Rule Changes

The budget in an election year ALWAYS has an agenda.  This year, the agenda could probably be summed up as, “don’t mess it up”.

There’s a big difference between playing to win, and playing not to lose… and they clearly chose the latter option.

In the days prior to the release of the budget, those of us working in the housing industry thought that the current “stress test” might be reduced, or that amortizations might increase up to 30 years for first-time buyers (from the existing 25 year maximum).

Unfortunately, none of that happened.

In fact, this was the sound I heard (in my head) when I read the government’s plan for the 2019 housing budget:

High real estate prices and reduced affordability are BIG election issues, due in large part to restricted supply in Canada’s hottest markets – particularly in the Greater Toronto and Vancouver areas.

Did they do anything to address the underlying issues?  Not really.  In fact, they didn’t really do much at all.

Here’s what they came up with…

1.  Shared equity mortgages

If you buy a home worth no more than four times your gross household income (up to a max of $120,000 income), you can quality for an additional 10% investment by the Canadian Mortgage and Housing Corporation for new construction, and 5% additional investment for a resale property.  At the time of sale, the government becomes a “shareholder” and could potentially profit from a value increase, or take a hit on their investment if property values are down.  I can’t find exact details about this online.

Weren’t we talking about how CMHC was a little too exposed in the market a few years ago?  Now they want to become “shared” homeowners?

Why this doesn’t matter very much:  This program caps its benefit with a $480,000 maximum mortgage amount.  Unfortunately, you get a one-bedroom condo for the upper-$300’s in Milton.  This program might help you lower your payments on a two-bedroom condo or a three-bedroom condo townhouse.

Strategically, the 4x multiplier on income is less than the current 5x multiplier people get even with the stress test in place (it was about 7x before the stress test), which creates an interesting dilemma:  buy a cheaper home and co-own with the government, or buy a more expensive home with a built-in stress test that’s designed to already artificially limit your buying capacity.

Out of 100 buyers, I bet no more than a handful of buyers use this option.  This one is not about getting MORE people into the market, it’s about reducing their monthly debt load.

2.  Increased borrowing limits from RRSP’s

The amount first-time buyers can withdraw from their RRSP’s increases every so often, so this one is not a major benefit either.  Previously, you could withdraw up to $25,000 per person… and now it’s $35,000 per person.  Yawn.

Oh, and if there are any assets left after a divorce, newly separated couples may also use this program just like first-time buyers.  Previously, these people would have had to be OUT of the housing market for five years to be considered “first-timers” all over again.

Why this doesn’t matter very much:  If you can afford to contribute $35,000 into your RRSP’s, you’re probably doing well financially.  The rule change wouldn’t make a big impact for you.  It’s rewarding people already in a good financial position… instead of helping the people that need a bit of a push.  Either way, it means the impact will be low.

3.  The expert panel… and a contest?

One of the other strategies is to come up with a national expert panel on housing supply and affordability… and to run a CONTEST to encourage cities to come up with new ways of expanding housing stock.

Seriously… a contest?  They’re putting $300 million towards a “Housing Supply Challenge”.

Hit it!

To sum it up…

What’s clear about this budget is that the government decided to dip their toe in the water with very “moderate” plans that won’t really help 95% of Canadians.  They chose not to address the demand side, and focused much more on the supply side, which would be good if there was some real action taken instead of running contests and forming committees.

They had an opportunity to step up and hit a home run, and instead they chose to bunt the ball.

Get ready for the opposition to come up with (mostly empty) promises about how they plan to fix housing.  It’s an election year!