Canadian Banks and Homebuilders Urge Ottawa to Ease Mortgage Rules and Fund New Housing
A coalition of Canada’s largest banks and major homebuilders released the National Housing and Investment Initiative report on Tuesday, calling on the federal government to relax mortgage rules, assist first-time buyers with down payments, and extend low-cost financing to developers.
A coalition of Canada’s largest banks and major homebuilders released the National Housing and Investment Initiative report on Tuesday, urging the federal government to help young first-time homebuyers with their down payments, relax mortgage requirements, and provide low-cost financing for homebuilders. The report was compiled by the Building Industry and Land Development Association and The Missing Middle Initiative.
The document is designed to inform Ottawa’s housing policies, which include a goal of doubling housing starts to nearly 500,000 units per year. It suggests changes in four key areas: long-term investment, credit risk, immigration policy, and housing data. James Burrow, Bank of Montreal’s head of enterprise sustainable finance solutions, stated the goal is to increase housing affordability across Canada. He added that while banks can catalyze needed capital, some risks, particularly during the construction phase, are not prudent for institutions and require federal government involvement.
Despite home prices and rental rates declining over the past four years, many Canadians remain unable to afford housing. The new condo sector is experiencing a slump with significantly lower presales, leading to job losses across the real estate industry. The report states that without easier financing for new homes, homebuilding will continue to be constrained.
Among its 29 recommendations, the report calls for creating down payment assistance programs for first-time buyers and further reducing down payment requirements for new homes. It suggests allowing buyers to deduct interest paid on their mortgage from taxable income as a way to assist with down payments, while recommending that homeowners who receive such assistance would not be fully exempt from paying capital-gains tax when selling their homes.
The report also recommends reforms to the mortgage stress test, which currently requires borrowers to prove they can make payments at an interest rate at least 200 basis points above their mortgage rate. It argues the current stress test makes it hard for borrowers to qualify, reducing new housing construction, and should be more flexible regarding mortgage lengths and market conditions. Describing the current stress test as a valuable prudential tool but potentially too blunt because it excludes otherwise creditworthy borrowers, the report recommends a sliding stress test based on mortgage term and buyer type, including an easier qualifying rate for first-time buyers of new homes.
Additionally, the report recommends the government provide cheap financing to developers of condos, townhomes, and single-family homes, whereas currently only rental-only building developers receive such support. In the Toronto region, developers typically must sell a minimum of 70 per cent of project units to qualify for construction financing. The report notes that cheap government financing or backing could lower pre-sale thresholds and make projects less risky for lenders. Wesgroup chief executive Beau Jarvis noted that access to low-cost financing could lead to a return to speculative development paradigms where developers build before securing all purchasers.
The report was endorsed by Royal Bank of Canada, Canadian Imperial Bank of Commerce, BMO, Toronto-Dominion Bank, and Bank of Nova Scotia. It was backed by 10 large homebuilders including Mattamy Homes Ltd., Wesgroup Properties, Minto Group, Menkes Developments Ltd., Polygon Homes Ltd., Brookfield Residential Properties Inc., Tricon Residential Inc., The Remington Group, Cantiro Homes, and BGO Properties.