The Failure of Canada Mortgage and Housing Corporation(CMHC): Rent increases pricing out some Toronto tenants, Get The Federal Government Out of Housing – March 14, 2022,
Rent controls are actually price controls and anyone who understands price controls understands that Prie controls create shortages. In a market economy, if the private sector participants or we can say if the business people can’t make a profit in a market economy, they’ll refuse to waste their time owning and /or operating a business. Nobody, wants the government to decide how much profit they should make, this creates problems in the rental and housing markets because the government wants to be the knight in shining armor.
So instead of the government telling people the truth, that a Liberal Democracy government doesn’t want to get involved in the housing market, the MUNICIPAL and Provincial governments decide to enact rental price controls on private businesses. Now, once a government does this, it can’t end the program, and if it does decide to alter or end the program, it faces a whole new problem in Canada, called the Canada Mortgage and Housing Corporation(CMHC).
In Canada, renters have three potential problems, the first problem being rental controls in I think every province except for Alberta, second is the Bank of Canada(BoC) which to date is keeping interest rates artificially low to the benefit of the Federal Government and other bad debt purchases it put on its balance sheet and third, the Canada Mortgage and Housing Corporation(CMHC) which helps Canadians who otherwise wouldn’t qualify for a mortgage to get a mortgage.
Now, why CMHC is the most problematic, is because the CMHC is involved in mortgage insurance. The CMHC is the largest Crown corporation in terms of ASSETS with CA$295 billion in assets as of the second quarter of 2021. Now, you might say to yourself WOW CA$295 billion in assets, but not so fast, those assets are in many ways inflated and that number could come down drastically if let’s say the Bank of Canada decided to normalize interest rates.
Being that CMHC only insures mortgages, what’s the big deal you argue? Well, there are two serious problems if the Bank of Canada is forced to raise interest rates, first off, the value of the property being insured might drop in value, while the debt servicing payments of the mortgage, might rise depending on the type of mortgage held by the recipient.
If someone needs mortgage insurance, chances are they’re living paycheck to paycheck, and likely don’t have anything in savings, so if the cost of living doesn’t decline with rising interest rates, the owner of insured mortgage might find themselves in a position of financial hardships. Now, why I bring all of this up is because the Bank of Canada has to consider the CMHC whenever it raises rates and the Bank of Canada’s slow crawl to raise interest rates actually hurts tenants.
Because higher-priced homes equate to higher-priced mortgages, and higher-priced mortgages equate to higher-priced rents, one of the problems with rent controls is that there are fewer incentives to build rental purposed housing, well, the CMHC accelerated that problem by rewarding more Canadians and businesses with government-approved insurances to purchase condos.
But if you can’t afford to buy a home or condo, you’re forced to rent, and if you’re forced to rent with a dwindling supply of rental purposed housing, you’re forced to pay higher rents. Now, this inflated housing market was created entirely by the Federal Government. All branches of the federal government including most people in debt to this system have little incentive to change the status quo and this ofcourse has led to the problem of housing shortages.
What’s the solution? If you were to ask me, I’d say phase out CMHC as currently constructed, to allow the Bank of Canada to normalize interest rates. Getting rid of rental controls is unlikely because it’s a provincial problem. But at the very least, we shouldn’t be incentivizing condo development when the demand for condos appears to revolve around speculators.
Allow the condo market to crash, so many of them can be bought up possibly by governments and then resold on the market as rental purposed housing. If we’re to be honest a lot of the condos on the market today are junk and they’re empty. This would create an abundance of supply on the market and drive down rental prices. It’s not like these empty condos are paying any taxes of substance. As consumer price inflation runs rampant, expect economic deflation to start happening in the next few months, and with all the current regulatory constraints on the economy, a recession can quickly dissolve into a depression.
Interesting time ahead.