By Aaron Mahoney

Stress Test

City Council to advocate to the province for a made in Alberta solution to mortgage stress test

May 13, 2019 | 4:48 PM

LETHBRIDGE, AB – The federal government may have had good intentions when the mortgage stress test was first unveiled in late 2017, but since it’s implementation the policy is being viewed as the number one driver of issues in the housing market.

The three factors that impact the market are the economy and jobs, housing prices which are affected by inventory, and then the third is mortgage rules.

The most significant mortgage rule that affects this industry, according to professionals, is the stress test.

Building Industry and Land Development Industry Association (BILD) presented a report to Lethbridge City Council on Monday, May 13, on the federal mortgage stress test which showed Lethbridge has felt the effects of the nation-wide program.

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The Office of the Superintendent of Financial Institutions Canada (OSFI) introduced the changes. They stated that buyers who apply for uninsured mortgages – those with a 20 per cent down payment or more, or those buying homes worth $1 million or more – would be stress tested to show they can afford a mortgage, either at the five-year average posted rate, or two percentage points higher than the rate their bank or broker offers them, whichever one is higher.

The new rules went into effect on Jan. 1, 2018.

The commissioned report from BILD showed total housing starts declined by 27 percent in Lethbridge in 2018, from 769 housing starts in 2017 to just 560 last year, and new home sales have also declined to their lowest rate since 2001.

Bridget Mearns

Lethbridge Region Executive Officer Bridget Mearns told Council that the mortgage stress test has led to an erosion of purchasing power for homebuyers in Lethbridge.

Specifically, first time home buyers, as well as builders and it’s also having an impact on those looking to requalify their mortgages.

Just how bad is this issue locally? Mearns says they see two big things.

“Home sales are way down, specifically in new construction, and the problem with that means there’s a rising inventory out there. Which means there are less builds happening, and when there are less builds happening there’s less employment for trades, construction, subcontractors and other small businesses. It affects a variety of people along with a variety of industries and professions. When that happens, then you start to see the lack of builds equating to job losses, and the economic impact can affect the local economy,” Mearns said.

City Council voted unanimously to support BILD’s ask for Mayor Chris Spearman to write to the provincial government and advocate for the development of policies that allow Alberta regulated financial institutions, like ATB Financial and credit unions, to implement lending practices based on regional economic conditions and not those of the federal stress test.

Mearns is optimistic that other municipalities will also get behind the calls for support.

“The provincially regulated financial institutions like the credit unions and ATB do not have to follow this federally mandated regulation. That being said, we also know that with this new government they talked about this issue in their platform. I think we do have a government that understands what this issue is and there seems to be the desire to move it forward. I hope that’s the case and having the support of the municipality behind us certainly makes it more powerful.”

Calgary and Edmonton are in very dire situations when it comes to the housing market as well, according to Mearns, though their housing inventory is quite a bit higher than Lethbridge’s.

“I know there is support at the City of Calgary in supporting this issue moving forward, and even to an AUMA level,” Mearns added.

Mayor Chris Spearman says the group’s presentation allowed Council to see the full effect of the federally regulated program.

“We have a responsibility to advocate for organizations in the community who make a significant difference. When you have the housing building industry, that’s been a pillar of our community for many years, laying people off at the beginning of the construction season that’s cause for concern.”

Spearman, like Mearns, believes this could resonate with other municipalities across the province.

“My understanding is that every community feels this, and all are looking for a way to act.”

BILD also requested that the Mayor write to the federal government calling for the elimination of the stress test and that the City support or develop further actions to be directed to the Alberta Urban Municipalities Association the Federation of Canadian Municipalities.