Mortgage Stress Test
IT IS THEREFORE RESOLVED THAT AUMA advocate for the Government of Canada to eliminate or regionally apply the mortgage stress test and return to a 30-year amortization by the Office of the Superintendent of Financial Institutions.
FURTHER BE IT RESOLVED THAT the Government of Alberta review the lending practices of the Alberta Treasury Branch (ATB) and Alberta Credit Unions to exempt them from the mortgage stress test.
WHEREAS the Government of Canada through the Office of the Superintendent of Financial Institutions introduced new mortgage stress test rules in 2016 and again in 2018 which applied to mortgage loans made by all federally-regulated lenders;
WHEREAS these rules apply a mortgage benchmark rate that is 2 per cent higher than the rate currently offered by lenders in the market;
WHEREAS these rules artificially impose a standard that may be required for specific metropolitan areas such as Toronto and Vancouver, but are not applicable to the rest of the country; and
WHEREAS these standards have increasingly placed constraints on homebuyers and had a perverse effect on the housing market.
A robust housing market provides significant economic and social benefits to all communities. In 2017 in Lethbridge residential construction contributed to 3,291 on-site and off-site jobs, $225 million in wages and $504 million in investment value.
Using price to income ratio Lethbridge is one of the most affordable stable housing markets in Canada but changes in government policies, including the OSFI-mandated mortgage “stress test” in 2018 (B21 & B20), have increasingly placed constraints on homebuyers, especially first-time home buyers, and had a significant negative impact on the housing market in most communities in Alberta.
The Federal mortgage stress test was designed to address two overheated housing markets in Vancouver and Toronto but has created significant issues across Canada and especially in Alberta.
BILD Lethbridge Region and Lethbridge & District Association of Realtors commissioned a report to quantify the impact of the ‘stress test’ on the Lethbridge housing market. The findings indicated:
- New home sales are at the lowest since 2001;
- Residential resale decreased 3.6 per cent in 2018 from 2017;
- Unabsorbed new homes inventory continues to be above the 10-year average and over 11 per cent increase from 2017;
- Following the stress test homebuyers in Lethbridge saw their purchasing power decrease by 17.3 per cent, and an additional 5.5 per cent due to rising interest rates; and
- Housing starts dropped by 27 per cent in 2018 over 2017.
In Okotoks, as of April 2019, there is a total of 230 residential units for sale. Most Okotoks residents are owner households with children. As noted in the 2019 Okotoks Housing Needs Assessment, the overall housing stock in Okotoks is relatively new with 80% of all dwellings constructed in the last 25 years between 1991 and 2016, which supports a large number of residents employed in the construction industry.
The Calgary Real Estate Board recently released a report with alarming statistics for the Calgary real estate market showing residential sales shrunk by 15 per cent in 2018 relative to 2017 and were down 20 per cent compared to the ten-year average.
Low starts equate to less builds which affects trades, suppliers and service professionals. A reduction in building construction and development directly affects jobs in all our communities. Layoffs have already started.
This affects the entire housing continuum and works at odds with the objectives of the Municipal housing strategy. Without movement across the housing continuum, land developers and builders do not build; residents do not buy and sell properties, and renters stay in place. 80 per cent of rental units become available because of people moving to ownership. If people remain in rental situations, not only are they not building wealth, it puts pressure on the rental market and increases the cost of rent in the city making it more difficult for those with lower incomes to find rental units and increases the need for rental supplements and affordable housing.
Alberta credit unions, such as ATB, are following the federal guidelines of the stress test – even though they are provincially regulated and therefore not mandated to follow them. There is an opportunity for the provincial government to develop Alberta made policies.
The Federal rules have locked more Albertan families out of home ownership and contributed to historic levels of housing inventory which resulted in fewer homes being built and job losses. Housing markets across Canada are not uniform and policy should reflect that.
At the March Municipal Leaders’ Caucus AUMA members passed a motion brought forward by the City of Calgary on the same topic. The purpose of bringing this forward again as a resolution is to highlight the significant impact on communities.
The Minister's response notes that the province has challenged the federal government’s one-size-fits-all approach to mortgages by demanding that Canada Mortgage and Home Corporation (CMHC) stress tests are removed from Alberta residents. The Minister commits to continuing to engage with the federal government on this issue, and standing up for the best interests of all Albertans.