The president and chief executive of Canada Mortgage and Housing Corporation is warning in no uncertain terms that Canadians need to change their perception of home ownership as a savings vehicle. In an interview with BNN Bloomberg Wednesday afternoon, Evan Siddall warned “this party ultimately comes to an end.”
In his conversation with Amanda Lang, Siddall shared candid perspective on a wide range of topics, including criticism of the new First-Time Home Buyer Incentive that was unveiled in the latest federal budget, and the role that banks need to play.
Here's a partial transcript of our conversation with the head of the CMHC.
On the overall assessment of housing across Canada
"Lukewarm would be the temperature. Expectations...have backed off, that's true for sure. Part of that is in response to policy actions that people may think are more important than they are."
On choosing the First-Time Home Buyer Incentive to address affordability
"We looked at a bunch of different options [in the lead-up to the federal budget]. People were looking for cuts in the stress-test level [and] extended amortizations. All of which would have substantially impacted house price inflation. The First-Time Home Buyer Incentive, was the answer, [and] will have – we think – an insignificant impact on prices."
On the biggest vulnerability in the housing market
"It is still indebtedness; indebtedness among young people because people tend to default when they lose their job within the first or second year of a mortgage. So that's what we're worried about."
"We're still vulnerable because we're so financially leveraged to anything that could happen offshore – trade wars, etcetera, etcetera. We don't know what the next big thing is going to be. We do know that we have fewer arrows in our quiver to respond to it."
On housing supply
"For now, we need more of almost every type [of home] in places like Toronto and Vancouver."
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On how private capital can help address supply needs
"Microsoft is investing in housing for its employees in Seattle. Big employers here could do the same thing. There are concerns abbot the affordability of places like Toronto and Vancouver, and CEOs are thinking, 'Geez, should I move to Mississauga? Should I move to Abbotsford?' Well, if they invest in housing, they don't have to do that."
On criticism of the First-Time Home Buyer Incentive
"[The policy] is deliberately designed to be a surgical response to people being excluded from the market. And so, because it's a marginal program, and people are being excluded at the margin, it's targeted right there. And if it were much larger, it would have an inflationary effect."
On homeownership ambitions in Canada
"In places like Paris, and Sydney, and Hong Kong, Buenos Aires, [and New York], people rent. Whereas here, we glorify homeownership. And we think it's the only vehicle for savings. Well, that's looking at the last 100 years. And, unfortunately, savings are in the future, not in the past. And I think this party ultimately comes to an end, and the people who are going to get hurt are young people."
On the role of the banks
"We looked at lender risk sharing a number of years ago as a way to implicate them. It turns out that idea has been shelved for a while. And the truth is, we have a bit of an on-the-one-hand, on-the-other-hand solution in Canada. Mortgage insurance makes our system more resilient. It means that if there is a housing correction, our banks will be somewhat insulated from that. On the other hand, it takes them out of the game. They're in there a little bit; they have to have capital aside for some of those mortgages. I would like, but I haven't found the magic bullet, to actually implicate lenders."
On interest-only mortgage payments
"That is a concern, yeah. Amortizing mortgages are mortgages that build up equity in themselves. And the more leverage people have – and interest-only mortgages makes you have more leverage – the fewer degrees of freedom we have to deal with things we just don't know are coming."