Man, does this ever make me hate politics.
And politicians, for that matter. The saying “Hate the game, not the player,” doesn’t apply in the dirty, backwards world of pandering to the public in the interest of self-preservation.
Because that’s what politics is, right? Self-preservation.
You’re naive if you think that any political party or any politician is more concerned with the best interests of constituents, over their own best interests. It’s that inherent conflict of interest that makes politics completely self-defeating. We elect these people, in theory, to make decisions on our collective behalfs, based on our collective well beings. These people, in turn, are paid for their work. If these people were not elected, they would not be paid. And thus, their election is their priority, above all else.
In my humble opinion, what we’re seeing right now with respect to the federal Liberal government’s announcement last week that they would make home-buying easier for millennials demonstrates exactly that paradox.
And it’s so tragically ironic, considering that the federal government’s policies are exactly what made home-buying more difficult in the first place.
This bothers me so much.
And yet I know that simple-minded voters who merely read headlines, and not actual stories, let alone do their own research and take ten minutes away from Instagram to read up on the politicians they’ll actually cast votes for, will likely buy the rhetoric that Bill Morneau is spinning, and by the time the election rolls around in the fall, reward Mr. Morneau and Mr. Trudeau for making promises they never intend to keep.
I’ve come to realize that “liking” a politician or political party is far more difficult than disliking one.
I think it should come as no surprise to anybody who reads my blog that I don’t particularly like the current federal Liberal government, nor do I like the politician and leader at the helm, Justin Trudeau. But that doesn’t mean I dislike the party; I’ve voted Liberal before, who hasn’t? And it also doesn’t automatically mean I like Andrew Scheer and/or the federal Conservatives. On that, I remain completely and utterly undecided, but in lieu of suitable alternatives to Morneau, Trudeau, and the liberal policies nationwide, I almost become a Conservative voter by default.
And that’s how so many political parties come to be in power! By default!
The federal Liberals themselves rose to power because they were the default option to Stephen Harper, a Conservative.
And the provincial Conservatives rose to power because they were the default option to Kathleen Wynne, a Liberal.
Politics is just a big shell game, and we are merely pawns.
And we pawns are eating up this Liberal rhetoric about affordable housing, right at the perfect time!
On Tuesday, Finance Minister Bill Morneau announced that the Trudeau government is “looking for ways” to improve affordability in the housing market among millennials.
The comment came seemingly out of nowhere, as Mr. Morneau was at a function in Aurora, and was asked specifically if the government had any plans to help first-time buyers. It’s possible that the federal government has discussed this internally, and planned to make it part of their platform for the next election, and it’s also possible that Mr. Morneau simply answered off the cuff, and made a promise on the spot, as politicians are so inclined to do.
Either way, this was the first shot across the bow in an election campaign where many, including myself on multiple occasions, have suggested that all three major political parties will make affordable housing part of their platforms.
Mr. Morneau went on to say that the government has focused on three major issues related to housing since 2015:
1) Shortage of affordable housing nationwide
2) Rapid appreciation in certain markets (assuming this is Toronto and Vancouver)
3) Affordability for millennials
Personally, I haven’t seen much action from this government on those three collective fronts.
The government did promise/pledge to increase affordable housing……over the next ten years.
And they did enact nationwide policies aimed at restricting borrowing. But that didn’t do anything to stop appreciation in Toronto and Vancouver, but rather did so across the entire country. I can’t imagine they’re touting a success at curbing appreciation in two cities, when they implemented policies across the board, can they?
Well, apparently they can!
Later in the interview, Mr. Morneau later specifically pointed to the mortgage stress test as “cooling the hottest markets,” which I find to be utterly bizarre. When you restrict the ability of somebody to borrow in Toronto, you do so too in Ottawa, Regina, Kamloops, and Yellowknife. The markets cooling in Toronto and Vancouver were a by-product of federal policy, and not city-specific.
My favourite part of this speech and question-and-answer period was when Mr. Morneau was asked to elaborate on potential policies and regulation changes to help millennials, and he offered absolutely nothing.
This leads me to believe (gasp!) that he doesn’t actually know how the government can help millennials, but rather he opened his mouth when given the opportunity to do so, and made a promise that he has no idea how to keep. That is politics!
Many people out there, myself included, laughed when we saw the headline that the Mr. Morneau and the Liberals want to make housing more affordable for millennials, considering that it was their policies that made it more unaffordable in the first place.
A good politician can duck, dodge, and spin anything. I’m sure the Liberals could argue that they were successful in cooling the markets in Vancouver and Toronto, and that now, and only now, are they prepared to enact Phase II of their grand-master-plan to help millennials into the market.
Look, I’m not faulting just the Liberal government here. I believe that any government would do this, be it Liberal, Conservative, NDP, or…..Green.
I’m sure that 30-40% of the people reading this blog post are Liberal voters, and I’m not aiming to hate on your party, or your candidate, but I am hating on the politics at work. It’s absolutely absurd, no matter which political party is in power.
Last week, the Mortgage Professionals of Canada (MPC) released a report that concluded the “rigorous” mortgage stress test implemented last year is denying the opportunity of home ownership to the young and middle class.
You can read the entire report HERE.
The report is phenomenal, all 84 pages of it. In the words of Jerry Seinfeld, “I almost read the whole thing!”
This report is released every year, and the 2017 report traced back every major policy change during the past decade, numbering seven in total.
The summary of their findings, one year later:
The policy changes were not equal in their impacts. Out of the first six sets of changes, only one had substantial and long-lasting effects – the elimination of mortgage insurance that took effect in July 2012.
We concluded that the seventh change – which, at the time was soon to take effect – would also have substantial and long-lasting effects: When the OSFI-mandated mortgage stress test, which took effect in January 2018, is added to the stress test for insured mortgages that took effect during the fall of 2016, there would be substantial depressing effects on housing activity.
The fall 2017 report estimated that as a result of the stress tests, resale activity in 2018 would be in the range of 470,000, which would be 13% lower than in 2016 and 7-8% lower
than in 2017 (at the time we didn’t have final sales numbers for 2017 so couldn’t calculate the change precisely).
In actuality, sales fell even more than expected in 2018, to about 458,400, a drop of 11% compared to 2017 and 15% compared to 2016. (The larger than expected reduction may be due to the interest rate increases that occurred during the year. Most of the reduction in sales during 2018 was due to the mortgage stress tests.)
We also commented that “By the time of the next federal election in October 2019, about 200,000 Canadian families will have encountered sharp personal disappointment as the
direct result of this pair of policies (they will either have significantly reduced their housing expectations in order to obtain financing, or been entirely prevented from buying a home).”
In various places, including pages 26 to 27 of the fall 2017 report, this author has commented that the stress tests use “the wrong interest rate”. It is reasonable to test borrowers’ capacities to afford higher future interest rates. It is not unreasonable to assume that in five years, the interest rate could be as much as 2 percentage points higher. But, it would also be prudent to assume that the borrowers’ incomes will be higher, because we have a long history in Canada of average wages rising by about 2% per year. The borrowers will have more ability to pay at the future renewal. This is not taken into consideration. It will also be a fact that there will have been a substantial amount of principal repayment (typically 13% to 14% during the first five years) through regular required payments (and even more if the borrower makes any voluntary additional payments). The higher interest rate will be applied to a reduced principal amount, and therefore the stress tests over-estimate how much the payment would increase. If both of these factors are taken into account, a 2-percentage point increase for the mortgage interest rate, occurring five years in the future, can be simulated today using an interest rate that is 0.75 points higher than the initial contracted interest rate.
It’s that last point that is the most important, since it’s what just about every critic has to say about the mortgage stress test.
In fact, after Bill Morneau made his comments last week about “helping millennials buy houses,” articles started pouring out of every media outlet.
Haider & Moranis, who seem to comment on every hot real estate topic, and are on the ball 97% of the time, wrote this article on Thursday:
They quoted the very same report that I referenced above, even quoting large sections of it!
They make the same point that is made in the last paragraph above; that the 2% stress test doesn’t take borrowers’ higher incomes into consideration.
Not surprisingly, just about every comment on the article was filled with vitriol, directed at the authors, real estate agents, people who borrow money, and the like.
Another article published last week, this one by the Toronto Star, is worth reading:
The reason this article bothers me should be obvious; it’s in the title.
Mr. Morneau’s comments, and any further action taken by the Liberal government, is merely a “vote-winner.” It’s obvious, and the people who it might affect will know this, but are expected to reward the Liberals anyways.
This, I don’t understand.
If you walk up to somebody and punch them in the face, then the day after, walk up to them and not punch them in the face, should they thank you for not punching them in the face?
Because that’s basically what’s happening here.
The policies that the Liberal government established helped, more than anything, to make home-buying unaffordable for younger buyers. Now, with an election on the horizon, they’re going to try to undo what they’ve done, and articles like the one above by a Toronto Star writer suggest that voters will fall right into the trap.
I can’t believe this is going to work. Except that, I sort of can.
Now on another, and perhaps less repetitive note, I’d like to offer some ways in which the government, current Liberal, or future other, might be able to help millennials.
1) Increase the maximum RRSP withdrawal amount
Currently, first-time home-buyers can withdraw up to $25,000 from their RRSP’s to purchase a home, and have 15 years to repay the amount.
This is probably the #2 in the arsenal of today’s young buyers, after the obvious #1: get money from parents.
Some might argue that the $25,000 cap is arbitrary, and others might suggest that we need to have a cap to protect people from themselves, and their desires. Others yet might argue that it’s not fair for any RRSP-holder to use their funds to purchase a home, and repay them later, as I have heard some opine in the past.
If the government truly wants to help millennials, and only millennials, then this should be a focus, and not the stress test.
2) Exempt first-time buyers from land transfer tax
You would think that the land transfer tax we pay here in Toronto is absurd beyond belief, but that’s until you read about what buyers pay in other countries around the world. Recall my 2015 blog about stamp duty in London, England. That’s right, it’s 12% on the value of homes $1,500,000 British Pounds and over.
I don’t like the land transfer tax, municipal or provincial, because it is a tax based on nothing. Naively, I feel that taxes should somehow be traced back to public service, and since we have property taxes on our homes, I can’t see why the transfer of title should be taxable, since we already pay to transfer title, and we actually now pay $75 in order to pay our land transfer tax. A tax on a tax.
If the federal government wanted to, they could offer money to the municipality, or province, to make up for an exemption for first-time buyers.
But that, of course, is asinine thinking, since the federal government rarely works with municipalities or provinces effectively (many of you will debate this, but this is my humble opinion), and usually scoffs at the idea of any “repayment.”
I’m just throwing it out there, you know, before we get to some even dumber ideas…
3) Start lending millennials money
Why not, right?
Many of these same kids took out OSAP loans to get through university (although didn’t Kathleen Wynne wipe out a whole whack of loans in order to win votes?), so why not start lending them money to buy houses?
Then, planned or otherwise, the government can simply “forgive” the loans in 15-20 years, after carrying them on their books for decades, and potentially use some creative accounting to hide the losses, as just about every government, from every political party, likes to do.
4) Let millennials deduct mortgage interest from their income taxes
Hey, they do it in the United States, right?
Except they pay taxes on the capital gain of a primary residence. And we don’t. The largest tax exemption you can possibly think of, and we take it for granted. But that’s a topic for another day…
Governments don’t fill their bank account by letting people pay less tax, so surely we can all recognize that if this did happen (which it won’t because I’m making up stupid ideas to prove a point), the government would tax other people in other areas to fill in the void.
5) Modify the mortgage stress test.
Ah, finally a logical suggestion!
Of course, this would help everybody equally, and not just millennials, but isn’t that fair? Yes, no?
Multiple people in the mortgage industry have told me that we could see the stress test reduced from 2% to 0.75% later this year, and while I don’t really have a horse in this race, I’ll throw my vote in the “yay” column.
One final thought, just because nobody has mentioned it.
If the government were to truly “help” millennials who want to buy homes, where does this leave all the millennials who rent?
How long until the renters, watching the buyers make hay, start to complain to their local politician that making things more “fair” for millennials only made things fair for some millennials, and not others?
Oh the horror! And the IRONY! It makes me laugh!
Because then, we’ll start talking about subsidies for millennial renters, especially if, you know, there’s an election happening.
This is not the last we’ve heard on this topic; on any of these topics!
I welcome your thoughts…Back To Top Back To Comments