• Mortgage Rules Reboot:

    Will Freeland’s Plan Tame Canada’s Housing Crisis?

In Ottawa, the air buzzes with anticipation as Chrystia Freeland, Canada’s Deputy Prime Minister, steps up to the podium. The announcement, mundane as it may seem on the surface—a tweak to mortgage rules—is, in reality, a firecracker in a pressure cooker of a housing crisis that has taken an alarming toll on Canadians, especially young families. As housing costs skyrocket, exacerbated by inflation and interest rate hikes, home ownership for the average citizen feels less like a goal and more like a fantasy.

Today, the federal government has decided to offer a lifeline, albeit with a fair bit of rope attached.

First, the government plans to raise the cap on insured mortgages from C$1 million to C$1.5 million. Why? Because in cities like Toronto and Vancouver, the idea that anyone could purchase a decent home for under a million dollars is laughable—perhaps not in the good-humored sense, but in the bitter, teeth-gnashing frustration of reality. In these urban centers, where a million dollars might get you a teardown with a front porch, the previous threshold has been akin to putting a lock on a door without a key.

The increase to $1.5 million addresses a simple truth: the market has outpaced the rules. Freeland’s move allows prospective buyers to scrape together their five percent down payments and finally get a shot at homeownership, which they may not have had before. But let’s be clear—while this gives more people a foot in the door, it is not a solution to housing affordability. It simply shifts the goalposts slightly further down the field.

Freeland, ever the optimist in these situations, has stated that this change, coupled with another significant adjustment—extending the amortization period for insured mortgages to 30 years—will relieve some of the pressure on Canadians’ wallets. Amortization, a word that would give even the most financially literate a momentary brain freeze, is essentially the time you have to pay back your mortgage. Extending that period reduces the monthly payments, thus easing the immediate financial burden. It’s simple arithmetic: the longer you spread the loan, the less it hurts each month. Except, over time, you’ll pay more in interest.

This change, which will allow first-time home buyers and purchasers of new-build homes to take advantage of this 30-year term, is designed to “incentivize more new housing construction,” according to Freeland. In a country where the housing shortage looms like a dark cloud, this is intended to be a nudge—encouraging both the construction industry to ramp up supply and families to take the plunge into long-term mortgage commitments. But here’s the rub: incentivizing home building is one thing, actually delivering affordable housing stock is another beast entirely.

The real estate market, particularly in Canada’s major urban centers, has a history of snubbing these well-meaning initiatives. Government incentives don’t always trickle down to lower prices or more availability. So, while buyers may see slightly more favorable terms, the underlying issue remains untouched: too few homes, too many buyers, and an economy that stubbornly insists on raising interest rates.

Freeland’s announcement comes at a perilous time for Prime Minister Justin Trudeau and his Liberal government. Trudeau’s polling numbers are plummeting—down to a dismal 30% in September—a drop analysts attribute to one overarching factor: the cost of living, with housing at the epicenter. As rents surge and home prices climb, millions of Canadians are feeling the pinch, or rather, the vise grip, of unaffordability. In many ways, this move is less about saving home buyers and more about saving political face.

Yet, while these mortgage changes will offer some breathing room, it’s hardly the comprehensive fix many had hoped for. Canada’s mortgage structure itself plays a role in the chaos. Unlike our southern neighbors in the United States, where 30-year fixed-rate mortgages are the norm, Canada offers most mortgages on a five-year term, subject to renewal. It’s like living with a financial sword of Damocles hanging over your head, waiting for the bank to adjust your interest rate upwards, potentially throwing a family’s entire budget into disarray. Add in the recent record influx of immigrants and the demand for housing far outstrips supply, leading to even fiercer competition.

So, what are we left with? A government scrambling to stabilize a faltering market and a population trying to stay afloat in it. The Trudeau government’s gamble is clear: ease the short-term pain and pray for long-term solutions. But in the grander scheme of things, this is just a Band-Aid on a gaping wound. The real solution lies in building affordable housing, ensuring stable financing options, and perhaps, taking a long, hard look at how we define “affordable” in the first place.

And while Chrystia Freeland’s announcement may bring a sigh of relief to some, for many Canadians, the dream of owning a home remains as distant as ever.

-The TanTeam Editorial

The TanTeam Real Estate Group