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Opinion Piece: Unlocking Homeownership

By Chris Guérette

CEO – Saskatoon & Region Home Builders’ Association

The Saskatchewan Legislature is back in session this month and thankfully, issues that matter such as PST, the federal mortgage “stress test” and housing, appear to be hot topic items already in question period – as they should be. The 2018 numbers have been released for new housing construction, and this is the worst market Saskatchewan has experienced in close to 12 years.

The removal of the PST exemption on construction services has been hard to digest, the increase to the price of a home has been roughly 3%. A national research poll conducted last year demonstrated that for every $10,000 increase in the price of a home, 2.3% of potential buyers were pushed out of the market. The price of a home matters.

The implementation of the federal mortgage “stress test” however, has resulted in a full-stop to home ownership for 147,000 Canadians. If we pro-rate that to Saskatchewan, that’s approximately 4,500 future homeowners that have been completely pushed out of homeownership by one policy stroke. This number may arguably be larger for our province, meaning we bear more than our proportional share because of Saskatchewan’s population, which is younger than the national average. To provide additional context to these numbers, the new housing market alone sold less than 1,400 homes in 2018 (single family homes down by 20%) in our province and all home sales – which includes the current housing stock – were just over 10,000 (down 7%). That 4,500 looks pretty big once you put it into context. While it’s widely acknowledged now that this stress test caused a sharp slowing of housing activity in Canada, I’m guessing this is not the type of impact the federal government wanted to have.

So let’s break out where the “stress test” fails future homeowners… and how we can unlock that for them.

The test does not consider the probability of income growth that occurs by the time mortgages are renewed, it only considers the probability of interest rates being higher.  If interest rates are higher, that means the economy is strong, which in that case is very likely to mean strong income growth as well.

The test does not have regional flexibilities imbedded into it. The government might then say, well, the need for the test was not based on the housing market activity, it was based on the level of individual indebtedness that was a concern. Except mortgages are included in that indebtedness number, which cannot be put into the same category as a loan for a car for example, or credit card debt. Having a mortgage is a mechanism forcing us to save, when you think about it; the repayment of a mortgage includes the mortgage principle which grows over time. In addition, over the course of a life-time, the cost of home ownership is actually lower than the cost of renting the equivalent housing. There are local realities that can be applied through calculations of affordability and defaulting rates. Certainly, purchasing a home in Vancouver looks starkly different than purchasing a home in Saskatoon or Regina.

The test has negative consequences on the broader economy. Houses in Canada are 3.4% cheaper than before the stress test, which is arguably what the government was trying to avoid. The reason pressure was mounting to find a solution to large volume consumer mortgage debt is because of how vulnerable Canadians are to falling house prices. Consumer confidence then falls, consumer spending then falls, which eventually impacts unemployment levels. I know of several local businesses in the residential construction sector who can unfortunately tell you more about that – because the stress test has already created negative consequences in the broader economy.

The test prevents Canadians from pursuing their long-term best interests. 75% of Canadians – and this is no different for Saskatchewan – view homeownership as a key to financial security. 4 out of 5 millennials want to own a home, yet most of us realize the challenges now facing those who wish to become homeowners as a potential failing in our current socio-economic system. I know for my kids, while this is more than a decade away for them, we still have the chance to get this right. This is the first federal election where millennials will be the largest voting group… housing matters for them. And housing matters for the next generation.

The next generation cannot vote on matters that impact home ownership and affordability – we have a responsibility to provide solutions and keep the conversation going with our governments.