There is a lot of information about housing affordability out there, and not all of it is accurate. We’ve compiled the most common myths and answered frequently asked questions.
Have a question or concern that’s not addressed here? Write it below and your questions or comments (and our answers) may get added to the list.
Myth: Moving back to 30-year amortization periods for new construction homes for first-time buyers with insured mortgages is not prudent and will create more demand in a supply constrained market.
Limiting 30-year amortizations to new construction homes would help to create new housing supply, addressing any concerns about stoking prices in a supply constrained market.
A return to 30-year amortizations would support well-qualified home buyers access homeownership without adding risk. According to CMHC (using data from Equifax), the age cohort under the age of 35 is shown to be the lowest risk cohort of buyers in terms of mortgage arrears, and arrears rates in Canada are already at historical lows. Supporting first-time buyers will not adversely stoke the housing market, nor will it create undue risk.
In fact, by the time a first-time buyer’s first 5-year mortgage term is up, most have a higher salary than when they applied for a mortgage, lowering risk further. And most Canadians do not take their entire amortization period to pay off their mortgage (the average 25-year mortgage is paid out in about 18 years). We would see the same trend for 30-year mortgages.
And finally, limiting 30-year amortizations to new construction homes would help to create new housing supply.
Myth: Changes to the stress test will further the risk of Canadians overextended themselves financially
Reasonable measures to ensure borrowers will be able to service their mortgage debt are prudent. However, mortgage arrears are at record lows (0.17%) and have been falling for years off of their 0.34% historical average, and the price has been homeownership rates falling. This shows that mortgage rule tightening, including the stress test, have gone too far at a time when it is already very difficult to get into the housing market. From 2011 – 2021, homeownership rates dropped 2.5% (and that percentage is likely higher by now), which means there are 1 million more Canadians renting instead of owning, which is putting a lot of pressure on the rental market and causing further shortages there.
The bottom line: mortgage debt – which is debt financing an appreciating asset – is not the same as consumer debt. Canadians are in great shape with their mortgages, as demonstrated by the historic low arrears, and mortgage debt should not be viewed the same as consumer debt.
If we have a housing shortage, should we really be bringing in more immigrants?
In order to double housing starts and build 5.8 million homes in the next decade, we need targeted adjustments to the immigration system to bring in skilled labour that can help build homes. It’s critical that we build more housing supply – for people who already live in Canada, and to ensure there is enough housing for new Canadians, both of which will help with housing affordability. While measures such as putting a cap on international students may temporarily ease the situation in local markets where housing supply is already scarce, these students are only a small part of overall housing demand, and the real issue is the need for more housing supply in general. Canada needs immigration for many reasons, with a labour shortage across almost all sectors driving up labour costs. The key is to ensure we bring in enough workers for the home building industry so we can build the homes needed.
To help increase housing supply, it’s important that the government focus on permanent immigration for entry-level works that are most in demand for building new homes. This includes allowing categories of much-needed labour such as helpers and general labourers, framers and installers that are not currently in the government’s category-based selection process.
Want more info?
Write your questions/comments below and we may add it to the list above along with our answers. Please note that only respectful dialogue will be featured.
We’ve explored some topics in more detail in our blog, and will continue to add more.