The housing affordability crisis is pushing the dream of homeownership beyond the realm of possibility for many Canadians. And while industry insiders believe short-term solutions should be adopted to offer some relief, the head of the country’s housing agency disagrees.
Canada can’t overcome its housing affordability crisis without adding to its supply of homes, but that will take years. According to a recent study conducted by the Canada Mortgage and Housing Corporation (CMHC), Canada needs to add 3.5 million units by 2030 for affordability to be restored.
“With interest rates at their current levels, and persistent inflationary pressures driving up the cost of living, many families and individuals trying to purchase their first home need a break,” said Jasmine Toor, the director of public affairs for Mortgage Professionals Canada (MPC). “We are at risk of an entire generation giving up on the dream of homeownership.”
Relief measures to address affordability challenges in the short term
Toor argues that extending amortization periods to 30 from 25 years for borrowers who get an insured mortgage—those making a down payment of less than 20%—would help more Canadians enter the housing market. As would increasing the current home price cap of $1 million for insured mortgages to $1.25 million.
“These policies would help to eliminate some of the barriers to entry that are causing younger Canadians to give up on the dream of homeownership,” she says.
But CMHC president and CEO Romy Bowers disagrees, recently telling the Canadian Press that extending amortization periods “just makes credit more available.” She argues that while the policy change would lower monthly payments for borrowers, it ultimately increases the cost to homeowners long term, which she fears could exacerbate affordability challenges.
“What I worry about is sometimes that seems like a quick fix,” she said. “If you just have 30-year amortizations, everyone’s mortgage payments will go down by $200 and they can actually afford the house, but if you’re in a supply-constrained market and that’s your solution, it’s not going to solve the problem in the long term.”
Instead, Bowers wants the industry to focus on increasing the supply of homes across a wider spectrum of price points, with a better balance between the high and low ends of the market.
While Toor agrees that supply will help balance the market in the long run, she fears that Canadians need more solutions to ease short-term affordability challenges.
Beyond extending amortization periods and keeping house price limits for insured mortgages in line with prices in Canada’s major cities, she says the federal government could also eliminate the stress test on mortgage transfers, switches and renewals. Toor also encourages the Canadian government to convene a permanent national housing roundtable with stakeholders from across the country to share best practices across jurisdictions.
“Very little has been done to address the housing affordability challenges that Canadians are facing now,” she said. “We believe the federal government—including CMHC—can show more leadership in this area.”
The case for a 50-year amortization
While getting the government to accept 30-year amortizations for insured mortgages may be a challenge, some say they should go even further.
Dustan Woodhouse, president of Mortgage Architects, is advocating for a maximum amortization period of up to 50 years for existing borrowers facing higher monthly payments.
“There’s no help on the way; the labour is not getting less expensive, the material is not getting less expensive, the government fees are not going to go down, and the price of land is not going to go down,” he told CMT.
“I’m not saying that an extended amortization is the best thing, but nobody can deny that it is a thing, it is a useful thing, it is a helpful thing, and it would alleviate some very significant tension in current mortgage holders’ households right now,” he continued.
Woodhouse emphasizes that his proposed solution would only apply to debt servicing, and could not be used for qualification purposes, as that would only drive up prices. Ultimately, he believes it’s better to let Canadians extend their amortization periods to what some might consider extreme lengths than let them lose ownership of their homes.
“If you’re a tenant, you’re paying rent for life; how is that better than owning a home with a 50-year amortization?” he says.
Woodhouse explains that most lenders can extend amortizations, but only offer it once borrowers have already burned through their savings trying to keep up with higher mortgage costs.
“A majority of lenders are capable of offering up to a 40-year amortization, which takes the edge off in a big way, however they will only offer that if you know to ask, and typically only offer it to people who have missed a mortgage payment,” he said. “Shouldn’t we be proactively trying to help Canadians manage these payments before they are in a crisis?”
Woodhouse also believes that if Canadians were offered the opportunity to extend their amortizations to up to 50 years in times of financial distress, the majority would seek to pay it down sooner once they are on more stable financial footing.
“To that person reading this and saying, ‘it’s just ridiculous that someone 55 years old should be able to take a 40- or 50-year amortization, that’s just crazy, they’ll be 95 or 105 before they pay their house off,’ that’s taking things to the literal extreme,” he said. “It’s irrelevant, because if that 55-year-old can’t afford to carry the payment through this stretch, and they sell and become a tenant, they’ll be paying rent when they’re 105, so how is that better?”