April 6, 2010
As affordability continues to deteriorate and speculative investors continue to rake in incredibly high returns from flipping Canadian properties, the government has taken a stand. The government has increased the minimum requirement for a down payment to weed out speculators. Albeit, they also made the rate for qualifying for a mortgage more conservative to help quantify interest rate risk for home buyers.
So the byline of an article in the National Post today read:
Apply The Law of Unintended Consequences To The New Mortgage Rules And The Picture Isn’t Pretty. The Financial Post
Okay…let’s look at some of these “unintended” consequences. Sounds like a bunch of whiny investors to me! After all, these consequences were explained by Don Campbell, president of the Real Estate Investment Network which holds $3 billion in property. Hmm…I wonder what he thinks of rules introduced to curb the housing boom. Anyway, let’s get on with it…
- Higher rents– This is exactly what the government intended to do! The spread between the cost of renting and the cost of carrying a mortgage is often cited as a good indicator of a housing bubble. This spread has only been increasing as renters move out of their units and begin purchasing homes. Hence, demand for rental units has decreased recently. But the government is trying to increase that demand once again to moderate the balance between the cost of renting and the cost of carrying a mortgage.
- Loss of construction jobs– Okay, so this one does suck. No one likes to see jobs go, but I don’t think the government is in the dark about it. They’re trying to cool down the market which means slower development as well.
- Mortgage fraud– So apparently these new rules are going to invite investors to find loopholes to avoid complying with the new regulations. Generally the people finding these loopholes are investors with enough money to find them. Also, loopholes are probably already being exploited under the current system. Just like any group, there are always a few bad apples looking to find a gray area.
Sounds like sour grapes to me! This is the government’s way of saying “Take that, speculators. Canadian home owners want to live in their homes on a reasonable budget, not just line your pockets.”