Posthaste: Economist 'busts some myths' about housing affordability in Canada

financialpost.com:

Housing affordability in Canada is a problem. That’s a fact.

But there is still plenty of uncertainty when it comes to the underlying causes and the potential policy fixes — besides building a lot more homes — that could make it better.

Desjardins Financial economist Marc Desormeaux looked at four popular solutions — from extending amortizations to reducing immigration — to determine whether they are more fact or fiction.

Mortgages with a 25-year amortization — the repayment period for the loan — are the “industry standard,” but longer amortizations have been touted as a potential fix for affordability because they reduce monthly mortgage payments and lower the amount of income homebuyers need to qualify for a mortgage.

Desormeaux ran a scenario assuming a new standard of 35 years, but found that not only would it fail to improve affordability, it also would make it worse in the long run, as increases in disposable income stoked housing demand and prices.

“Affordability would eventually become even worse … as initial gains are overcome by a more dramatic rise in home values,” he said.

Extending amortization periods could also ratchet up financial risks in the lending system, he added.

In March, Ottawa announced it would cut the number of non-permanent (NPR) residents by 25 to 30 per cent by 2026 starting this fall as it looked to answer critics who argue that record immigration has strained Canada’s housing supply.

Slowing population growth would weaken housing demand, Desormeaux said, but could also lead to fewer home listings, which would cause prices to rise.

He also said less immigration will hurt efforts to build more homes.

“NPRs also tend to rent more than the broader Canadian population, so the policy’s potential