Along with recent measures aimed at stabilizing Canada’s red-hot housing market, the federal government aims to take more steps to reduce its exposure to a potentially massive headache.
Taxpayers—through the federal government—face financial risk from the housing market primarily through the Crown represented by the Canada Mortgage and Housing Corp. (CMHC), which has historically held 60–90 percent of the mortgage insurance market in Canada.
The curbs put on the federal housing agency in recent years bring it closer to holding 50 percent of the market currently, according to Finn Poschmann, CEO of the Atlantic Provinces Economic Council.
The risk to the government—and the taxpayer—is clear given the state of the housing market. On Wednesday, Oct. 26, CMHC gave its most severe warning to date—a red alert—stating that many of Canada’s housing markets show strong evidence of problematic conditions—mainly being overvalued with prices accelerating.
What should be done with CMHC’s mortgage insurance business is less clear, however. Arguments vary from privatization to variations on an insurer of last resort role. CMHC’s mortgage loan insurance-in-force stood at $557 billion in 2013 and has come down each year since then; 2016’s plan is for $516 billion.
Conservative leadership candidate Michael Chong said in an Oct. 18 press release that privatizing CMHC is the “most important measure that can be taken to increase housing affordability for Canadian families.” It would also lessen the risk to Canadian taxpayers from a housing market crash.
Chong blames the increase in government funding for mortgage lending over the past 15 years for elevated home prices.
The late former finance minister Jim Flaherty suggested privatizing CMHC over the next 5 to 10 years back in 2012; however, that is not on the table for the Liberal government.
With the Canadian housing market overheating—led by Greater Vancouver up 54 percent in the last three years and having an average benchmark house price of $926,600—UBC business school professor Thomas Davidoff said it is wise for the government to reduce its risk, but that the insurance it provides should only be meant to be competitive in bad times.
