As I looked through some old files I came across a “Report from Parliament” dated July 1982 by Jim McGrath, then MP for St. John’s East. At that time, he said “the inflation rate is presently 11.3 per cent and mortgage interest rates continue to climb above 19 per cent.”
What attracted my attention was the following quote addressing housing.
“The serious housing problems have developed in Canada during the past three years — availability and affordability. The major cause of both these problems is record high interest rates.”
One could rephrase this quote slightly and apply it to today’s housing problems: The serious housing problems have developed in Canada during the past three years — availability and affordability. The major cause of both these problems is record low interest rates.
In another quote from the same report: “Between June 1st and October 31st of this year (i.e. 1982), 490,000 families will be forced to renew their mortgages at these unbearable rates. At interest rates above 19 per cent it is estimated that between 30,000 and 40,000 homeowners could be faced with the prospect of losing their homes.”
Interest rates are rising again. I wonder, in three years’ time will the above statistics still apply?
Problems arise also when mortgage interest rates are between 3 per cent and 19 per cent. In 1971 I came to St. John’s from New Brunswick, where I had accounts with two of the major Canadian banks.
I wanted to rent an apartment but could not find a suitable one within reasonable distance from employment. I looked around for a house to buy and eventually found one. I went to one of the banks in St. John’s that I had dealings with on the mainland and talked to the manager. I outlined to him that the house was relatively new (built in 1965) and I was prepared to pay 30 per cent down payment.
Without any discussion he stated “sorry, no mortgage money.” I pushed him further but got the same reply. Then I went to the other bank that I had dealings with on the mainland and presented my case. I got the same response. However, just as I was about to leave the manager asked where the house was in which I was interested. I told him and he responded “I cannot promise anything but come back tomorrow afternoon.” I did as he asked and I got the mortgage.
That evening I went around to have another look at the house. The man in the next house was mowing his lawn, saw me and came over. He was the bank manager to whom I was talking a few hours earlier!
I got my mortgage at 9 per cent with a lot of haggling and with a future friendly neighbour. It seemed very strange to me at the time that with a down payment well above the minimum, in a relatively new housing development, I had difficulty buying a house simply because banks were rationing mortgage money.
It seems as if housing is a problem when interest rates are high or when they are low or at points in between. And four decades later Canada still has not resolved its housing problems.
Whether one rents or buys accommodation in which to live, the cost of accommodation should not be too different (assuming the size of accommodation and quality in each case are about the same). By the federal government putting a “means test” on potential home buyers it is compelling many potential buyers to be renters distorting the supply demand ratio of renters vs buyers to the disadvantage of renters. Hence the disposable spending money by renters is reduced. In addition, renters have had rent increases at a time when many renters have had wage freezes (or worse, layoffs). In trying to resolve an accommodation crisis the federal government has perhaps made affordable accommodation much less affordable.
Those unforeseen side-effects!