MORTGAGE DEBT IN CANADA
Gordon Isfeld | 07/10/13 | Last Updated: 08/10/13 10:46 AM ET
OTTAWA — We have been warned before, and often. The federal government and the Bank of Canada, in particular, have lectured us about the evils of sky-high consumer debt and still-creeping house prices — and the mounting threat to the economy — as rock-bottom interest rates inevitably begin to rise.
Now, municipal leaders are weighing in — and in a big way. They are calling on Ottawa to urgently address the issue of home construction, in general, and what they see as a depleting stock of affordable places to live.
“The federal government has a limited but critical role to play, in partnership with other orders of government, in restoring balance to our housing system,” said Claude Dauphin, the president of the Federation of Canadian Municipalities [FCM], in letter to Prime Minister Stephen Harper.
“Federal actions, aligned with provincial, territorial, and local initiatives, can be a catalyst for a stronger and more balanced housing system, which will attract investment and create jobs, support new growth, and increase labour mobility,” Mr. Dauphin said in the Oct. 1 letter.
“As it stands, for those who cannot afford to purchase a home, the short supply of rental units is driving up rental costs and making it hard to house workers in regions experiencing strong economic activity.”
The FCM is making its case ahead of the Conservative government’s Speech from the Throne on Oct. 16. “Housing costs and, as the Bank of Canada notes, household debt, are undermining Canadians personal financial security, while putting our national economy at risk,” said Mr. Dauphin, the mayor of the Montreal borough of Lachine, noting that mortgage debt held by Canadians now stands at $1.1-trillion.
Canada Housing and Mortgage Corp., the Crown agency responsible for insuring mortgages to approved buyers, uses a 30% threshold of total household income going to housing. Anything above that, and consumers could end up over their heads.
Dallas Alderson, director of policy and program at the Canadian Housing and Renewal Association, said one-quarter of Canadian are over that limit. Of those, 40% are renters, while 18.5% own their homes.
“So that’s the situation we have. In the last 15 years, only 10% of housing starts have been for rental, even though 30% of us rent,” she said.
“But a more shocking number is 20% of [private] renters are paying half of their income for their rent, which is incredible because you have very little left over.”
Mr. Dauphin, in an emailed statement to the Financial Post, said municipalities “support the federal government’s commitment to jobs, growth, and Canadians’ financial security.”
“For that reason, we believe that as the government sets its priorities for the next two years, it should address the high-cost of housing in Canada, the most urgent bread-and-butter issue facing Canadians today,” he said.
“We’re not expecting the Speech from the Throne to include specific new policy proposals, but it should recognize the strain housing costs are putting on Canadians, and set the stage for concrete action in at least two areas: protecting and expanding rental housing; and protecting communities from the impact of expiring operating federal housing agreements.”
But Finn Poschmann, vice-president of research at the think-tank C.D. Howe Institute, said Ottawa has “little jurisdiction and almost no practical capacity to deliver housing.”
“Past attempts to do so, through CMHC for example, have produced financial disasters for the people who participated and put CMHC in grave financial situation.” he said.
“We wouldn’t want to see that again, nor the federal mortgage agency deeply underwater and as similar U.S. agencies have been, through the course of much more recent financial disasters.”
Still, those close to the ground see federal involvement as crucial in heading off the very crisis Ottawa has been cautioning Canadians about.
“I think FCM is certainly on the mark to say that housing is really the key piece that may be under threat if all players don’t act to ensure its stability,” said Ms. Alderson.
“In terms of the federal role, there are a variety of incentives that the federal government could put in place to really push the private sector towards the development of more rental housing,” she said.
“Whether that’s an instrument through CMHC or whether that’s an instrument through the taxation system, there are a whole variety of options available to the federal government but none are being utilized right now.”