Canada’s rate of home ownership is more than two full percentage points higher than in the United States.Fred Lum/The Globe and Mail
It’s human nature for people to see a problem and want to fix it.
Take the housing market, for example. All of the main parties, including the Liberals and Conservatives, campaigned hard in this election on the promise of making homes more affordable.
And with sales and prices rising again in many of the country’s hottest housing markets, a new government will be tempted to act early in its mandate.
That’s unfortunate. Meddling in the real-estate market – by making it easier for people to buy homes – is just as likely to make affordability worse. Artificially boosting demand risks exacerbating a shortage of available homes for sale in some areas.
Yes, real-estate prices have risen dramatically in cities such as Toronto and Vancouver in recent years. It’s also true that affordable rental units are hard to find in many markets.
But the evidence does not support the notion that Canada is facing a home ownership crisis worthy of government intervention.
More than 66 per cent of Canadian households currently own their home, according to TradingEconomics.com. That is down from a peak of 69 per cent in 2011. But it’s still higher than in most other developed countries.
Canada’s rate of home ownership is more than two full percentage points higher than in the United States, where there are generous tax incentives, including the ability to deduct mortgage interest from their taxable income.
Even in Toronto and Vancouver – the least affordable markets in Canada – home ownership rates are near the top among major cities around the world, the Royal Bank of Canada pointed out in a recent report. Ownership rates in those cities are double what they are in Paris and Berlin.
Younger buyers are also doing pretty well compared with their peers elsewhere. The ownership rate among under-35-year-olds in Canada was 43.1 per cent in 2016, or nearly 10 percentage points higher than in the U.S.
So the key question for the next government is: What is the problem that needs fixing?
In spite of offering no coherent answer to this question, both the Liberals and Conservatives are proposing new incentives for home buyers.
Andrew Scheer’s Conservatives, for example, would lower buyers’ monthly costs by letting them amortize insured mortgages over 30 years, up from the current limit of 25. Mr. Scheer is also promising to “fix” the mortgage stress test, introduced in 2018 by the Liberals, to deter Canadians from taking on too much debt, presumably by relaxing the rules.
The downside of the Conservative plan is that it risks encouraging Canadians to buy more expensive homes, take on excessive debt or both.
Liberal Leader Justin Trudeau says his government would implement and enhance a new $1.25-billion “shared-equity” program for first-time home buyers, announced in the March budget. Under the plan, Ottawa would offer interest-free loans covering up to 10 per cent of the down payment on a house in exchange for a proportional share of the future gains when the house is sold. The Liberals plan to boost the program’s house price limit to make it viable for buyers in the priciest cities of Toronto, Vancouver and Victoria.
The implicit assumption of both the Liberals and Conservatives is that more Canadians should own their own homes.
But neither party has offered a clear rationale for why raising the rate of home ownership is an appropriate policy goal. And if a two-thirds household ownership rate is too low, what is the appropriate level for Canada? Ninety per cent? One hundred per cent?
In China, more than 90 per cent of households own their homes, although these are typically small apartments, purchased with savings, rather than a mortgage. The Chinese are great savers and they place a high cultural value on owning real estate.
Canadians, on the other hand, generally take on a mortgage, and enduring debt obligations.
Renting is on the rise in North America, even for high-income earners. The Wall Street Journal reported last week that the share of U.S. households with six-figure incomes opting to rent rather than own has risen sharply since the 2006-07 housing crash. The newspaper said the trend is partly due to high prices and inadequate savings for a down payment, but also because some people want more disposable income and fewer home-maintenance responsibilities.
The next government would be wise to look at the bigger picture before doing anything further to stimulate home ownership in Canada.