In our recommendation four, we would recommend implementing an indexation to inflation for the mortgage insurance cap, and also to consider setting regional limits to better reflect localized housing market conditions rather than setting a national standard.
Adjusting the valuation eligibility cap for mortgage insurance would actually help mitigate against the shifting portfolios of mortgage insurers. The new cap removes eligibility for mortgage insurance for a large number of homes in Toronto and Vancouver, which are very liquid markets with high-income and high-credit borrowers. This is resulting in a higher percentage of insured mortgages in illiquid markets that have higher loss rates and weaker income and credit scores. This, therefore, is creating a riskier aggregate portfolio and geographic footprint for mortgage insurers, and it ultimately increases the risk for the guaranteeing taxpayers.
Regionalizing valuation caps and indexing the caps to inflation would allow for a slow, safe increase in the caps for mortgage insurance, while still maintaining the desired policy objective. Regionalizing will ensure mortgage insurers are able to continue to service high-value areas, which, perhaps counterintuitively, are often less risky due largely to the liquidity of those markets, and it ensures overall safer, more balanced portfolios for the insured properties. Without an indexation for inflation, the cap is actually decreasing, in real dollars, the number of properties that can be insured, regardless of what loan-to-value is in place.
Recommendation five, similarly, is to implement an indexation to inflation for the RRSP home buyers' plan limit.
Many young Canadians need to save in order to obtain a down payment—many more, actually, as a result of the recent mortgage insurance changes. In a recent survey we conducted, 48% of soon-to-be Canadian homeowners said they had less than a 20% down payment, and of those, 31% said they would need to withdraw from their RRSP in order to afford their purchase. In addition, 63% of Canadian homeowners said they would have been unable to afford their home without some form of down payment assistance. Indexing the RRSP home buyers' plan to inflation would be a positive way to help many young Canadians use more of their savings to purchase a home, thereby assisting them to reach the middle class.
On the last recommendation today, we would support implementing interest-free loans to municipalities to help develop land to create more supply in the housing market.
Affordability and livability are important to help grow Canada's competitive advantage for human and financial capital. Two of Canada's global cities, Toronto and Vancouver, have experienced rapid price growth over the last number of years, which has created competitiveness challenges in those markets.
The best way to address affordability challenges in Toronto and Vancouver is really through the addition of supply. The federal government is probably best positioned to assist, by providing financing options to the provinces and municipalities to incent development. We believe this can be best done through interest-free loans, potentially through CMHC. This can certainly help with the costly development process and help municipalities ensure that the primary infrastructure is in place in the ground before construction of these residences actually begins.
Thank you very much, indeed, for the opportunity to present the recommendations this morning. We very much look forward to any questions you may have.