Why has the Canadian government granted a 30-year amortization (on new builds only) for insured mortgages, and increase the cap to $1.5M?

 Short Version

To stimulate development, not demand.

The demand is there, but the product is not. 

Why?

Long Version

First a point of clarity; is the new cap really $1.5M?

The current cap set in 2012 isn’t $1 million.

It’s specifically a max purchase price of $999,999.99. 

A hard lesson still be learned by rookie Realtors 12 years later, as they have to go back to the sellers and negotiate a one cent price reduction.  For real. 

So, will the new cap be $1,499,999.99?

Or will we at last have one cent worth of logic applied to how the day-to-day world (and all media) works?

In any case, these changes are NOT about what so many are suggesting—stimulating demand.

These changes are NOT inflationary.

These changes are about supply.

It’s about encouraging developers to create more livable homes.

The $999,999.99 cutoff has become a major problem in today’s inflationary times, particularly for a developer trying to ffer a 3 bedroom product in  the GTA or GVA.

When did a two-bedroom townhouse become a thing?

About the time land and constructions costs capped the max square footage due to the limited pool of buyers at 1M$ and up. That’s when.

With the rising costs of land, labor, and materials, we were heading towards one-bedroom townhouses.

There’s been a lot of noise about the $1.5M figure, mostly from short sighted individuals not recognizing that inflation will continue, and that a nudge to say 1.1M, or 1.2M would have been temporary relief. 

And the real story isn’t out at the margins.

The real story, the real magic of these changes, will be in the $1.05M, the $1.08M, the $1.12M price ranges.

That’s the zone where a key group of buyers will now be able to actually buy something. 

And who are these buyers?

Oh you know...

They’re a familiar group if you’ve ever competed for a detached house with a suite, or a three-bedroom condo/townhouse in the $1M–$1.5M price range.

That's right…

Government workers. 

The nurse, teacher, firefighter, and police officer—often married to, you guessed it, yet another nurse, teacher, firefighter, or police officer. These recession-proof, and pandemic-proof, households are known for striving for advanced degrees and/or working overtime hours, resulting in combined household incomes beyond $200,000. 

And that income level easily qualifies them for mortgages in the $1M–$1.35M range, especially if we’re talking about a detached house with a basement suite.

Some might point out that this demographic is also a large voting block with a strong likelihood of showing up on election day. So maybe homeownership being made more attainable for thousands of these folks is a gesture from the current government. Maybe.

More likely, though, this is actually about increasing supply.

It’s a signal—one of many—being sent to developers to inspire them to build something other than studio, one-bed, and two-bed condos, and those odd feeling two-bedroom townhouses.

Expect guidelines to be eased when there is a link to supply.

As for something else logical, something that would benefit consumers, something recommended by the Competition Bureau, like oh say... no stress test on switches at renewal? 

Don’t hold your breath. 

It’s not about the consumer.

It’s about the stability of the banking system.

And increasingly (at last) it's about increasing supply!

DW