Changes in Mortgage Rules is an Attack on Renters

The Canadian government came out swinging today against renters in an effort to slow down a rise in housing prices caused by owners of rental properties. Up until now well qualified rental property owners could purchase homes to rent to tenants with as little as 5% down payment, which has meant that many relatively ordinary Canadians could participate in the rental marketplace as owners and landlords, ensuring a solid supply of rental housing in a market where home ownership has become increasingly difficult to achieve.

By deliberately restricting access to mortgage financing by non-owner occupied buyers even further the government has made it significantly more difficult for revenue property owners to finance their properties.

Of the 12.4 million households in Canada, more than 8.5 million, over two-thirds (68.4%) owned their home, the highest rate since 1971. At the same time, the proportion of Canadian households that rented their home slipped from 33.8% in 2001 to 31.2% in 2006. About 3.9 million households rented their home in 2006. Canada Statistics 2006

As a whole Canadians are home owners, with nearly 70% of Canadians owning their own homes, according the last Canadian Census report on the subject in 2006. What is hidden in the statistics, however, are the very real limitations on revenue property ownership, which were increased by the Federal Government’s announcement today.

According to both the Minister of Finance and the Bank of Canada Governor there is no housing bubble in Canada right now, despite record low interest rates. So today's changes in mortgage rules, which include the restriction on revenue property borrowers, are a preventative measure designed to ensure that a housing market bubble doesn’t occur. If it does it will not be as a result of speculative buying by revenue property owners funded by CMHC insured mortgages - at least that is the logic of the government's position.

Not that this will necessarily prevent a housing bubble from happening, as there were recently great fears that a housing bubble was developing in China, where there has never been high ratio mortgages available, either for homeowner occupied buyers nor for investors. So limiting access to high ratio mortgages doesn’t actually prevent an overheated marketplace from getting out of control, it merely slows it down a little.

In the meantime today's changes will make it harder for landlords to increase their housing stock, putting significant upward pressure on the existing housing stock, particularly in Vancouver and Victoria in BC. This will make it easier to increase rents. Since rental vacancy rates are already extremely low, any upward pressure on prices will make availability that much more difficult.

The move to restrict investment mortgages to 80% LTV or lower was window dressing, according to most economists. But it is window dressing that has potentially disastrous consequences for renters, especially and including those on the margins of society, where the cost of housing has increasingly led to homeless in the past few years.