OTTAWA (CU)_Over the recent months, the federal government of Canada has launched a host of measures to tackle the ongoing housing crisis, which made headlines during the twentieth-September election. Their concerns include speculative investing in residential real estate, which has prompted Canadians to overbid on properties and borrow beyond what they can afford, thereby pushing home prices even higher.
Against this backdrop, Ottawa is seeking to curb speculation in red hot housing markets by launching a review on regulations surrounding down payments on investment properties. In a statement to the Financial Post, the Ministry of Housing and Diversity and Inclusion, together with the Canada Mortgage and Housing Corporation (CMHC), noted that the government is looking at “every tool at our disposal” to tackle the challenges which lead to soaring house prices.
“By developing policies to curb excessive profits in investment properties, protecting small independent landlords and Canadian families, and reviewing the down payment requirements for investment properties, we are targeting the issues the market is facing from multiple angles,” the statement read.
According to experts, restrictions on the source of funds or a hike in the down payment are the most likely measures that may be pursued by the government following the down payment review for investment properties. “A five-percentage point increase in the minimum down payment would slow investor purchases incrementally,” mortgage expert Rob McLister said. “A ten-percentage point boost would curb investor purchases more noticeably. A 15-percentage point bump in rental down payments (or a 35 per cent down requirement) would substantially slow investor purchases.”
While the president of Toronto housing data firm Realosophy Realty Inc., John Pasalis, agreed that an increase in the minimum down payment requirement was the easiest way to curb speculative demand, he pointed out that it wasn’t just pure speculators who buy investment properties. Other segments of investors include those who own properties and are upsizing, but are keeping their current home as an investment property, he said.
Therefore, he is of the view that instead of focusing solely on supply-side solutions, some kind of measure are needed to slow demand. “If you look at every speculative housing bubble in history, they’re driven by investors. Even cities with the most elastic supply, meaning the housing markets could easily respond by building more… no matter how much supply they build, it didn’t prevent a housing bubble,” Pasalis added. “When the mood is very exuberant, you can’t build fast enough.”
