress test in Calgary?” asks Cal Wenzel, CEO and CVO of the Shane Homes Group of Companies. “If the government honestly believes some housing markets are going out of whack, then yes, let’s have a stress test, but I think there should be regional stress tests and regional rates.”

Cal’s son, Shane, president of the Shane group, says there is at least one other thing the federal government could do to encourage, rather than prevent, homeownership.

“Simple,” says Shane. “Bring back 30-year mortgages, to lower monthly payments.”

Jay Westman, chairman and CEO of Jayman Built, also favours tweaking B20.

“I would take the actual five-year rate a buyer is getting, add a contingency of a one percent increase in mortgage rates over the five-year term and there would be the number,” says Westman. “Today, we can get a five-year fixed rate at 2.69 percent, so then the qualifying rate would be 3.69 percent, as opposed to 5.19 percent as it is now.”

Members of the Canadian Real Estate Association (CREA) are also calling for changes to policies.

“No two real estate markets are the same. The one-size-fits-all housing policies, like the mortgage stress test, are simply not solutions that will work across our diverse country,” says Matt Honsberger, president of the Nova Scotia Association of Realtors. “In Nova Scotia, transactions through the NSAR MLS System generated an estimated $513 million in spin-off spending last year.

“This economic impact is recognized by all levels of government, who we encourage to continue working with real estate brokers to ensure that policies encourage growth in our market and make homeownership more affordable and accessible.”

“CREA is proposing policy solutions on behalf of realtors and their clients. We’re presenting responsible ideas that will help more Canadians achieve their dream of homeownership,” says Michael Bourque, CREA’s CEO.

If you are wondering what the CREA’s actually calling for, here it is.

They want to revise OSFI’s mortgage stress test in order to take into account how it's impacting different real estate markets across the country. They’re looking to replacing the $750 First-Time Buyers Tax Credit, with a $2,500 non-refundable tax credit instead. They want to re-introduce 30-year mortgage amortizations. The CREA also want them to take into account while adding regional differences when implementing nation-wide measurements that affect home buyers. They also want the encouragement of the construction of new housing supply.

“The time has come for Canada to have a clearly articulated housing strategy that brings all government agencies onto the same page,” says Alan Tennant, CEO of the Calgary Real Estate Board. “We are supportive of initiatives that facilitate Canadians in achieving their dream of homeownership. Leadership in government is needed to bring an end to ad hoc policy changes that make tough economic conditions harder in some markets or introduce measures too late.”

It is incumbent on the new federal government to act on these recommendations with a logical, not bureaucratic nor ideological, approach.