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Election promise to help maxed-out renters buy a home gets mixed reviews

FILE: A condo building is seen under construction surrounded by houses in Vancouver, B.C., on Friday March 30, 2018. THE CANADIAN PRESS/Darryl Dyck
Summary

A campaign promise that could help some renters become homeowners in tight markets like Vancouver could have a downside

But easing the qualifying 'stress test' and giving buyers 30 years to pay off a mortgage could drive prices up

VANCOUVER (NEWS 1130) — At a time when many renters are struggling to buy a home in Vancouver, mortgage relief is another campaign promise being made ahead of next month’s federal election.

Conservative Leader Andrew Scheer’s proposed housing plan would consider loosening the Liberals’ stress test, and allow buyers to take up to 30 years to pay off their mortgages. The stress test was put into place to make sure buyers could afford their payments if interest rates went up.

Tom Davidoff with UBC’s Sauder School of Business cautions that could increase the debt-load for first-time buyers.

“If it’s just you against some Baby Boomer with a lot of home equity, it allows you to compete. On the other hand, everybody you’re bidding against, they can borrow money now too,” he says. “People pay more for homes and have less money for things that aren’t their home as they’re paying off their mortgages.”

He adds the federal government runs the risk of driving prices up because the people benefiting most from Scheer’s plan are sellers.

“You run the risk of an over-heated housing market leading to losses on loans among taxpayers. The stress test was entirely to avoid an over-heating of the housing market and so, this would be a step back. There is certainly a trade-off.”

RELATED: Realtor groups push for eased mortgage rules as federal campaign gets underway

Camilo Rodriguez, the president of the BC Mortgage Brokers Association, insists many renters would be paying less on housing month-over-month.

“So, if you extend amortization to 30 years, it will drop their mortgage payment, so it will be cheaper for them sometimes to buy versus rent. Based on what we see in the market, that would be a big relief for people because that perhaps lowers their monthly payment and makes things more affordable.”

He admits that may be easier in the suburbs than Vancouver proper, where renters with strong incomes still can’t afford to buy.

“By extending to 30 years, they could access property $50,000 higher in value, which actually gives them the opportunity to buy something.”

Davidoff says markets like Vancouver and Toronto, where it’s hard to add new supply, existing homes are more valuable, so letting would-be buyers borrow more money doesn’t make it cheaper to purchase a house.

He adds there are non-regulated lenders who can make loans not subject to Canada’s existing stress test.

The Conservative Party of Canada’s four-point plan includes using surplus federal real estate to boost housing development.

Scheer is also promising an inquiry aimed at exposing money laundering in the real estate sector.

– With files from the Canadian Press