FINA Committee Report

Dissenting Report from the Official Opposition

As Members of the Official Opposition, we would like to thank the witnesses who appeared before the committee and those who submitted briefs as part of the study on the real estate market.

As the government continues to raise taxes on Canadians, we thought that a study on the real estate market would be appropriate, since people need to save money in order to make the biggest investments they will ever make in their lives.

Following several weeks of testimony, with 44 witnesses heard and 23 briefs submitted, it is clear that the October 3^rd, 2016 changes to mortgage rules have had negative effects on the Canadian housing market and economy.

Namely, these changes have made it more difficult for homebuyers to get approved for a mortgage. This has both negatively impacted homebuyers, mortgage brokers and the construction industry.

In the long term, these changes will create a less competitive marketplace, making it harder for Canadians in rural areas to apply for a mortgage and thus alienating a generation of first time homebuyers. 

Moreover, these changes, which were designed to solve problems in so-called ‘heated home markets’, are a one-size-fits all solution that has unfortunately hurt other housing markets across the country.

These changes were implemented with no consultation and the results have been clear.

In developing this Dissenting Report, we, members of the Official Opposition on Finance Committee, focus on recommendations that respond to the testimonies given at Finance Committee.

In expressing our concerns, we can categorize them under four categories: impact on first-time homebuyers; impact on the construction industry; impact on mortgage brokers & credit unions; and impact of ‘one-size-fits-all’ policy.

Impact on First-time Homebuyers

The October 3^rd changes have made it harder for Canadians to get a mortgage, putting the dream of home-ownership out of reach for many. In fact, the Bank of Canada estimates that 1/3 of mortgages issued in the past 2 years would not qualify under the new rules.

Stakeholders broadly supported this view. Desjardins Group pointed out that first-time homebuyers were the most affected by the new test, with 66,500 fewer housing starts as a result. The Quebec Federation of Real Estate Boards estimated that between 5,000 and 6,000 Quebec households will delay their purchase of a home beyond 2017. The Association des professionels de la construction et de l’habitation du Quebec anticipated that 74,000 Canadian households will have difficulties purchasing a home in 2017 because of the changes. Mortgage Professionals Canada said that one third of existing borrowers with insured mortgages would have difficulty meeting the new stress test requirements. They went on to remark that the changes have led to 42,000 fewer home sales, resulting in 15,700 lost jobs. The Nova Scotia Home Builders’ Association said that a mortgage lender in Newfoundland expected that 25%-30% of its existing borrowers would not qualify because of the changes. A number of stakeholders, including Genworth Canada, expected a large reduction in the number of first-time homebuyers entering Canada’s housing market. Genworth speculated that the reduction could be as large as 25%.

In responding to these concerns, we believe that the Minister of Finance shall reverse changes made on October 3^rd, 2016 based on the impact they are having on Canada’s economy, including the real estate and mortgage industry, the residential construction industry, and household consumption.

We also believe that the Minister of Finance shall direct his department to study options to modify the stress test so that it doesn’t negatively affect first-time home buyers.

Finally, we believe the minister of Finance shall conduct broad stakeholder consultations prior to unilaterally introducing changes to the mortgage rules.

Going forward, we will continue to advocate for the needs of first-time homebuyers. The dream of homeownership is important and policies like the October 3^rd changes which damage this goal should be reversed.

Impact on the Construction Industry

It is expected that these changes will harm the Canadian economy by lowering economic activity in the construction industry. In fact, the Bank of Canada has estimated that the blow to the construction industry could cost the Canadian economy as much as $6 billion by 2018.

Many of the testimonies at the Finance Committee supported this view. The Quebec Federation of Real Estate Boards estimated that these changes would result in $220 million in housing-related spending being foregone. Moreover, the Association des professionels de la construction et de l’habitation du Quebec suggested that Canada’s home improvement sector will be affected by these changes. The Nova Scotia Home Builders’ Association thought that the country’s home construction sector would also be negatively affected by the changes and predicted that 2017 would be worse for the sector than 2015 or 2016, which were the worst years on record in Atlantic Canada.

In order to attempt to alleviate this pressure, we believe that the Minister of Finance should work with provincial and territorial governments and examine ways to reduce the excessive regulatory burden at all levels of government that cause delays in the approval of housing development projects including red tape, fees, and taxation.

Going forward, the Official opposition will continue to advocate on behalf of policies that grow our economy and foster job creation. We will continue to oppose measures, like the October 3^rd changes, that hinder economic activity and reduce jobs.

Impact on Mortgage Brokers & Credit Unions

It is clear based on testimony that these changes have adversely affected mortgage brokers and credit unions across Canada, particularly in rural areas. These changes have made them less competitive, particularly vis-à-vis the larger banks.

First Foundation Mortgages Inc., The Mortgage Group Canada Inc., and Verico Financial Group Inc. felt that the changes have created an uneven playing field because banks do not need to securitize loans. Verico went on to suggest that these changes will reduce the profitability of non-bank mortgage lenders. The Canadian Bankers Association pointed out that small banks are affected by these changes and the Canadian Credit Union Association explained that – unlike Canada’s large banks – the changes will be a problem for some credit unions who cannot diversify their activities. Ten stakeholder groups (referenced in the Committee Report on p.66) predicted that the changes would reduce competition among mortgage brokers, while a number of small mortgage brokers made it clear that these changes would advantage the large banks.

As it affects rural communities, the Canadian Mortgage Brokers Association commented that the changes may induce many mortgage lenders to reduce their activity in rural areas because of an increased risk of lending there. The Canadian Credit Union Association also expected fewer mortgage approvals in Canada’s rural and remote regions.

To add to this, many stakeholders in this group responded negatively to the suggestion that the Liberal government was considering further changes to risk-sharing on mortgages. A large majority of testimony advocated a “pause” on any further changes.

We believe the government needs to ensure that these small mortgage lenders and Credit Unions remain competitive, rather than advantaging the large banks. Also, it needs to ensure that no further changes are introduced that could cause further damage. Since the changes on October 3rd were made without prior consultation, they were not evidence-based policies and they hurt rural communities and reduce the competitiveness of Canada’s small mortgage lenders and credit unions.

Going forward, the Official Oppositon will continue to advocate on behalf of small businesses and Credit Unions to ensure that Canadians have a healthy and competitive financial sector that does not adversely impact Canada’s rural communities.

Impact of ‘One-size-fits-all’ Policy

It is clear that these policies were designed with only specific regions of Canada in mind – specifically the “heated” housing markets of Toronto and Vancouver. Unfortunately, the policies have had a negative impact on other housing markets across the country, given the vast difference in housing markets from coast to coast to coast. One witness went as far as to say that the changes were akin to “bashing a nut with a sledgehammer”.

While the Canada Mortgage and Housing Corporation (CMHC) President suggested that the measures were “not targeted at escalating house prices in the greater Toronto and Vancouver markets”, this was directly contradicted by the Parliamentary Secretary to the Minister of Finance, who stated “it is vital that we do what we can to ensure that the market is stable, and to provide peace of mind to home owners across Canada. Especially in markets like Vancouver and Toronto, there is a risk that some middle-class families buying their first home could be taking on high levels of debt as house prices climb, reducing the likelihood that they would be able to afford their properties over the long-term if economic situations or circumstances occurred”. It is clear that the Liberal Government is not even on the same page regarding the desired effect of these policies, which is  not surprising given the lack of consultation on these changes.

Much of the testimony supported the view that these changes were a “one-size-fits-all” solution. The Canadian Home Builders’ Association, DLC Canadian Mortgage Experts, and First Foundation Mortgages Inc. felt that the October 3^rd changes were designed to address housing market imbalances in the Greater Toronto Area and the Greater Vancouver Area, but noted that the changes had nation-wide impacts. The Nova Scotia Home Builders’ Association concurred, suggesting that the blanket policy is having unintended consequences and that the notion-wide policy is not appropriate given that it is harming the country’s entire economy. Canada Guaranty Mortgage Insurance Company pointed out that, because Canada comprises several regional housing markets, national housing-related policies are not always appropriate. The Canada Mortgage Brokers Association also suggested that region-specific housing-related policies have been successful in the past.

We believe that the Minister of Finance needs to work with provincial and territorial governments and the industry to develop mortgage and housing strategies that reflect our diverse housing markets across different regions, rather than imposing ‘one-size-fits-all’ solutions. Consultations prior to the changes on October 3^rd would have identified the dangers of this one-size-fits-all policy.

Going forward, the Official opposition will advocate for regionally-tailored solutions to local problems, rather than imposing national policies that hurt Canadians from coast to coast to coast, particularly in rural and remote communities.

Conclusion

In conclusion, it is clear that these measures were poorly developed and poorly received. The Liberal Government did no effective consultation, which could have identified the challenges to first-time homebuyers, the construction industry, and mortgage brokers. Moreover, they are unwilling to admit their mistake in the face of mounting evidence that these changes are hurting these groups, along with others.

Going forward, the Official Opposition recommends that these changes be reversed. Housing policies in Canada should encourage, rather than discourage home ownership. They should help foster a more competitive mortgage lending industry, rather than advantaging the large banks. And they should not adversely impact rural and remote communities. By designing a policy that does these things and takes into account the regional nature of Canada’s diverse housing markets, we could see a much stronger housing market in Canada.