First National Financial LP

Residential Mortgage Commentary - No silver bullet

  • First National Financial LP

"On housing, I would like to offer one caution — there is no silver bullet which will immediately, once and forever, make every Canadian a homeowner in the neighbourhood where they want to live.”

And with that Finance Minister Chrystia Freeland went on to announce $10-billion in programs to get more Canadians into their own homes, as a significant part of her latest federal budget.

Two key features of the so-called “housing budget” are a $4-billion Housing Accelerator Fund and a new, Tax-Free First Home Savings Account.

The Accelerator Fund is aimed directly at the key concern of the mortgage and real estate industries – a lack of housing supply.  Both groups are happy to see Ottawa attempting to address the problem. 

“We are very glad housing supply is front and centre. This needs to be the top priority of all levels of government, and incentivizing lower levels to get digging and moving is what the federal government needs to continue doing,” said Paul Taylor, President and CEO of Mortgage Professionals Canada. 

The money is supposed to help get 100,000 homes built over the next 5-years.  However, control of that construction lies with the municipalities and provinces, so the federal money can only be an enticement to those levels of government.  There were no specifics in the budget about what those enticements might be. 

The federal government’s own estimates say home construction needs to double to about 400,000 units a year.  The goals of the fund come up well short of that.  Apart from local political resistance and “Not In My Backyard” sentiments toward development, the construction industry has doubts it will be able to meet the demand for more housing.  The industry is currently hindered by labour and materials shortages.

The Tax Free First Home Savings Account is getting more qualified support from market watchers.  The FHSA combines traits from RSPs and TFSAs to allow first-time buyers to contribute and invest up to $40,000 – tax free – over 5-years.

Mortgage Professionals Canada recommended this sort of account to the federal government as a way to promote prudent home ownership savings.

Critics say that the FHSA has its limits:

  • It will only help those who actually have money to put into the account; doing little or nothing for low-income Canadians.
  • The amounts involved will be of limited use in the country’s most expensive markets, where prices routinely breach the $1-million barrier and down payments top $200,000.
  • Making it easier to save for a home does nothing to actually decrease the cost of that home, and might even have the opposite effect.

Several market watchers point out a missed opportunity in the budget – an increase in the value limit to qualify for mortgage default insurance.  During the election the Liberals promised to boost the limit from $1-million to $1.25-million.  That would have meant significant down payment relief for many buyers.