Thank you, Chair, and good morning, everyone.
Thank you for the invitation to join you today. My name is Kevin Murphy, and I'll be representing OneClose, a pioneering organization committed to making home ownership more accessible and less costly for Canadians.
For context, prior to founding OneClose over five years ago, I was with RBC for 23 years, where I was head of the real estate financing group, supporting all things real estate, including financing for land development, home building and high-rise condominium and apartment construction.
Today, I want to talk to you about a significant issue affecting homebuyers across the country: the interim occupancy challenge and how we can address it to unlock home ownership for many Canadians.
Unlike many of the measures announced in the most recent budget, which have longer-term runways to get implemented and become impactful, what I'm going to talk to you about today does not cost the fiscal framework a single penny and will have a material and immediate impact on housing affordability and supply. Our solution especially benefits those eager to enter the market, including the younger cohort and new Canadians representing first-time homebuyers.
As every committee member knows, the surging cost of housing is a top concern for Canadians. Recent public opinion polls show that nine out of 10 people are worried about overall affordability. Higher home prices and interest rates have made mortgages and rents more expensive, straining the financing of many families.
The core of the problem lies in the fact that Canada simply does not have enough homes. Despite a rapidly growing population, we are not building new homes quickly enough to meet demand. In her fall economic statement, Minister Freeland emphasized that building the homes Canada needs will require a great national effort.
While the federal government has made considerable strides, such as removing HST from new rental housing, much more needs to be done. One of the principal impediments to achieving the housing supply challenges before us is access to capital.
One significant but often overlooked issue is the legal hurdle known as the “interim occupancy” period. In Ontario, for instance, homebuyers often find that their condominium unit is ready for occupancy before the entire building is fully completed. During the interim period, buyers are required to move into their units but cannot obtain title, meaning that they cannot secure a mortgage. Instead, they must pay occupancy fees—including interim occupancy interest—on the residual balance owing to the builder, all of which does not contribute toward their mortgage.
Interim occupancy interest is based upon the prevailing Bank of Canada's one-year benchmark mortgage rate, which currently stands around 8%. Consider this for an example. A buyer places a 20% deposit on a $700,000 condominium unit, amounting to $140,000. They then will face $45,000 a year in interim occupancy interest payments to the builder, which they will never recover.
Over the next 24 months in Ontario alone, nearly 60,000 units, representing more than $60 billion in capital, will be stuck in this interim state. For builders, this period means they cannot complete the sale of the condo building or receive full payment for the units, leading to additional interest charges on their construction financing. It's a bottleneck that prevents them from moving on to new projects, further stalling the creation of much-needed new housing supply.
To address this, we propose a straightforward and cost-neutral solution: a minor amendment to the Protection of Residential Mortgages or Hypothecary Insurance Act. By changing the definition of “eligible mortgage loan”, we can allow mortgage financing during the interim occupancy period, backed by title insurance and deposit protection insurance covering 100% of the unit's purchase price. Our proposal enables buyers to obtain mortgage financing during the interim period, allowing them to start building equity immediately.
The risk is entirely mitigated through a title insurance and deposit protection insurance policy underwritten by reputable investment-grade insurers, providing coverage against potential losses incurred by the lender and/or purchaser.
This amendment would benefit not only buyers but also builders, banks and the government. It would free up capital for developers, allowing them to reinvest it in new projects, and materially increase the housing supply. Importantly, it would also do so without any cost to the federal fiscal framework and could potentially save individual home builders an estimated $6.5 billion over the next four years.
This proposal aligns perfectly with the Government of Canada's commitment to implement housing solutions that make more housing available to Canadians, especially young and first-time homebuyers.
As David Wilkes, President and CEO of the Building Industry and Land Development Association, aptly said, “Such a step would represent a significant advancement in our shared goal of making housing more affordable and accessible for Canadians.”
As housing affordability hits its worst levels in four decades, it is time for smart, practical solutions to our most pressing problems. As agreed to by all, these critical concerns require a rethinking of our collective approach. Creating a way out of interim occupancy limbo for tens of thousands of new, young condo owners is a creative and necessary start. By addressing this critical issue, we can take a significant step towards alleviating the housing crisis in Canada.
I thank you, and I'd be pleased to answer any questions that you may have.