We are currently witnessing the worst inflationary surge in nearly 40 years in Canada.
Posted at 3:00 p.m.
Our central bank’s response is, unsurprisingly, a sharp hike in interest rates. The increase in these is intended, among other things, to slow the overheating of the real estate market observed over the past two years, but it nevertheless risks severely reducing the ability to access property for young households who nevertheless deserve it. Not all sectors react in the same way to interest rate movements. We are already seeing significant corrections in the real estate market. Fortunately, if we want to avoid too much jostling and unnecessarily penalizing certain clienteles, there are ways to resolve the impasse and ensure intergenerational equity.
Measures to help young families
According to the Royal Bank of Canada’s affordability index, in the second quarter of 2022, affordability is at its worst level since at least 1985 in the country, which is since the index has existed. Without additional purchase aid measures, young households find themselves without a way out, practically incapable of becoming homeowners. Property values increase faster than their ability to save for a down payment and financing conditions deteriorate even faster. So, young couples are condemned to remain tenants, which adds to the housing crisis we are going through.
Already, in the last census, young people showed a decline in the homeownership rate in Quebec, to 42.4% only for 25 to 34 year olds.
We are builders, but this situation challenges us. On the social level, it is difficult for us not to denounce the prejudice suffered by this generation regarding its chances of acquiring a property. Let us recall in passing that the median net worth of owner households in Quebec was $685,400 in 2019. In other words, society benefits from each generation having a residential trajectory allowing it to aspire to a certain financial autonomy and quality of life. What is currently happening to young people has serious consequences.
The Association of Construction and Housing Professionals of Quebec (APCHQ) therefore wants the rapid implementation of measures allowing young families to also have access to home ownership. Concretely, we must temper the effects of the rise in interest rates in the housing sector and, in particular, avoid putting too much of a brake on the pace of housing starts, which must increase rather than slow.
Review the amortization period and the famous “stress test”
First, we are proposing that the maximum amortization period be extended for first-time buyers, so that it is possible to amortize a mortgage loan over 30 years. This would greatly facilitate their entry into the real estate market by reducing their monthly mortgage payments.
After the rapid rise in interest rates that we have just experienced, with a fifth consecutive increase in the key rate this year by the Bank of Canada, the mortgage stress test that borrowers are subjected to to qualify for a mortgage unnecessarily crowds out, in our view, households that should be able to access home ownership. Amortization over 30 years is already possible for uninsured mortgages. It should also be so for insured mortgages.
Also, we propose that the maximum amortization period be increased to 35 years when purchasing a new home with an energy-efficient certification.
The “stress test” ensures that borrowers have the ability to make their mortgage payments in the event of an increase in interest rates. When interest rates are at rock bottom, as in recent years, the test can reasonably be defended. When evaluating a borrower’s file, financial institutions “theoretically” mark up the prevailing interest rate based on five-year rates. Although we understand the need for this test, we believe that it is appropriate, in the context we know, to reflect on the possibilities of modulating it (for example, according to the credit score, the ABD ratio or the term of the loan ) in order to offer greater flexibility to young households, without allowing over-indebtedness.
Although it is necessary to curb inflation, we are convinced that without further action, an even heavier burden will inevitably fall on future generations and on young families who are already struggling to access property.