home ownership
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This article appears in the June 2021 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

The Office of the Super­intendent of Financial Institutions (OSFI) is once again upping the stress test for homebuyers while Bank of Canada Governor Tiff Macklem sounds the alarm about a real estate market that keeps getting hotter.

In February, Macklem said he was concerned about “excess exuberance’’ in the housing market, but still believed the market was a long way from its super-hot state in 2016-17. But when the central bank released its annual Financial System Review on May 20, Macklem acknowledged the real estate market is now even hotter than it was four years ago.

In the fourth quarter of 2020, 22% of all home loans were 450% greater than the borrower’s annual income, compared with the previous peak of 18% in the third quarter of 2017. Macklem is concerned that staggering debt could hamper much needed economic growth as speculation and naiveté continue to drive housing prices higher.

As both OSFI and the central bank have responsibility for the health of the financial system, they are likely to have enough moral suasion over governments and financial markets to eventually cool down real estate for the sake of the financial system — for a while.

Housing prices will level off or drop a little. But without a substantial economic downturn — which nobody can afford — house prices will continue to exceed household income in most cities and be out of reach for more and more people.

“Home ownership for everyone” has been policy for so long it has turned into a religion. Two years ago, then-Canada Mortgage and Housing Corp. (CMHC) CEO Evan Siddall warned BNN Bloomberg that the tradition of glorifying home ownership isn’t sustainable: “This party ultimately comes to an end, and the people who are going to get hurt are young people.”

The growing underclass of those who don’t fit into the Canadian dream of home ownership will be left to continue renting, growing resentful and feeling left out. They could be easy prey for populist politicians with oversimplified answers.

Home ownership has become a symbol of self-worth to Canadians. This might be why Ahmed Hussen, the minister responsible for the CMHC, said in a March interview on CBC Radio that he believes home ownership is “still within reach for many Canadians and in the majority parts of the country.” He added what sounded like a vain attempt at soothing those who are feeling left behind: “It is also fine to live in a rental unit, and that’s OK as well.”

Adding capital gains taxes on proceeds from the sale of a principal residence and further taxing housing market speculation could be too tempting for the feds to resist — but these measures would just be Band-Aids.

Ottawa needs to break people of the belief that they must overbid for housing. We can expect the federal Competition Bureau to continue going after local real estate boards for practices it considers anti-competitive — even though real estate boards are provincially regulated.

One answer may be a real estate equivalent of the Canadian Securities Administrators (CSA). Even though the CSA was formed as a coalition of provincial securities commissions, it has become Canada’s de facto national securities regulator and seems to be succeeding in protecting investors. Could a similar coalition of real estate regulators protect homebuyers?

Canada badly needs a national watchdog to protect people from predatory real estate tricks such as bully bids, fake open houses and bidding wars that hide the value of competing bids.

Earlier this month, Trudeau said in a speech that his government would reach out to provinces and territories to find solutions for housing affordability — but did not suggest any.

A good place to begin would be to have a federal minister devoted to housing exclusively. That Hussen, minister of families, children and social development, doesn’t have “housing” in his job title shows Ottawa has been missing in action.