The housing affordability crisis is pushing the dream of homeownership beyond the realm of possibility for many Canadians.
 

While industry insiders believe that short-term solutions should be adopted to provide some relief, the head of the country’s housing agency does not agree.

Canada cannot overcome the housing affordability crisis without increasing its supply of homes, but that will take years.

According to a recent study by the Canada Mortgage and Housing Corporation, Canada needs to add 3.5 million units by 2030 to restore affordability.

Yasmin Tour, the Director of Public Affairs for Mortgage Professionals Canada, said: "With interest rates at their current levels, and ongoing inflationary pressures leading to higher living costs, many families and individuals trying to buy their first home need a break." "We are in real danger where a whole generation could give up the dream of home ownership."

Relief measures to address affordability challenges are short-term.

Yasmin Tour also mentions that extending mortgage terms from 25 to 30 years for borrowers who obtain insured mortgages—those who put down less than 20%—will help more Canadians enter the housing market.

Additionally, raising the current cap on the insured mortgage home price from $1 million to $1.25 million.

She states: "These policies will help remove some of the barriers to entry that are causing younger Canadians to give up the dream of home ownership."

However, Romy Bowers, the CEO of the company, disagrees, having recently told the Canadian press that extending loan terms "makes credit more available." He says while changing the policy would lower monthly payments for borrowers, it ultimately increases the cost for homeowners in the long term, which he fears could worsen affordability challenges.

Clarifying, he states, "What worries me is that this sometimes seems like a quick fix; if you only have the ability for 30 years, mortgage payments for everyone will drop by $200, and they can actually buy the home, but if you are in a supply-constrained market and this is your solution, it won’t solve the problem in the long run."

Instead, Bowers believes the industry should focus on increasing the supply of homes across a wide range of price points, with a better balance between the high and low ends of the market.

While Yasmin Tour agrees that supply will help balance the market in the long term, she fears that Canadians will need more solutions to alleviate affordability challenges in the short term.

In addition to extending amortization periods and maintaining home price caps for insured mortgages in accordance with prices in major Canadian cities, she says the federal government could also eliminate the stress test on mortgage transfers and renewals.

Yasmin Tour also encourages the Canadian government to hold a national roundtable on housing with stakeholders from across the country to share best practices across Canadian jurisdictions.

She said: "Very little has been done to address the housing affordability challenges that Canadians are facing now."

Adding, "We believe the federal government, including the center, can show more leadership in this area."

50-Year Loan Case

While getting the government to accept a 30-year repayment period for insured mortgages may be a challenge, some say it should go further.

Dastan Woodhouse, head of mortgage engineering, advocates for a maximum repayment period of up to 50 years for current borrowers facing higher monthly payments.

He explains that "there is no help on the way; labor is not getting cheaper, materials are not getting cheaper, government fees are not going down, and land prices are not going down."

He adds, "I’m not saying that extending the loan is the best thing, but no one can deny that it is something useful, it's something beneficial, and it will relieve some of the severe stress on current homeowners' families right now."

This confirms Woodhouse that his proposed solution would only apply to debt service and cannot be used for qualification purposes, as that would only lead to higher prices.

In the end, he believes it is better to allow Canadians to extend amortization periods to what some might consider maximum periods rather than letting them lose their home ownership.

He clarifies, "If you are renting, you are paying rent for life; how is that better than owning a home with a 50-year amortization?"

This also explains Woodhouse that most lenders can extend repayments, but they only offer it once borrowers have already resorted to paying through their savings in an attempt to keep up with rising mortgage costs.

He adds, "The majority of lenders can offer up to 40 years of amortization, which significantly distances them from the risk of default but they will only offer it if you know to ask, and they usually only give it to people who have missed mortgage payments."

Explaining, "Shouldn't we proactively try to help Canadians manage these payments before they are in crisis?"

Woodhouse also believes that if given the opportunity to extend repayment terms to up to 50 years in times of financial distress, the majority will seek to pay them off sooner once they become financially more stable.

He adds, "For that person reading this and saying, 'It’s ridiculous that a 55-year-old should be able to repay over 40 or 50 years; that's just insane, they will be 95 or 105 before they pay off their home,' this takes things to an unrealistic extreme."

He clarifies, "It’s irrelevant because if this 55-year-old cannot afford to pay through that extension, then they sell and become a renter, and then they will pay rent when they are 105, how is that better?"