The Great Mortgage Reset

A FOUR PART SPECIAL EDITION… PART 2 of 4

Canada’s mortgage lending rules and policies are broken.  They just don’t work.  And the more our Federal government tries to help, the worse it gets.  This is a 4 part series of what our government can do to make home ownership affordable.

IDENTIFY THE PROBLEMS.

1. QUALIFYING IS TOUGHER THAN EVER BEFORE

Canadians can’t afford to buy or rent a home due to the high monthly cost. Home prices and rental rates have exploded! No surprise there.  

Simple math.. Even a below average home, let’s use a $500,000 mortgage @ 4.69% will cost you $2,820/mth.  Add in property taxes, home insurance and

utilities and basic maintenance and you are looking at least another $700/mth. That’s $3520/mth on the very low end.  Let’s face it, $500,000 isn’t gonna get you very much these days. 

RENTING… The average rent for a 2 bdrm home is $2300/mth in Canada’s largest 35 cities. (Toronto and Vancouver are well over $3,000/mth).(Rentals.ca)

The average rent for a house is $2500/mth but you can expect to pay over $4,000/mth in Toronto and Vancouver.   Add in another $200/mth in utilities on top of this.

There aren’t enough rental properties and this is driving up rents.

We need to fix the affordability problem.

2. INCOMES… THE RICH AREN’T THAT RICH

The average annual salary in Canada is $64,000 (Labour Force Survey).  

Did you know that just 11% of all Canadians earned over $100,000 per year? (Money Genius).

Today, if we take a couple earning the average annual salary or $128,000, the maximum mortgage would be $543,000.  That payment on this is $3063/mth @ 4.69% (today’s rate).

Lower interest rates will help but it’s not enough. So, while things have become more expensive, our incomes have not kept pace.  We need to create higher paying jobs. We’ve fallen way behind the US and other G7 countries in many areas.  Average income is way down as is shown in this report by TD Economics.  Canada is lacks investment in Research and Development. There is an incentive for innovation.  Inefficient regulatory and tax policies.  Nobody wants to do business in Canada.

3.  FAILED GOVERNMENT INTERVENTION

TIGHTER RESTRICTIONS DISCOURAGE BUYING A RENTAL PROPERTY

So, what are our governments doing to help?   Well, very little if you ask me.  Actually, they have done more harm than good.   They’ve brought in rule changes that make it harder to buy both owner occupied and rental properties.  Make no mistake about it, we need private individuals to buy rental properties to help supply the much needed rental units in Canada. Hard to get up to date stats from our government (maybe they need to hire more employees? Just kidding.. Please don’t). Here’s one dated Feb 2023 from Statistics Canada site (it’s quoting 2020 stats.. That’s right, it took 2 years to produce this). https://www150.statcan.gc.ca/n1/pub/46-28-0001/2023001/article/00001-eng.htm

The stats show that investors own between 20% and 31% of rental properties depending on which province you are in.  In Ontario, 41% of condos were used as investment rental properties. 

The government has been trying to discourage the individual investor from buying by making it harder to get a mortgage.  The logic was to discourage people from owning non-principal residences.  Maybe with the hope to increase the supply of homes and therefore reduce rising home prices. Of course, the exact opposite happened.  Home prices continued to skyrocket upwards. Rental units supply decreased as the private investor found it harder to qualify for a mortgage.  

In Part 3, we will list over 20 mortgage rule changes that have taken place since 2006. That’s an incredible amount of change.  They say change is good, but always. 

More mortgage rule tightening making it harder for the average and below average income earner to qualify for a mortgage.   

If we start cutting out the private individual investor, what’s gonna happen to our supply?  Less rental properties are not gonna help us.   This is not the solution.

Continued in Part 3. 

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.