The big surprise

DRIVING modified

When a reporter asked Tom Mulcair what he thinks of the real estate market, he said this: “People could be in for a terrible surprise.”

When he was making it easier to get into housing debt, Steve Harper said this: “For most Canadians, the family home is their biggest asset and their most significant investment in their future financial security. It’s also the centre of their lives.”

So there ya go. The election so far. Having an epic mortgage is a giant risk. Or it might be security. You decide.

Residential real estate has emerged in the early days of the campaign as the only issue resonating with most people. The Conservatives know that. At the moment, they’re staking their futures on it. After just two weeks the strategy is abundantly clear.

First, the prime minister announced not only that the renovation tax credit would be coming back (an echo of the financial crisis), but that – if re-elected – he’ll make it permanent. So, bring on the caesarstone counters, apron sinks and bamboo floors and together we’ll build a great nation.

Second, the federal government will start counting how many foreign people buy houses. This is red meat to the anti-immigrant remnants of the Reform Party, the xenophobic #DontHave1Million house-lusty Millennials and everyone happy to blame someone else for their own economic shortcomings. Mostly it ignores the real reasons houses cost too much, which are Bank of Canada policies, lax lenders, fraudulent liar loans, subprime lending, CMHC regs, homeowner tax incentives (see below), governments that encourage debt and eunuch finance ministers.

Third, Mr. Harper increased the RRSP Home Buyer Plan grab by a massive 40%. Now a couple can withdraw $70,000 (instead of fifty) from their retirement plans, free of tax, for a down payment. It means the kids can borrow the full amount at 2.85% and put it in their RRSPs for 90 days. That yields a tax refund of about $25,000, used to pay down the loan. Then the seventy grand goes into a house purchase, with no repayment into the RRSPs for a couple of years and full repayment spread over a very long decade and a half.

So in this way, the taxpayers of Canada end up subsidizing the house purchase. The kids get $70,000 for only $45,000 and a house that could yield tax-free capital gains. Of course, they also get a giant mortgage and owe way more money, but what could possibly go wrong? Isn’t Mr. Mulcair just being a scary, bearded old socialist?

“There could be a bubble here,” he said late last week, “and we could be in for a terrible surprise.”

Now, is that any way to get elected?

But wait. Is the Big Dipper actually making some sense? The latest Canada Revenue Agency numbers are telling a scary tale about the sad state of homebuyer finances. Shockingly, half of the people who borrowed taxless, subsidized money from the retirement plans to buy a house have been unable to repay it. The CRA says of the 1.8 million involved, 885,700 didn’t make any recent repayment. Not only does that mean these missed amounts are added to taxable income (bummer) but it strongly suggests these couples are over their heads financially and never should have bought a house – which they likely couldn’t have afforded without the gift.

Meanwhile, as you know, overall debt has been pushed to historic levels by a bloating of mortgages – now at $1.2 trillion. Home loans are expanding at three times the rate of inflation and income growth. Mortgage rates are at record lows, and are destined to rise over the years to come, pushing monthly payments up with each renewal.

But if almost a million homeowners can’t repay one-fifteenth of a maximum of $50,000 every year, what mess lies ahead? And why would any responsible leader encourage more borrowing? More debt? More risk?

Rhetorical question. You know the answer.

HARPER