Mortgage rule changes will help spark demand, but supply challenges persist: experts

TORONTO — Experts say Ottawa’s changes to mortgage rules could help spur demand among potential homebuyers, but supply challenges are likely to persist in Canada’s real estate sector despite lofty goals to build new housing.

The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment. The price cap for insured mortgages is set to move to $1.5 million from $1 million, marking the first boost since 2012.

The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.

Speaking at a luncheon panel in Toronto on Tuesday, Mortgage Professionals Canada president and CEO Lauren van den Berg praised those changes as “fantastic news” designed to address significant pent-up demand in the market.

“We’re seeing nowhere near enough supply and we’re seeing people go from excitement about the possibility of that dream of homeownership to desperation,” said van den Berg.

“I don’t think we can hide our heads in the sand when it comes to demand and only focus on supply. I think recognizing the situation we’re in is step one.”

The event, billed as a discussion on Canada’s housing affordability crisis, also heard from Desjardins chief economist and strategist Jimmy Jean. He was more downbeat on the changes, calling the announcement a “debt finance solution to affordability.”

“It gives the impression that things are affordable, but people just end up paying more interest over their lifetime,” Jean said.

The federal government touted the measures it announced Monday as the “boldest mortgage reforms in decades,” which came after a year of criticism over high housing costs.

In a note published on Tuesday, CIBC Capital Markets deputy chief economist Benjamin Tal said the government’s actions would likely accelerate the recovery of the housing market, a process he noted is already underway as interest rates have begun to fall.

“To prevent that from becoming too much of a good thing, we need to match the additional demand with supply,” Tal said.

“The core issue is the lack of supply available to respond to rapidly increasing population … The additions to demand from these mortgage changes will make it even more imperative to deliver on policies aimed at inducing more homebuilding.”

But Jean said it’s important to be practical about Canada’s strategy to build new homes in the coming years.

The Canada Mortgage and Housing Corp. forecasts Canada will require an additional 3.5 million housing units by 2030, on top of the 2.3 million already projected to be built, to restore affordability to levels seen in 2004.

Jean said achieving those targets would mean pulling much of Canada’s labour and capital resources into one sector, leading to shortages elsewhere in the economy.

“We’ve been focusing on supply, supply, supply, but we need to be realistic,” he said.

“We’ve seen this for the last two, three years and how slow things are moving. I think the solution has to be on the demand side and what’s being done to really curb that demand in order to balance out the market.”

Van den Berg said she was hopeful the federal government’s moves would generate momentum on the housing file, as she described a “sense of agitation” among homebuyers that her association hears from.

She said the Bank of Canada’s three consecutive cuts to its key lending rate, along with economists’ predictions of more to follow in the coming months, have sparked “cautious optimism” among those waiting on the sidelines.

“It’s something that our members have asked for because it’s what they’re hearing from their clients on the ground,” she said of the mortgage rule amendments.

“They’ve asked us for this because it’s a critical piece of the affordability puzzle, a critical piece of the accessibility puzzle when it comes to this housing crisis.”

This report by The Canadian Press was first published Sept. 17, 2024.

Sammy Hudes, The Canadian Press