By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929
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The government is now entering a new market. Instead of encouraging homeownership like it’s been doing for the past 74 years, and creating new ways for Canadians to have autonomy over the real estate they own, it’s now publicly discouraging homeownership as it gears itself up to excel in low-cost loans only available to developers and landlords.
Since Canada Mortgage and Housing Corporation (CMHC) announced its rental financing initiative in 2017, it has generated immense attention and a “high number of quality applications.” The interest it has received has enabled CMHC to increase its operating budget for its lending initiative from $2.75 billion to $13.75 billion in just two years. It will now sit back and encourage 42,500 new purpose-built rentals to get built across Canada. The initiative to create more affordable rental accommodations shows just how monetarily invested the government is in the acceleration of purpose-built rentals.
And not only will it open the doors to exceptionally competitive interest rates and incentives to those that have experience with property ownership or development but it will also allow loan amortizations of up to 50 years, making it more enticing for the seasoned to construct rentals. The program is also helping the rich get richer from the renters who can't afford a home or even pass the mortgage stress test.
But since Evan Siddal, its CEO tweeted that Canadians need to “end the glorification of homeownership,” many Canadians will buy into bad advice and ultimately never pursue real estate ownership, getting out of the way for the wealthy to continue to deepen their pockets.
For the first time since 1946, Canadians are now being discouraged to own property by CMHC, which has built its name, power and vision through its homeownership programs and the dream of homeownership itself. The vision is now, according to Siddal, that municipalities should encourage developers to "build upwards and not outward so that people can live in 100-200 unit purpose-built rentals in a condensed metropolis instead of an upper-middle-class subdivision of just ten homes."
CMHC’s launch of RCFi, which stands for Rental Construction Financing initiative, reflects and reinforces its vested interest in promoting rentals and long term tenancy arrangements. And, Evan Siddal's comments further emphasize the growing interest in persuading Canadians to stay away from the concept of wealth creation through real estate.
Unfortunately, since foreign investment and money laundering have artificially propped up real estate valuations in Toronto and Vancouver, and the mortgage stress test has removed 30 percent of aspiring purchasers, most will never get the opportunity to own real estate. Instead, perhaps Siddal wants to shift the conversation away from the obvious - that real estate is a good investment many Canadians can't get it on- so that they will believe that financially savvy people rent even despite the overwhelming reality that income to rent ratios doesn’t allow room for savings.
Even still is the most puzzling initiative that CMHC introduced in 2019 with its Shared Equity Program. The need to help with affordable housing in major cities has been mounting and the government decided to offer soft loans of up to 10 percent of the purchase price. The loan cannot be repaid in partial payments and must get repaid in full or in 25 years, and the Government will share in the ownership of the property for the same percentage that it lends.
Therefore, when purchasers end up selling their home or choose to refinance at any point before the loan is due, the government collects its share of the profit.
While purchasers, for the most part, consider the program to be assisting them with a minimal reduction to their monthly mortgage payment, very few will see the reality that they will be sharing in property ownership with the Government, ultimately losing autonomy over their asset. In the end, it's very possible they will have to pay far more in accumulated profits through value appreciation than they would have saved on mortgage payments.
It's also very difficult for a purchaser interested in the program to make an informed decision about applying for the loan since CMHC does not publicly appreciate or explain the disadvantages of the program on its website which can include excessive paperwork and red tape when switching and refinancing, for example.
Therefore, how will CMHC’s initiatives that appear to contradict and undermine the dream of homeownership, affect the next generation and even those who hang on to every word the government tells them in the midst of the housing crises?
Since the 1990s, Canadians have found an abundance of financial security through real estate. Property owners that purchased pre-stress test and even when they didn’t require a down payment have reaped major profits which have allowed them to pursue other investments or grow impressive real estate portfolios. They’ve also been able to use their equity to put their children through school, for example, and even leave their real estate for generations after them. In fact, 76% of Canadians hold their wealth in real estate assets.
But with many people losing their class status through the disparity of income levels between themselves and CEOs that employ them in addition to the cost of living, how will the next generation build wealth without the ability to own real estate? Not many can imagine a world where property ownership is not a reality like it was for their parents.
The new “brand” of CMHC, the one that is increasing its budget to support large rental units and the construction of high-rise rental apartments and discouraging homeownership, may inadvertently force the next generation into becoming lower-class citizens who may have no choice but to keep paying landlords (that may or may not use CMHC Rental Construction Financing).
And when the cost of rent sky-rockets because the demand is too great and the income to rent ratios are no longer acceptable to landlords, where is the next generation to go?
Housing has become one of the most highly sought investments in Canada and despite the pressure this desire causes for better policies like a change of the stress-test, for example, CMHC still feels it needs to “de-stigmatize” being a renter instead of promoting better homeownership initiatives.
In the housing market, existing property owners, foreign investors and yes, money launderers will continue to buy real estate. Some, like the government, will invest in purpose-built rentals to accommodate everyone else who simply couldn’t get in.
While our government tries attempts at implementing new “initiatives” that make more profits for itself and those who can afford a home or a 200 unit rental development, they haven’t considered better ways to help those who can’t. Realistically, the government can promote both affordable rentals and homeownership simultaneously. It doesn’t have to be one or the other - black or white.
The government’s answer to the housing crisis shouldn’t be to end the dream of homeownership but to give Canadians an alternative, and to offer initiatives that truly help Canadians to continue prospering from homeownership.
Despite unaffordability today, young people still want to carry on the tradition. But with foreign investors now owning a large percentage of real estate in Toronto and Vancouver, what happens going forward? Who will help the next generation become homeowners?
If high paid executives like Evan Siddal keep ignoring the wants and the needs of the next generation which also includes those that naturally can't keep up with artificial inflation, then Canadians will quickly develop into lower class citizens with little to no wealth. Therefore, good government policy and initiatives are the only hope.