Shared-equity mortgages are a good idea — but should they be government policy?

OPINION: The centrepiece of the federal budget’s housing strategy is an equity-sharing scheme intended to help homebuyers afford mortgages. The big question is whether the feds will need provincial help to make it work
By John Michael McGrath - Published on March 22, 2019
Bill Morneau, federal minister of finance
Federal finance minster Bill Morneau delivered the 2019 budget last week in Ottawa. (Sean Kilpatrick/CP)

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The big, shiny bauble in this year’s federal budget is a billion-dollar aid package for people struggling to afford homes in Canada’s hot housing markets. The 2019 federal budget, announced by Finance Minister Bill Morneau last week, directs the Canada Mortgage and Housing Corporation to make $1.25 billion available through a new program that will see Ottawa, in effect, own a share of people’s mortgages.

The plan, as spelled out in the budget, is that households making $120,000 or less will be able to apply to have CMHC pay for a share of their home — 5 per cent for existing homes, 10 per cent for newly built ones. The fortunate recipients would repay the amount when they sold their home. (The benefit will be capped at a mortgage equal to four times the annual household income.) Basically, the federal government is offering a zero-interest loan that will max out at $48,000 for a $480,000 home.

It’s called a shared-equity mortgage, and it’s not something our Ministry of Finance invented: it’s been part of government policy in the United Kingdom for most of the last decade, and some private developers use it here in Canada.

Heather Tremain, CEO of Options for Homes, a non-profit developer based in the GTA, expressed optimism about the announcement — and about the news that Ottawa intends to create a separate $100 million fund to help companies such as hers expand their services.

“That $100 million, the access to additional equity, will really let us take off, to excel at a new level,” Tremain told TVO.org. “We know there are land deals out there we can do, we have the internal capacity, and that’s one of the missing pieces that would let us serve even more people.”

Options for Homes is at a critical point in its growth — it’s built 3,600 homes over the past 25 years and now has 2,100 in its development pipeline — so federal funding could make a huge difference.
But there’s a nagging question about this model. It makes sense for Options for Homes, which gives homebuyers a break up-front, recovers that money — plus some appreciation — when the condo is sold, and then plows it back into home building. The Liberal incentives work in the company’s favour. But how will they work in the public sector?

The Government of Canada does many things, but it’s not a homebuilder, and neither is CMHC (the latter is an insurer). They can’t, on their own, guarantee that this money will go toward actually building new homes. The obvious concern is that such a measure will simply help a greater number of people bid up home prices in Canada’s big cities.

Tremain, though, says the program as announced will be modest enough that she’s not worried about that.

“It’s $1.25 billion over three years, so just a little over $400 million in a very large market across Canada,” she says. “We, this year, will be providing just under $20 million in second mortgages to homes closing in Toronto. And there are still a lot of people who haven’t been served.”

“I don’t think it’s going to create that demand everyone’s worried about,” she adds. She suggests that the government is primarily trying to offset some of the consequences of the mortgage “stress test” it implemented in 2018 to guard against irresponsible lending. The stress test has arguably done a lot to moderate housing prices — but many observers now worry that it’s keeping people out of the housing market.

It’s important to note that the government’s equity-sharing plan for housing may not even be the most important part of the budget’s housing chapter. Numerous other policies could end up having a more substantial effect, including a significant increase in money for low-interest loans to support affordable rental housing. The government is also proposing to crack down more on money laundering and tax evasion in the real-estate sector — and that could help let some of the steam out of some particularly hot housing markets.

Broadly speaking, the government is doing what it can to make sure that housing supply keeps up with housing demand: it may be goosing demand with its equity-sharing scheme, but it’s also spending large sums to try to increase supply. That’s all fine, as far as it goes.

The problem for Ottawa is that it doesn’t control all the policy levers that raise or lower housing supply: the real action has to come at the provincial level, where everything from planning rules, to fees and taxes, to the basic infrastructure that allows for homebuilding (roads, water, electricity) are regulated and funded.

So, in a very real way, the success of the federal housing policies announced in Ottawa this week will depend on provincial policies, particularly those made in Victoria and Toronto. Later this spring, Steve Clark, Ontario’s minister of municipal affairs and housing, is expected to release the government’s plan for increasing housing supply. When he does, we’ll have a clearer idea of how — and whether — federal and provincial policy will work together.

Correction: An earlier version of this article misstated Heather Tremain's surname. TVO.org regrets the error. 

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