The recent changes that have been made to the mortgage rules in Canada are going to have a big impact on many jobs and lives.
Stephen Amonson, Managing Director HAC Housing Group, has written an excellent open letter to Finance Minister Bill Morneau. By sharing this we are hoping that many people will read this letter and it will eventually be read by Mr. Morneau.
October 11th, 2016
Dear Finance Minister Bill Morneau,
I hope that through the channels of social media and its relative power that you have an opportunity to read this and reconsider some of the sweeping changes you made to Mortgage rules on October 3rd. Why is this so important to me? Jobs, that’s why. Plain and simple it’s about jobs. You see my little group of building companies are small but they provide full time employment with excellent salaries and benefits for hundreds of people in both Alberta and Saskatchewan. We have fought hard for the past 2 years in difficult economic times to ensure that these jobs remain intact and that the families they support stay strong. Recently I woke up to news that you were introducing changes to mortgage lending rules that would affect our “National Housing Market”, which I would like to state does not exist. I respectfully repeat and submit that there is no “National Housing Market” just like there is no “National Weather Forecast”. Each region of this immense country has different paradigms, economic conditions, and housing challenges that need to be addressed with thoughtful and respectful consideration. I can only speak for my region of the country when I say that your recent announcement has placed families and jobs at risk in a marketplace that arguably did not need your interference. In addition to this you have placed unnecessary restrictions around Canadian’s fundamental right to not only provide shelter for their families but provide security through a time proven method of building wealth. Please understand that I would acknowledge that you have challenges but maybe, had you consulted with Builders, Lenders and Realtors across this country you might have come to different conclusions. I respectfully submit the following questions:
My first of many questions to you would be why?
Why would you interfere with a Canadian citizen’s ability to purchase a home?
- Is not buying and owning a home one of the fundamental cornerstones of our “Canadian Philosophy”?
- Has this not historically been one of the chief components for Canadians to build wealth and secure their retirement?
- Is Canada not a free market economy?
- If two out of the 100 plus markets have issues, why would you not address them specifically, although I return to question number 3 as a preference.
- Although certain markets get overheated do they not tend to correct themselves over time? Do they not provide thousands of well paying construction jobs as demand rises?
If you are concerned about Canadians taking on debt and payments they cannot afford then:
Why have you only attacked the mortgage segment of lending?
- Why would you not address the second and third largest segments of lending: Automobiles and Credit cards?
- Why have you not addressed predatory lending? Why have you ignored a segment of lending that prevents many Canadians from ever escaping poverty?
- Why have you not changed the rules around credit card lending and their interest rates? Are you aware that although general interest rates have dropped by roughly 400% in the past 10 years Credit card rates have remained the same?
- Why do Canadians have to insure a loan to protect the banks? Why does this insurance not provide protection to them as well?
Why are you limiting a person’s ability to take advantage of some of the lowest rates in Canadian history? This is really important, so I will repeat the question in a different way. My son or daughter now has the opportunity to own a home and build wealth at some of the lowest rates in our history. They can borrow more for less and now you want to put a stop to that! Why?
- Are you not comfortable with the prescribed debt ratios when it comes to underwriting these mortgages? Do we not already have a system that prevents Canadians from exceeding certain debt thresholds? Is it not true that mortgage lending is the only place where you have legislated debt levels?
- Are you not comfortable with insurance fees that already wipeout almost all of the equity that a first time buyer has with 5% down?
- Are you not satisfied with the fact that we have one of the most competitive mortgage markets in the world?
- Why have you not honoured the agreement to index the GST rebate as prices have risen over the past 25 years. Why is there no GST rebate for homes over 450,000 if this is well below the median price in many markets? This could impact affordability immediately!
Are you concerned that the first-time buyer might not be able to renew their mortgage if rates were to climb?
- Then why not force them to sign a 7 year or a 10 year mortgage instead? This would allow them more time to build equity before renewal and in the event that they cannot afford to renew then at least they may have equity to make a different move. The rate is only slightly higher than the five year and would affect far fewer Canadians.
- Why not introduce a program that addresses the possible rate jump at renewal?
- Why not address the rules around prepayment penalties. Why do mortgages have such large prepayment penalties? These fees are excessive and can prevent many people from relief in the case of default. In the auto industry as an example almost all loans can be paid off at any time with almost no penalty. Why is this not the same with mortgages?
- Why not ban transfer taxes? This is a tax on mobility and an even greater tax on equity with no added benefit to the consumer.
Why did you not consult or consider the homebuilders across Canada when you made this move? Are you not aware that this industry has a tremendous effect on our national GDP. Are you not concerned with the effect this could have on tens of thousands of jobs?
- The average single family home takes 5-8 months to build and the average multi-family project can take upwards of three years to complete (if not more). With these changes to the rules the homebuilding industry will have to adjust in order to meet new demands. Unmistakably,, this is what is going to happen: Consumers will be forced to buy smaller homes with fewer features and they will not be able to realize their full purchasing power. Yes you can afford a bigger home but no we will not let you? Sound a little bizarre?
- What about the 8 months of inventory already in the ground with only two weeks to sell it? How will this affect current homeowners if builders are forced to discount this product in order to move it?
- Why did you only give two weeks to allow for these changes? In the past you have allowed much more time and this is not an unreasonable request based on production cycles and the changes this will have on demand.
The Foreign Purchaser
As stated earlier this is not a big issue for me in my marketplace and I may have limited understanding on this topic but something doesn’t seem quite right here. If a municipality collects property tax from an absent owner, they are doing so without the full burden of that owners cost to the system. No kids in schools, no cars on streets, no garbage collection etc. Seems like a profitable scenario to me. I understand the complexities of affordability and existing residents and would only suggest that this policy does not address either one appropriately.
The right to live in a specific area
- Do you believe canadians have a right to live in specific communities?
- If so, then could you please do something about the prices in Rockcliffe Park and The Glebe in Ottawa as it would appear that these foreign buyers (you may call them Embassies and MPs) have driven the prices up so high that I find it impossible to find something in my price range.
- Do we not create mass transit systems and infrastructure to move people in and out of the core in large centers? Infrastructure that in some cases is heavily subsidized through fees and levies on new units inside these cores?
Are you worried about large scale default in the case of interest rate rise? This is really the issue isn’t it? Then let’s really do something effective:
- Repeal this legislation
- Agree to meet with Home builders, Realtors, Lenders and Insurers all together under one roof
- Have transparent discussions regarding these issues and work on solutions that have positive outcomes with broad-based acceptance
- Introduce changes with timelines that allow for business model changes , consumer adjustment and minimal market interruption
Respectfully and with great hope for action
Managing Director HAC Housing Group