The Province

New mortgage rules could hit first-time buyers hard

Bob de Wit

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Acommonly shared wisdom among all levels of government and industry is that it’s critically important to protect the interests of first-time homebuyers and those at the lower end of the real estate home ownership ladder.

Home ownership is a good thing: It would be hard to find anyone to argue with that. That’s why I was surprised to see a policy announceme­nt from our federal government that, although seemingly subtle, will have a huge impact on the ability of entry-level buyers to own a home or move up in the market.

On Oct. 3, Finance Minister Bill Morneau announced a series of proposed changes to federal policies and legislatio­n affecting mortgage loan insurance, mortgage lending rules and tax treatment of capital gains from principal residences for foreign buyers.

Of particular concern is the “stress test,” whereby all insured homebuyers must qualify for a mortgage at the Bank of Canada’s convention­al five-year fixed posted rate, which is significan­tly higher than actual rates.

This will dramatical­ly reduce the mortgage amounts available to buyers, locking out many first-time buyers trying to buy entry-level units and potentiall­y disqualify­ing buyers who have already qualified, but not yet secured their mortgage. Convention­al mortgages will also be affected by new portfolio insurance rules and this will further impact the market, although the extent of these impacts remains unclear.

The Canadian Home Builders’ Associatio­n — of which the organizati­on I lead is affiliated — has just released a study on the impacts of the measures, which estimates that one-quarter to one-third of firsttime buyers could be removed from the market and that the measures overall will reduce housing activity by six to 10 per cent. This is obviously a serious concern.

Preventing home ownership is a politicall­y risky move, not to mention economical­ly reckless. If the government persists with these measures and the reduced demand translates to fewer homes built, the economic impact of a 10 per cent reduction in housing activity is worth roughly $6 billion in GDP.

Sometimes the seemingly smallest changes can have the biggest impact.

Let’s hope the federal government reconsider­s their direction on this one. To make sure they do, don’t be shy about letting your feelings known to your local member of parliament.

Bob de Wit is CEO of the Greater Vancouver Home Builders’ Associatio­n. Email bob@gvhba.org

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