But That Ball Is Aimed Straight In Face Of The Middle Class.
When the stress test was rolled out in 2016, it was lauded by many as a safeguard against growing concern about rising personal debt levels amongst Canadians. Although many were concerned it went too far, the basic stress test was there to ensure that consumers would be okay in case interest rates rose 2% or more over existing contract rates.
Since then and up until recently, the stress test has been positioned as a tool to ensure credit is managed on an individual basis, in a prudent manner, so our national credit rating remains satisfactory.
Next week however, that all changes.
It is commonly accepted that the large increase in housing prices across the country results from demand exceeding supply, but how does ignoring supply side issues relate to the new stress test requirements?
Here’s a bit of background:
Since 2016, the number of housing units per 1000 Canadians has dropped to 424 from its previous 427 per 1000. That seems like small beans, but it’s the lowest among the G7. In meaningful terms, we’d have to add 100,000 units to the housing supply immediately to catch up to 2016 levels.
The huge eye opener is that to merely climb to the G7 average, we’d need to have 1,800,000 units come onto market today.
The government response? Well, it’s all about trying to minimise demand by decreasing borrowing power rather than addressing the real problem. Take that middle class!
Our colleagues at ScotiaBank have suggested, rather politely: “Solving our country’s housing challenge should be national priority. The sustainable solution is not rooted in the interest rate or macroprudential space but rather in a determined effort to remove obstacles that limit housing supply.”*
While the government and its housing agency, CMHC, may acknowledge the problem of under supply, nothing has been done to address the actual issue of that chronic under supply.
Instead, the government of the day has concluded that they can be seen to cool demand by reducing borrowing power unreasonably. Instead of actually increasing supply to reduce demand, they are limiting demand.
I’d suggest that in an election year, you might want to have a conversation with your MP about this, especially if like me, you are feeling the sting of that ball in your face.
*Global Economics Housing Note, ScotiaBank, May 12, 2021
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