Thank you, Mr. Chair and members of the finance committee, for having me here today.
There is a growing consensus that a lack of supply, taxes across all levels of government, red tape, Nimbyism and a lack of labour have increased the cost of buying or renting a home in Canada.
I’d like to get a little more mortgage-specific to address the ability of first-time homebuyers to enter the market. In our latest state of the housing market report, we found that 48% of non-homeowners feel they will never be able to purchase a home in their lifetime. Young Canadians are giving up on the dream of home ownership. This is a problem that we cannot afford to ignore and that must be addressed urgently.
There are economic consequences to not addressing this problem. In the OECD’s latest country report on Canada, the OECD notes, “High costs of housing can make it hard for people to pursue jobs in high-wage, high-productivity cities.”
Some believe that any policy that increases the purchasing power of first-time homebuyers will stoke demand and drive up housing prices. However, in reality there are many targeted measures the government could adopt that would have a minimal impact on prices while making housing more accessible.
Increasing the insured mortgage cut-off to $1.25 million and indexing it to inflation will help to better reflect today’s housing prices, enabling first-time homebuyers and young families, particularly those in urban settings, achieve their dreams of home ownership.
Many first-time homebuyers who do not have a 20% down payment are currently being priced out of the market. The increased pressure is also reflected in the year-over-year increase in the number of people who required help from family members to make their down payment. This was 56% in 2021, increasing to 62% by the end of 2022.
Based on data received from Canada Guaranty, we can estimate that the increase would have a very small impact on stimulating housing market demand, potentially representing just about 1% of the overall mortgage market. In 2021 we saw about three million originations, and in 2022 we saw about two million originations. This would mean 20,000 to 30,000 potential new mortgages, which is a relatively small increase, but it is very meaningful to first-home buyers, particularly in the greater Toronto and greater Vancouver areas, where the average price of a townhouse has surpassed $1 million.
Additionally, expanding the maximum amortization period for insured mortgages to 30 years will allow greater opportunities for home ownership.
Housing costs are the highest and fastest-growing expense for Canadian households. In December 2022, a report by RBC noted that 62.7% of household income is needed to cover home ownership costs. That's the worst level on record. Allowing homeowners a choice between a 25-year and 30-year amortization for insured mortgages will help level the playing field for first-time homebuyers and improve their ability to afford a home by lowering their overall mortgage payment.
Criticisms have focused on anecdotal examples from other countries, such as a program in the United Kingdom that offered homebuyers down payment grants. That is a far more wide-reaching policy than what we are suggesting here. We should be wary of comparisons with markets far different from Canada's and policies that do not compare with what we're suggesting.
Some other criticisms of 30-year amortization are that homeowners would pay more interest over the life cycle of their mortgage. A major flaw in this argument is that many Canadians are not holding on to their homes for 30 years. In fact, our recent consumer survey saw 43% of Canadians move their primary residence every 10 years.
In addition, the extra monthly savings would enable families to better afford their mortgage payments and help with long-term financial planning, such as contributing to an employer RSP plan.
With the right policies in place, the federal government can help ensure that the dream of home ownership remains available to Canadians.
Thank you.