Mortgage stress linked to rental crisis

January 22, 2020

Evidence is mounting that the federal government mortgage stress test may have led to the current rental crisis in Canada, which has seen rental vacancy rates fall to 2.2 percent—their lowest level in 18 years—and rental costs rise for the third year in a row.
The link is that the stress test, broadened in January of 2018 to require all homebuyers to qualify for mortgages at higher rates than what is really available, froze thousands of first-time buyers out of home ownership.
In 2019, the number of first-time homebuyers in Canada fell from 56 per cent of purchasers to 47 per cent, translating into more than 41,000 potential buyers who remained renters, according to Canada Mortgage and Housing Corp. (CMHC) data from the recent State of Homebuying in Canada.
Most first-time buyers are in their 20s and early 30s—the prime demographic in the rental sector.
The subsequent rise in rental demand pushed national rental rates up 4.7 per cent in 2019, reports CMHC’s annual report on the rental market released January 15.
“The tightening of mortgage rules which has been taking place over the last four years is certainly having an effect,” noted a report in Canada Mortgage News. “The end result is fewer rental units available and record high rents. Canadians are motivated to buy but cannot qualify. They also cannot afford to rent because, in most cases, monthly rents are higher than a mortgage payment.”
Ben Myers, president of Bullpen Research & Consulting, singled out the mortgage stress test and expanded rent controls as disrupters that have turned more would-be homebuyers into rental tenants.
Renting will become more costly this year, experts caution.
“Rents will continue to climb in 2020 in major metropolitan areas in Canada,” according to the National Rent Report from Rentals.ca and Bullpen Research & Consulting. “The average rental rates will increase by 3 per cent year over year nationally in 2020.”
Rental rates could increase in 2020 by 7 per cent in Toronto, 5 per cent in Montreal, 4 per cent in Ottawa and 3 per cent in Vancouver, the report forecast.