CMHC chief: Longer amortizations will not ensure housing affordability

Policymakers can take more concrete steps to alleviate consumer worries, national housing agency head says

CMHC chief: Longer amortizations will not ensure housing affordability

Strategies like extending mortgage amortizations and changing the insured mortgage qualification threshold will not be effective housing affordability measures, according to Romy Bowers, president and CEO of Canada Mortgage and Housing Corporation.

Bowers acknowledged the upward spike in borrowers’ bills amid the Bank of Canada’s rate hikes that began on March last year.

However, Bowers warned that far from making ownership easier, lengthening amortization periods for insured mortgages could lead to greater purchasing power among borrowers – in turn possibly enticing them towards more transactions, ultimately making their monthly spending larger.

“What I worry about is sometimes that seems like a quick fix,” Bowers told The Canadian Press. “If you just have 30-year amortization, everyone’s mortgage payments will go down by $200 and they can actually afford the house, but if you’re in a supply-constrained market and that’s your solution, it’s not going to solve the problem in the long term.”

“That just makes credit more available,” Bowers added. “It lowers the monthly payment, but it actually increases the cost to the home owner over time.”

Bowers also said that changing the $1-million cap on insured mortgages will not magically solve the housing affordability issue, and would instead inflame further demand for housing.

The CMHC chief stressed that policy makers can take more concrete steps to alleviate the fiscal stress on the consumer side of the equation.

“It’s better to focus on increasing the supply versus making it easier for people to borrow more money,” Bowers told The Globe and Mail recently. “We feel, from a policy perspective, it’s probably not the best move in a supply constrained environment.”