Feb 18 2010,Toronto Star
Federal Finance Minister Jim Flaherty says there is "no clear evidence of a housing bubble" in Canada, but he is taking "proactive" steps anyway. The package of measures he announced this week to restrict mortgage lending has been applauded by the banking sector.
However, one part of the package could put a damper on the economic recovery, particularly in Toronto.
At issue is Flaherty's new requirement of a 20 per cent down payment (up from 5 per cent) to obtain CMHC insurance for "non-owner-occupied" residences, mainly condos. Flaherty said the move was necessary to curb "speculators" in the real estate market.
But those same speculators (or "investors," as the housing sector calls them) are providing much of the market – up to 40 per cent, by some estimates – for new condo buildings in Toronto and other big cities. Accordingly, the builders have expressed alarm at the move and suggested it would negatively impact condo developers across Canada. "There had been no prior consultation with our industry on this matter, nor is there evidence that condo speculation constitutes a problem requiring such down payment restrictions," said Gary Friend, president of the Canadian Home Builders' Association.
Friend also pointed out that the new restriction would adversely affect the supply of rental housing, since non-owner-occupied units are generally leased out.
The housing sector is already bracing for a body blow on July 1, when the new harmonized sales tax comes into effect.
One way for Flaherty to mitigate the impact of the new down payment requirement, then, would be to heed the home builders' call for Ottawa to match the more generous sales tax rebates being offered by Ontario and British Columbia for buyers of new homes.