In an announcement today in Toronto, federal finance minister Bill Morneau announced new measures by the government to ensure the housing market remains stable and that Canadians can rest easy that their largest asset – their home – remains a safe investment.
“Overall, I believe the housing market is sound, but as minister of finance I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk,” Morneau said.
These measures will bring a greater consistency to mortgage rules, he said, “reduce risk for taxpayers and ensure everyone is playing by the rules.”
Effective October 17, 2016, all new insured mortgages will need to undergo a mortgage rate stress test that’s “more robust” than is currently required. This includes fixed rate mortgages for 5 years or more, which were previously excluded from such measures.
Effective November 30, 2016, mortgages that lenders insure using portfolio insurance and other low-loan-to-value ratio mortgage insurance will need to meet loan eligibility criteria that previously only applied to highly-leveraged insured mortgages. This will not affect Canadians with existing mortgages.
Ottawa will be launching a consultation regarding lender risk sharing between the government and financial institutions
Just before Morneau’s announcement, the federal government made a move to close tax loopholes so that non-residents can’t claim the principal residence exemption when they sell their home; this measure will ensure “improved tax fairness for homeowners.”
These measures follow an analysis of the housing market conducted by the Department of Finance Canada, in conjunction with various government agencies, including the Office of the Superintendent of Financial Institutions (OSFI) and Canada Mortgage and Housing Corporation (CMHC), as well as the ongoing collaboration and information sharing done through the working group with provincial and municipal officials.
“I want to be clear today: Our goal is to manage the risks in the market for the long term . . . allowing people to get into the market appropriately and make sure that their investment stays secure in the long term,” Morneau said.
Morneau didn’t stray much from the speech, despite reporters asking multiple questions regarding foreign buyers and the true impact that the government believes that foreign buyers are having on the Toronto and Vancouver housing markets; the specifics of CRA tax filing for foreign buyers; and future indicators as to whether these new measures are a success.
He did, however, say that his office recognizes that there are multiple dynamics and issues that are affecting house prices across the country and that the office will “remain vigilant” when considering ways to ensure that any market measures taken will remain appropriate to keep housing markets stable.
He also mentioned that the stress test specifically is to prevent Canadians from taking on too big of a mortgage that they can’t afford.
In order to keep the Vancouver and Toronto housing markets from spiraling even further out of control, Canadian officials have been looking into ways that these housing markets can be altered without harming other housing markets in the rest of the country. In June, Morneau created a working group of officials from the two cities and the provincial governments of Ontario and British Columbia to study the matter and make proposals. Morneau indicated plans to release those consultation papers in the coming weeks.
Not only is household debt and housing affordability a concern to officials, but also the knowledge that the prices in Toronto and Vancouver aren't sustainable, and even though employment growth and an influx of would-be homebuyers are moving into the areas, it's still not enough to support the current housing trends in those housing markets. Given how heavily the Canadian economy is relying on the real estate sector, these are valid concerns. On the other hand, there is a responsibility to protect other regional markets that are currently much more affordable and aren’t suffering – or benefiting, depending on how you look at it – from the factors on the coasts.
British Columbia took some of the power into their own hands and in August, introduced a 15 per cent land transfer tax on home purchases by foreign buyers. Although data indicates that the market had already started to slow down before the tax was introduced, experts agree that the tax certainly accelerated the process. How much it will help over time remains to be seen.
Last year, the finance department along with two federal regulators – CHMC and OSFI – announced measures to stem the tide of the Vancouver and Toronto housing markets, including the introduction higher down payment requirements for homes worth more than $500,000-$1 million.
“People are concerned about the state of the housing market. Across the country, many middle-class families looking to buy their first home see prices climbing often out of their reach. Some are taking on high levels of debt in a rush to buy before it’s too late. Those who already own their homes want to know that the market is stable and that their most important investment is safe,” said Morneau. “Affordability is an issue that concerns many middle-class families, particularly in Toronto and in BC’s Lower Mainland. Federal government policy alone cannot control house prices, certainly not directly, but it does have a role in ensuring housing markets are stable and functioning efficiently.”