policy
06. policy Metro Vancouver’s housing market has been buffeted by an unprecedented number of policy interventions since 2016.
THE THREE HOUSING MARKET AMIGOS: DEMOGRAPHICS, ECONOMICS, AND POLICY
In order to develop a fulsome perspective of housing market dynamics, one must not only acknowledge traditional demographic and economic drivers, but also the role played by policy, whether its origins are at the national, provincial, or a more local level. Many government policies can have indirect effects on housing, including ones that alter personal income tax rates, introduce new public transit options, or increase immigration. Others have a much more direct impact on local housing markets—such as, to put a fine point on it, those actually aimed at altering local housing markets.
There is no better example of this in Canada than Metro Vancouver, whose housing market trajectory has been altered over the past 2.5 years by a variety of policies aimed largely at quelling the demand side of the market. Our belief is that these policies (the most prominent of which are summarized below) have largely been “baked” into today’s housing market dynamics. In subsequent editions of the rennie landscape, we will provide updates on relevant, new, housing-related policies that have been introduced in the previous quarter and share our expectation of any future policy interventions. A rarely-discussed feature of this policy is its anti-competitive consequence. Want to renew your mortgage terms but don’t like what your lender is offering? If you decide to shop around you better hope you qualify for your own mortgage under the rules; some borrowers will not, and their current lenders know it. Ergo, there is no reason to believe mortgage renewal interest rates will be as competitive as they were in a pre-stress test world.
THE MORTGAGE STRESS TEST (OSFI, JANUARY 2018) At the beginning of 2018, Canada’s financial
institutions regulator (the Office of the Superintendent of Financial Institutions) implemented the final phase of its new mortgage borrowers rules, whereby uninsured borrows must qualify for their mortgage at an interest rate equal to the Bank of Canada’s benchmark rate or the borrower’s own contract rate plus two percentage points—whichever is higher. All else being equal, this has reduced household purchasing power by at least 15%.
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