Evan Siddal, the CEO of Canada Mortgage and Housing Corporation (CMHC), has recently made various Tweets about his present stand on homeownership. According to Siddal’s judgment, Canadians need to “end the glorification of homeownership” and recognize that renting is acceptable. Siddal has also publicly encouraged municipalities to favour “100-200 unit purpose-built rentals instead of 10 single-family homes” on parcels of land available for development.
Siddal appeared compelled to start a discussion about renting and focus on the reality that it’s become impossible for many to own real estate. However, despite his intentions to raise awareness about an issue he sees as significant, his comments beg the question: Is his opinion against wealth generation through real estate admissible? Should everyone who can’t qualify for a home stop “glorifying real estate”? Is this CMHC’s answer to the housing problem?
CMHC has many roles. It promotes initiatives that help Canadians get into the market through high ratio mortgage insurance. Through its National Housing Act Mortgage-Backed Securities it allows lenders to pool their mortgages together and sell them to third party investors. It also helps landlords and developers build purpose-built rentals through mortgage insurance and mortgage loans that have exceptionally competitive interest rates and amortization periods of up to 50 years. CMHC also conducts a fair amount of impartial research about the housing market and presents it to Governments and just about anybody else involved in the industry.
Therefore, it’s paradoxical that the chief of CMHC is promoting renting as superior to owning when the Crown Corporation’s very prosperity has been because of real estate. It continues to collect billions of dollars in revenue through its expensive premiums, application fees and exclusive mortgage financing available to select developers and qualified landlords. In 2018, “CMHC declared $4.175 billion in dividends, owing to its shareholder, the Government of Canada.”
CMHC exists because of real estate and therefore Siddal’s message is not just incompatible with reality but it is not convincing.
Let us consider real estate ownership from two unique viewpoints. The first one through the views of an ordinary first time home buyer and the second, through the views of individuals in the many groups I will clarify who’ve once (or many times) had a large effect on the housing market and have since profited from owning real estate.
Most first time home buyers who apply for mortgage financing have completed school and work in stable jobs. They have a satisfactory credit score and have saved up a small down payment. They’ve also shown no issues with credit delinquency. Yet, the Government recognizes them as “high risk” borrowers since they don’t have a down payment of 20 percent or more. When qualifying, they still have to pass a Mortgage Stress Test which considerably reduces their pre-approved purchase price and for most of them, there is scant inventory available within their budgets.
They’ve had no sort of impact on the real estate market except to help landlords create wealth and due to their lack of significant down payment and subjection to unrealistic qualifying measures, they’ll probably continue to be renters. Their disqualification puts a significant amount of pressure on the rental markets because of an already low vacancy rate.
In comparison, existing homeowners who have built up equity through price realization, concerned foreign investors from China, Taiwan, Japan, East India and Singapore who want to park their money in Canada and money launderers who use Canadian real estate to wash their drug money do not have to trouble themselves with the stress test. They normally encounter no issues purchasing a property.
A homeowner who has amassed capital and purchased pre-stress test and pre-inflation may access funds to expand his or her portfolio with no need to pass the stress test. He or she can qualify for financing on a mortgage with a 30-year amortization, which is 5 years more than the high-risk category, to curtail mortgage payments. They can also apply with many financial institutions who do not have to comply with stress test criteria. He or she can apply for considerably more mortgage products tailored to helping them grow their rental portfolios by allowing “extended ratios” and using rental worksheets to cancel out higher costs making qualifying easier.
Foreign real estate investors have a profound passion for owning real estate overseas. For illustration, the Chinese have always had their roots established in real estate. But in places like Beijing, for example, the Government doesn’t allow civilians to own homes. Therefore, the Chinese consider Canada a perfect place to engage in arbitrage. In Vancouver, as much as 20 percent of its population identifies as ethnic Chinese. Many foreign investors have also used real estate in Canada’s major cities to park their money waiting for stronger economic years in their respective countries.
Unfortunately, for Canadians, foreign investment has artificially and drastically propped up real estate values.
When the Chinese invest here, money doesn’t seem to be an issue since China’s economic revolution has produced a record number of millionaires that outnumber Canadian ones. To present this in context, there are 200,000 households in Canada that have $1M in assets and there are over four million Chinese millionaires. It’s easy to recognize why Canadians cannot contend with foreign investors in their own country’s real estate market.
So, when Evan Siddal downplays homeownership, who exactly he is speaking to as it doesn’t appear the individuals in the second group have issues with owning property and are, in fact, very clear about their view that real estate is a sound investment?
It seems aspiring homebuyers, the ones who want a shot at homeownership for the first time, are told to take up renting and abandon the “dream of homeownership”, instead. Since CMHC epitomizes homeownership, could there be another industry that Siddal is inadvertently promoting?
What many people don’t realize is CMHC also supports landlords and developers who wish to build purpose-built rentals. For example, CMHC offers flexible mortgage loans for new and existing real estate projects meant for standard rentals, single-room occupancies, supportive and retirement housing. For developers or landlords to be eligible for its mortgage loans, they must own at least a five-unit building and the property must be at least 70 percent residential.
CMHC also offers mortgage insurance on construction loans with a premium of up to 5 percent and an application fee of up to $55,000. Even if mortgage applications get declined, CMHC still takes a fee for the underwriting work completed.
Not every purpose-built rental uses or needs CMHC, however, since 2017, its Rental Construction Financing (RCFi) has received a lot of interest and consideration by developers that are both for-profit and not-for-profit which has encouraged the low-cost loan budget from $2.5 to $13.75 billion. Therefore, CMHC now encourages 42,500 rental housing units across Canada in the next four years.
So, in conclusion, when everyone including the Government is making billions off the dream of homeownership, why is Siddal telling a small group of people to take up renting forever? Why is Siddal telling them, they shouldn’t let anyone sell them “the dream”? What “dream” is he trying to sell them?
Not only are first time home buyers treated unfairly by the stress test which has inadvertently allowed existing homeowners, investors and money launderers to keep amassing wealth but the new initiatives put in place by CMHC to help developers and landlords create more rentals, will only help the rich get richer while the aspiring purchasers will rent from them.
Therefore, end the glorification of homeownership if you want, just know that when you do, those who won’t, will keep making money and attracting wealth through real estate. Even CMHC will use the renters as a tool to attract more developers and landlords who will pay more premiums, more application fees and generate more profits for its one shareholder, the federal government.
Sarah A. Colucci, Sr. Mortgage Agent/Mortgage Edge Broker 10680/Direct: (647) 773-4849
By: Sarah Colucci
411 Queen St.
15 Wertheim Court, Suite 210
Richmond Hill, Ontario
Sarah A. Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, FSCO Lic. 10680