The topic of “housing affordability” has become embedded into life as a British Columbian. When engaged in idle conversation, following the weather and a struggling Canucks season, housing affordability is a go-to topic.
But what does affordability mean? The true answer is that it means different things to different people depending on their stage of life and economic circumstances.
People struggling with poverty, unemployment and diminishing low-income housing supply require structured policy assistance to mitigate these issues.
But reducing affordability to simply meaning “make home and rental costs cheaper” is a short-sighted perspective fraught with unintended consequences. For long-term homeowners approaching or at retirement age, market interventions that seek to drive down home prices are significantly hurting the long-term finances of B.C. families. These are, after all, families that are seeing their wealth eroded by governmental policy interventions.
Furthermore, the impact of that declining wealth does not stop at household balance sheets. It ripples throughout the entire economy via lower consumer spending and falling residential investment.
In between those struggling with poverty and the comfortably housed are the middle-class working families of B.C., who are either stretched thin by high housing costs or struggling to enter the ownership market. Policies aimed at lowering hard-earned home equity or polices that target mainly high-end real estate, such as the foreign-buyer tax, do nothing to help this demographic. Indeed, polices like the federally implemented Bh20 mortgage stress test make it even more difficult for families to move up the property ladder.
Among recent interventions, the Bh20 mortgage stress test has had by far the largest impact on home sales. It was implemented to prevent homeowners from extending beyond their means should interest rates rise.
The stress test requires a potential mortgage applicant to qualify at a mortgage rate two full percentage points higher than the prevailing mortgage rate. The ultimate impact of the policy is that the purchasing power of prospective homebuyers has been slashed by up to 20%, prompting a 24.5% decline in B.C. home sales in 2018.
The effect of much stricter mortgage qualification rules continues in 2019, with home sales across the province approaching decade lows despite a relatively strong B.C. economy.
Additionally, by shifting demand away from home ownership and into the rental market, the stress test may also exacerbate the already tight B.C. rental market, undoing any of the hoped-for improvements from other policy measures. The British Columbia Real Estate Association has recently called upon the federal government to revisit this measure by either reducing the 200-basis point risk buffer or allowing 30-year mortgage terms.
Other policies, such as the provincial speculation tax, are likely doing more harm than good, particularly in regions outside of the Lower Mainland that have traditionally relied on demand for recreational property from inside and outside of the province. It’s B.C. residents that are being impacted by the speculation tax, not “off-shore” money or other popular scapegoats.
A far more effective avenue than recent government interventions aimed at reducing housing demand would be to address the supply challenges that have significantly contributed to rising prices, particularly in Metro Vancouver. For example, addressing the supply side of housing through increased density and faster permit approvals would not only have a much greater impact on long-term housing affordability, but also promote – rather than stifle – economic growth by encouraging increased home construction.
No amount of discourse on affordability will drive the narrative to a single point of view.
There is no magic-bullet answer here.
We’re all British Columbians, and each of us needs to recognize the validity of these demographics (and the multiple nuances of those who fit somewhere in between), rather than viewing them as competing special interests or annoyances.
The onus is on the federal and provincial governments to rise above reactive politics and hastily crafted policy.
A strong sustainable housing market will require expansion of supply to match demand, and increasingly working with industry to craft smart policy that balances the diverse needs at play within the province. •
Darlene K. Hyde is the British Columbia Real Estate Association’s chief executive officer.
