Tag Archives: incentives

Canada, CMHC, debt, economy, opinion, prices

Should incentives go to the supply or demand side?

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91 Comments

The Canadian Mortgage and Housing Corporation (CMHC) is Canadas national housing agency.

The front page of their website says this:

Backed by more than 65 years of experience, we work with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today’s housing challenges, anticipate tomorrow’s needs, and improve the quality of life for all Canadians.

This is a bit vague, but let’s assume ‘today’s housing challenges’ includes the availability of affordable housing for all Canadians.

With this goal in mind there are two ways you could use government money to create incentives for housing: The supply side or the demand side.

CMHC works on both sides, but over the years they’ve shifted the bulk of their support to the demand side.  This means that instead of directly funding the construction of housing or providing incentives to builders, they provide support to the buyer mainly in the form of mortgage insurance for risky loans.  Of course this support is actually provided to banks to make their loans risk free, but the end result is that more people are able to pay a higher price for housing due to more availability of credit.

In concert with record low interest rates and a speculative mania this has driven housing prices to record highs in Vancouver and inflated prices across the country leading to talk of a national Canadian housing bubble similar to that seen in the US.

If we really want to use government to assist in the creation of affordable housing shouldn’t we be providing incentives to the supply side instead?  It shouldn’t be a stretch to understand that building more housing and providing less credit to home buyers would drive prices down making homes MORE affordable.

But nobody really wants to drive prices down do they?  So instead we get vague statements about housing challenges and smoke and mirrors attempts to improve ‘affordability’ by providing ever cheaper credit.

That hasn’t worked in any housing bubble yet, but hey! Maybe it’s different here!

 

Canada, CMHC, debt, economy, opinion

We want a nice housing bubble

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113 Comments

I’m so sick of hearing realtors and mortgage brokers complain about the new CMHC rules.

The government isn’t really bringing in some tough new restrictions, they’re simply rolling back some of their bubble incentives.

The Feds clearly wanted to juice housing and that’s what they got.

Bank of Canada governor Mark Carney says the No. 1 risk to the Canadian economy is a housing bubble. Good grief! How on earth did rock-stable, good-banking, solid-regulating Canada end up on the edge of a possible real estate crisis? Simple. In Canada as elsewhere, housing is a political business policymakers find irresistible. There’s always some government policy — low interest rates, first-time home-buyer incentives, high-ratio mortgages, mortgage insurance, capital gains exemptions, interest deductibility — available to government agencies to bolster the feel-good business of home ownership.

It’s a global phenomenon, from Ireland to Spain, from Britain to the United States. Housing bubbles — rocketing prices following by plummeting prices — are not new to the world economy. The last decade, however, has left an unprecedented trail of housing price chaos and disaster. The similarities from one country to another are unmistakable.

We saw what was happening in the states, and still the government moved amorts from 30 to 40 years and flooded the housing market with money. Where did they expect this to lead?