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[CMHC] Affordability Gap Aiding 'Unequal Society'

[CMHC] Affordability Gap Aiding 'Unequal Society'

by Yvonne von Jena | February 12, 2018

In a recent interview with BNN, Evan Siddall, CMHC’s CEO, spoke about how the mortgage rules have affected markets and why he's worried about a rising affordability gap.

New Mortgage Rules Working Better Than Thought

The new mortgage rules intended to cool hot markets are “working better than hoped,” says Mr. Siddall. However, housing markets remain out of balance with recent price spikes driven by large single family homes at the expense of much needed rental stock.

“I think the evidence shows that worked out a little better than we hoped,” said Siddall. “People either bought smaller houses or found another way to find a down payment and that’s okay. We were worried about the strong housing market taking money out of the productive economy – out of business investment, and I think mission accomplished.”

Impact on Young Homebuyers

Mr. Siddall acknowledged that the new mortgage rules are also keeping many young people out of the housing market. “We are making it – at the margin – more difficult for people to buy houses,” he told BNN. “Unfortunately, there is a disproportionate effect on a certain generation: young people.”

Industry insiders have also noted that these new rules impact other groups such as immigrants.

Toronto and Vancouver Particularly Affected

A CMHC report entitled ‘Examining Escalating House Prices in Large Canadian Metropolitan Centres says Toronto and Vancouver are not moving fast enough to supply affordable housing. The 225 page report looked at supply and demand dynamics across Canada between 2010 and 2016.

The study shows the cost of an average home in Vancouver jumped 48% over six years while the average cost rose 40% in Toronto during the same time period. And while much of the gain came as a result of fundamental economic factors such as low housing supply, high demand and low interest rates, there are some municipal rules that actually discourage building denser, and more affordable housing, says Mr. Siddall.

“Our work suggests that there is a tax on density that results – it’s not intentional – but it results from the rezoning policies here in the City of Toronto,” he said.

The lack of affordable housing is keeping workers from being able to afford to live in cities like Toronto and Vancouver and is exacerbating income inequality in Canada, said Mr. Siddall. “There is a wealth effect. The wealthier you are, the more you are gaining from your home and that difference between rich and poor becomes more aggravated and contributes to an unequal society.”

The Wealth Effect in Play: Three Cities in Toronto

These new mortgage rules can exacerbate other trends. Consider the findings of the ‘Three Cities within Toronto” study, which looked at income polarization among Toronto's neighbourhoods and trends for a 35-year period (1970 to 2005). It found that there is significant polarization of the city into wealthy neighbourhoods in the more central parts of the city, with lower income moving to the edges of the city and middle-income neighbourhoods disappearing. Should these trends continue, and policy reinforce it, the differences will seem even more dramatic.  In other words, the impact is not only felt at the individual level, but neighbourhood and city levels. 

Addressing the Problems

While Mr. Siddall says that the efforts to cool the housing market have succeeded, Canada needs to improve its management of the housing sector to help bring markets back into balance.

The CMHC report noted that Toronto and Vancouver are not moving fast enough to supply affordable housing. Clearly stronger demand for housing should ultimately increase the supply of housing. There are a number of reasons that could account for the slower pace of growth in the supply response and that CMHC should work with provincial and municipal partners to develop a better understanding of how the supply side operates. The report notes that while reducing the uncertainty of the planning process could yield substantial gains, CMHC also believes it is appropriate for all levels of government to make fuller use of the full range of policy options to address negative externalities of development and encourage density.

“We could be better integrated and we could be better coordinated,” he told BNN. “We really are trying to do the same thing and we should just get in a private room and have a conversation about how to solve the problems.”