CMHC is an enigma – here’s why

By Casey Edge

Canada Mortgage and Housing Corporation is an enigma – a puzzling organization.
It is in the business of insuring homebuyers’ mortgages that help fund research and affordable housing.

Yet at a recent event, the Globe and Mail reported CMHC CEO Evan Siddall took issue with the promotion of home ownership.

Siddall said, “We have to call out the glorification of home ownership. Renting is a perfect and valid housing option, and may in fact be the best long-term option for many households.”

I don’t think anyone disparages renting – most people start out renting. Today’s shortage of new rental units was assisted by CMHC’s political masters ending the capital gains tax rollover. In addition, government rent controls, combined with a baby boom demographic starting families needing more space (single detached homes), created challenges for building new rental units.

Recently, rental has become more viable partly due to demand from a large millennial demographic — the biggest since the 1970s — combined with the rising cost of buying homes in many urban markets, mostly driven by a lack of supply. Significantly contributing to lack of supply — especially in municipalities like Toronto and Vancouver — are prohibitive rezoning processes, Kafkaesque building regulations and astronomical fees discouraging development.

The CD Howe Institute published a study describing how municipal zoning regulations and demands add to the price of new housing. The added cost is $168,000 to the price of single-family homes in Toronto, $644,000 to prices in Vancouver, $264,000 in Victoria, $152,000 in Calgary, and $112,000 in Ottawa-Gatineau. This same issue was covered in Canadian Contractor earlier this year.

It’s important to remember that HST and Land Transfer Taxes on housing did not exist 35 years ago. Since their introduction, three levels of government have treated housing as a cash cow generating billions of dollars for their coffers, while preaching the importance of housing affordability. On top of Ontario’s Land Transfer Tax, Toronto has its own tax, which generates about $800 million annually.

However, be wary of the notion of an “affordable housing crisis right across the country, as political leaders were promoting during the federal election. There are six provinces with average housing prices under $300,000: Saskatchewan ($278,546); Manitoba ($285,013); Nova Scotia ($248,059); Newfoundland ($248,396); PEI ($249,325); and New Brunswick ($180,383). That’s right, a home in New Brunswick is less than the added government costs on a new home in Victoria.

The least credible people offering advice about housing are politicians. The next least credible after politicians are bureaucrats.

That said, despite being a bureaucracy, CMHC actually does some good research. One example is the study on the value of home ownership, which reported that of 326 Habitat for Humanity homeowners, 86 per cent reported being happier.

According to one news report, “Children blossomed, especially in school, with most families reporting higher grades, increased confidence, improved behaviour, and better attendance.”

So why would CMHC question the benefit of home ownership, when its own study clearly outlines the positive social value? Home ownership is clearly a strong benefit for families and especially children.

Similarly puzzling is CMHC’s advocacy of the mortgage stress test which reduces homebuyers’ purchasing power. It requires homebuyers to qualify at the Bank of Canada’s five-year benchmark rate (5.19 per cent) or 2 per cent above the rate the homebuyer negotiates with the bank, whichever is greater.

Canada’s banks and other lending institutions are offering 10-year fixed rates for as low as 2.99 per cent. What is the purpose of forcing families to pay more? Surely a 10-year fixed mortgage in Canada is sufficient protection against rising interest rates – rates that haven’t increased and are now decreasing in most countries.

As outlined earlier, lack of affordability is due to lack of supply – like any other product.

In light of all of this, the stress test doesn’t make much sense for Canadians – or for CMHC which is in the business of insuring mortgages.

And that’s the definition of an enigma.

Casey Edge is CEO of the Victoria Residential Builders Association and a passionate advocate for the home building industry in Canada.