August 25, 2019

New mortgage rules are a barrier to home ownership

JIM RIVAIT, GUEST COLUMNIST

Recent changes to mortgage insurance rules announced by the Federal Finance Minister Jim Flaherty will reduce the number of families in Alberta that can afford to purchase a home.

The changes, that will go into effect next week, were designed to cool down overheated housing markets in places like Toronto and Vancouver. Edmonton and Calgary markets are improved, but have experienced balanced growth since 2008 and the need for such a measure is unwarranted.

This change is the fourth to mortgage insurance rules since 2008 essentially returning conditions to where they were prior to 2004, when Ottawa began to soften restrictions on the mortgage insurance business.

SAME IMPACT

In terms of cost, shortening the maximum amortization period for insured mortgages from 30 years to 25 years will have roughly the same impact as increasing mortgage rates by close to one percentage point. These changes are likely to have a greater impact on first-time buyers who typically require an insured mortgage. Buyers using conventional financing will not notice any difference and should still be able to obtain 30-year mortgage terms if they choose. Since the tighter mortgage insurance rules take effect part way through the month of July, the full impact of the new regulations will not become evident until August.

Some look at the building occurring in all areas of Edmonton, and they ask, “Who will be moving into all those houses?” New home market demand comes from new family formation and in-migration, and we have seen more than 13,000 people take up residence in Alberta in 2012. All the experts report continued strong economic growth in Alberta that will support continued demand for housing.

So, what will these changes mean for a typical Alberta family looking to get into the housing market? The new rules mean that less Albertans can realize the dream of home ownership. Parents know the importance of home ownership in securing one’s financial future and these changes will certainly delay, and possibly prevent, their children from ever realizing that dream.

Those expenses that are routinely incurred for the ongoing operation and upkeep of your home and include your mortgage and property taxes will increase with the new rules, and so will the qualifying incomes.

So, if you need to make more money to qualify for a mortgage, some will be left behind. It is difficult to pin down a number, but our initial estimates show that it is not out of line to expect that up to 5,000 Albertans will be prevented from realizing their dream of home ownership.

That leads to what government likes to call “unintended consequences” and that effect will be particularly acute in Alberta.

RENTAL MARKETS

Demand will continue to build in Alberta’s rental markets due to the strong economy, increased in-migration and the change in mortgage rules. Despite the higher costs to get into the housing market, rising rents will encourage some renters to become prospective buyers.

However, the increased pressure on the rental stock will push rents higher for those who can least afford it and make it even more difficult for potential purchasers to save for a down payment. When these factors are combined, it is clear that the changes will have an unfortunate, but noticeable, impact on those Albertans hoping to realize the dream on buying a home.

Jim Rivait is CEO of the Canadian Home Builders Association, Alberta.

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