If you’re involved in real estate in any capacity, you’ll have noticed the numerous federal government efforts to stymie continued household debt by targeting the real estate sector. However admirable the intentions, genuine home buyers are being punished in the process.
Here’s a quick summary of those few efforts over the past eight or so years involving government-backed (insured) mortgages:
-mortgages cannot be amortized more than 25 years, down from 40 years; At its simplest terms, this means your monthly payments are more, which means those who barely qualified on their ability to carry a mortgage month to month are less likely to qualify.
-minimum down-payment must be not less than 5%: For a while lenders were showering first-time buyers incentives for their down payment, like cash-backs as a “downpayment”, as no down-payment per se was required. Without this, it’s harder to get that first home without little cash on hand.
-homes costing a minimum one million require a downpayment of no less than 20%, otherwise CMHC isn’t backing the loan.
-minimum payment must be no less than 10% on the first $500,000 of a home; the message is clear: if you’re intent on carrying such a load so quickly, you’ll be limited by the amount you’ll be forced to pay up front, and therefore less debt right out of the gate on your shoulders.
And it’s the latter effort that has prompted me to write this piece: simply put, the government is punishing Canadians everywhere for the mini-real estate market trends in pockets of the country, and equally important, the government is punishing Canadians without acknowledging the exponential rise of foreign funds from non-residents buying properties and escalating property prices.
Let’s put it another way: you grow up in a small village, and as generations have done, you contribute to the well-being of the community, both intangible and tangible. You expect to have the means to buy a home in this village, like the generations before you; except someone from out of the village decides to beat you and others on a property, and more of those decide to drop by the village and buy up properties at rates and prices unexpected.
Your local village leader decides to slow this down, doing so based on stat sheets showing prices out of control. The village leader introduces a law for everyone, without addressing the real cause of these aberrations in the real estate market, namely, that outside money is pouring in the village and escalating prices, ultimately affecting young families who had invested their lifetime with the hope of one day owning a home in the village.
There are no restrictions on non-residents purchasing homes in Canada; the regulatory regime is designed to have lenders carefully reject anyone on certain credentials. But there’s nothing to reject anyone based on their ability to completely shut out young families who had investested years in the community and aspiring to one day set roots in it.
The primary argument in favour of all these changes is that Canadians are in fact carrying more debt, and 80-87% of the “highly indebted” households are for mortgages, and there’s no denying this fact.
The response to this simplistic argument is that Canadians are taking a bigger loan on the same home that would have cost much less had the money not entered the village real estate. The feds have good intentions, but ignoring the unrelenting funds pouring into the Canadian real estate market and punishing real home buyers is a travesty.
A balanced approach is much-needed, one designed to encourage Canadian families to reap the benefits of years of commitment to their communities, all the while inviting others with zero connection to them to invest and participate in the communities that have been painstakingly built.
Bassam Lazar is primarily a real estate lawyer in London Ontario, offering services in London, Windsor, Kitchener and surrounding areas.