Finance Minister Chrystia Freeland announced last week upcoming changes to the Canada Mortgage and Housing Corporation (CMHC) mortgage insurance rules for first-time home buyers and buyers of newly built homes. The changes were presented as good news for anxious young Canadians worried about their ability to purchase homes. I’m mostly skeptical.
Under these proposed changes, CMHC’s mortgage insurance would be available for home purchases up to $1.5 million (as opposed to the previous threshold of $1 million) which means in practice that buyers no longer require a 20-percent downpayment on such homes. In addition, qualifying homebuyers will also be eligible for a 30-year amortization on their mortgage (as opposed to the previous 25-year maximum).
The minister’s announcement has received mixed reviews.
On the one hand, Canada’s homebuilding industry is experiencing record low levels of new housing starts, and this policy could theoretically kickstart demand for new homes. Because of this, Freeland framed this policy as a “supply-side measure.”
That said, the underlying problem facing Canada’s housing market is a problem of affordability, which this policy does nothing to address. In fact, by effectively allowing families to take on more debt (backed by government guarantees), the new policy is a highly-costly way to finance the launch of new housing construction.
This stands in stark contrast to the past position of the Trudeau government which—a few short years ago, with federal deficits growing at incredible rates—famously argued that it was running deficits to save Canadians from taking on personal debt.
Notwithstanding the policy’s flaws, it’s likely to coincide with mostly unrelated developments that may temporarily conceal its downsides. Here’s what will likely happen in the months to come, most of which this government will seek credit for.
