Demand-Focused Housing Policies Might Be Hurting Affordability

Canada’s housing market continues to dominate headlines, and for good reason. The powers that be have introduced Demand-Focused Housing Policies like extending amortization periods for insured mortgages and raising the Canada Mortgage and Housing Corporation (CMHC) insurance cutoff to $1.5 million. While these policies aim to make homeownership more accessible, critics argue they may be doing more harm than good. Let’s explore why demand-focused solutions might inadvertently worsen Canada’s housing affordability crisis.

Extended Amortization Periods: Lower Payments, Higher Costs

One of the most notable changes is the extension of amortization periods for insured mortgages. This allows buyers to spread their payments over a longer timeframe, reducing monthly costs and making homeownership appear more affordable. On the surface, it’s an attractive solution for first-time buyers.

Why It’s Problematic:

• Inflates Demand: By lowering monthly payments, more buyers can qualify for mortgages, increasing competition for limited housing stock.
• Increases Lifetime Costs: Longer amortization means paying significantly more in interest over time, making the home more expensive in the long run.
• Supply Disconnect: Without addressing the supply issue, lower payments simply push prices higher as more buyers flood the market.

Raising the CMHC Insurance Cutoff: Helping or Hurting?

The CMHC’s decision to raise the insurance cutoff from $1 million to $1.5 million aims to help buyers in high-cost regions like Toronto and Vancouver, where even starter homes often exceed the previous limit. This change broadens access to insured mortgages for more Canadians.

Why It’s Controversial:

• Encourages Larger Loans: Buyers are incentivized to take on more debt, pushing prices higher in already expensive markets.
• Disadvantages Lower-Income Buyers: Those who cannot afford to compete at higher price points may find themselves squeezed out entirely.
• Fails to Address Supply Issues: Like extended amortization periods, this policy focuses on enabling demand rather than increasing the availability of homes.

Why Targeting Demand May Backfire

While these policies aim to improve accessibility, they fail to address Canada’s core housing issue: insufficient supply. Here’s why focusing on demand can be counterproductive:

• Short-Term Gains, Long-Term Pains: Policies that enable higher borrowing often result in price increases that negate the intended affordability benefits.
• Supply Constraints: Canada’s construction industry faces significant hurdles, including labour shortages and rising material costs, limiting the ability to meet increased demand.
• Market Imbalance: Demand-focused solutions shift the goalposts but don’t create the additional housing stock needed to stabilize the market.

For example, off-market transactions like the one detailed in “Off-Market Property in Brantford Gets the Deal Done” highlights how some buyers and sellers are navigating limited inventory outside traditional channels. While these strategies offer short-term solutions, they underscore the larger issue: demand-focused policies without supply increases only deepen the affordability crisis.

What Needs to Change?

If Canada is serious about addressing its housing affordability crisis, the focus needs to shift to increasing supply. This means:

• Streamlining Zoning Regulations: Encourage the development of more diverse housing types, including multi-unit buildings and purpose-built rentals.
• Incentivizing Builders: Provide tax breaks or subsidies for developers who focus on affordable housing projects.
• Investing in Infrastructure: Improve public transit and services to make less expensive, outlying areas more accessible.

Demand-side policies may provide temporary relief for some buyers, but without a significant boost to housing supply, affordability will remain a distant goal. Let’s advocate for smarter, long-term solutions that work for everyone.

Additional Reading:

• Mortgage Loan Insurance Overview for Consumers | CMHC
• Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians
• Canada relaxes some mortgage rules to tackle housing crisis