This article suggests 5 things that the government could do to help housing affordability.
1. Longer amortizations are a good idea. They help buyers get into the market. All mortgages have prepayment options so if the buyer’s fortunes improve he or she can shorten the amortization down the road.
2. Scrap the mortgage stress test. Historical mortgage default rates in Canada for the last 50 years are about .3% and there has never been a stress test. Even in 1880-82 when interest rates hit almost 20%, the default rates were well under 5%. People default on their mortgages due to job loss, sickness, divorce and other calamities –not because the interest rate goes up a few points.
3. Increase first time homebuyers credit? It can’t hurt, but it would have to go up quite a bit to make a difference in the Lower Mainland.
4. Build more affordable government-subsidized housing. Great idea, but it will never happen.
5. Do nothing. Well, that advice should have been given before the stress test was implemented, because 4 consecutive interest rate hikes by the Bank of Canada since 2017 would have cooled off the housing market without more.
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