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Economy

Mortgage stress test stressing out Sask. homebuilders

WATCH: The Regina and Saskatoon Homebuilders Associations are seeing a decline in single-family homes being built, and link it to new federal mortgage rules. David Baxter explains.

New homes are being built in Regina and Saskatoon, but not like they used to be. That’s not a shot at their quality; fewer single-family homes are being built.

In Regina, single-family homes represent 29.9 per cent of new housing starts this year. Regina Homebuilders Association president Stu Niebergall said this is the lowest proportion since the association was founded in 1955.

“It’s a pretty fundamental change in the marketplace,” Niebergall said.

The housing market will also see fluctuation throughout the years, but Niebergall said this change is being amplified by policy coming from all levels of government.

“At the municipal level, we continue to see pressures that drive up the cost of building a new home and acquiring a lot. Certainly, at the provincial level there’s the changes in PST on housing,” Niebergall said.

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“One of the most significant ones was the federal government and their change to the mortgage rules, which took about 20 per cent of the buying power away from new home buyers.”

READ MORE: New mortgage rules 2018: A practical guide

The Saskatoon Homebuilders Association is encountering the same policy issues as Regina.

The provincial PST changes include the six per cent tax being added to construction work. Central to the federal changes and the mortgage stress test.

“Prior to the stress test, you were allowed to qualify based on your actual payment. Now with the stress test, to qualify at an interest rate roughly two per cent higher than what you’ll actually be paying,” Ryan Boughen, a broker with TMG Mortgage Group, explained.

That was last revised at the start of 2018. It can also extend to renewing and refinancing a mortgage. Boughen said he has clients who can’t refinance their mortgage because they can’t pass the stress test on a home they already own.

READ MORE: Here’s the income you need to pass the mortgage stress test across Canada

The change was introduced in an effort to stop people from taking on loans they can’t pay back as interest rates rise.

Boughen said he feels that it is time that the federal government reviews the stress test.

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“People’s credit worthiness is as high as it’s ever been right now, so one of the impacts that the stress test is having is it’s keeping people out of the market [and] being able to get into the market, making mortgage payments and building up their equity that way, as opposed to paying rent,” Boughen said.

Rental units are where the new housing market is trending. Niebergall said approximately 51 per cent of the new housing starts this year in Regina are for rentals.

“That’s an unusually high number compared to what’s traditionally gone on in the Regina marketplace and a lot of that is based directly on these mortgage stress tests,” he said.

Based on November building permit data, the Regina breakdown of new housing starts are 29.9 per cent for a single family home, 7.65 per cent for a semi-detached home and 62.4 for multi-family homes (townhouses, condos, apartments, etc).

READ MORE: Royal LePage expects Regina housing prices to drop nearly 5% in 2019

In Saskatoon, October building permits show housing starts for single-family dwelling are down 29 per cent, and multi-family units are down 27 per cent year to date.

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