The Canada Mortgage and Housing Corporation (CMHC) mortgage loan insurance program is a government-backed initiative that allows homebuyers to purchase properties with less than a 20 per cent down payment. 

Initially designed to help Canadians without significant savings enter the housing market, CMHC insurance has since become the single greatest catalyst of real estate demand in the federal government’s arsenal. 

Perhaps unsurprisingly then, as this dying government seeks any avenue to revive its political fortunes in advance of next year’s election, CMHC has recently announced that it is increasing its coverage on homes from $1-million to $1.5-million to permit for “greater affordability.”  However, our collective fiscal interests demand the opposite: CMHC insurance should be gradually phased out.

“Over the past 40 years, its effect on the market has been disastrous; incomes have become seriously misaligned from today’s house prices.” 

The dynamics of Canadian housing boil down to basic Economics 101: supply and demand. The more demand there is for homes, the more the price goes up but, critically and somewhat un-intuitively in this case, the demand in question is borne of monetary availability and not people. 

During the pandemic, the government increased the monetary supply by 25 per cent in a single year. That was what fuelled runaway housing prices; with more money in hand, even with roughly the same number of people, more houses were purchased than ever before. When quantitative tightening took place in the years following the pandemic, demand fell.

CMHC insurance functions as a form of monetary stimulus, artificially inflating housing demand.  Over the past 40 years, its effect on the market has been disastrous; incomes have become seriously misaligned from today’s house prices. 

The result is clear; young people cannot afford homes and the dream of home ownership is a reality now restricted to those 75 years and older. Meanwhile, those who are fortunate enough to afford CMHC-insured mortgages often face crushing debt burdens that deprive them and their young families of savings, life experiences and the superior quality of life that Canadians have enjoyed in the past.

Canadian housing prices are past a pivotal point and it is time we addressed the source of the contagion in a head-on, direct manner. Reducing CMHC insurance availability will impact the buying abilities of Canadians but, if we are honest with one another, we are at a point where the average person cannot afford homes even with that assistance. 

The average home price in Toronto is more than $1.1-million. To afford a property in that price range, a person requires $263,300 in gross income and, within such a pricing matrix, CMHC has seen its role reversed from the great enabler of home ownership to the source of pain for most Canadians whose housing markets CMHC infused-pricing pushes ever higher with every passing year.

“We need to gradually phase out CMHC insurance and, in the process, lessen the monetary demand for housing.”

It’s time to confront this issue directly. We need to gradually phase out CMHC insurance and, in the process, lessen the monetary demand for housing. Over time, this correction would restore the long-term balance between incomes and house prices, making homeownership attainable again for the average Canadian.

Though once borne of good intentions, CMHC is now hurting our markets, our youth and our collective future. We owe it to the next generation to chart a new course. The elimination of CMHC insurance must become a priority for the next federal government. It’s time to pull the trigger on reform and rebuild a housing market that serves Canadians.