The views expressed in this column are solely those of the author.

Returning home from a real estate conference in Las Vegas recently, on a day when so many flights were delayed due to inclement weather, I found myself navigating a very crowded airline lounge at 5 p.m. to find that single seat at the bar. I sat beside two thirtysomething guys having a beer. I ordered a California cab. The two gentlemen glanced at me as if I were some sort of nerd, so to prove I’m just as badass as them, I exclaimed loudly: “This is a banned substance in my country.” They asked, “Where are you from?” I said Canada! They laughed apologetically and told me how nice Canadians are and that they were very sorry for — you know who. (Apologetic Americans? I thought we held that distinction.)

I asked if they were in Vegas for a bachelor party. They said, “Kind of — we were attending SFVegas.” When I looked puzzled, they explained it was a conference put on by the Structured Finance Association, which on the surface may sound buttoned-down and boring. But imagine if the two movies The Wolf of Wall Street and The Big Short had a baby: it would be called the American Securitization Forum.

That was the predecessor to SFVegas — a series of lavish parties, top-talent headliners and flowing champagne. After a few years of infighting and the bad publicity The Big Short brought with it, the American Securitization Forum needed a rebrand, and SFVegas was born.

It’s been more than 10 years since The Big Short came out, the film in which Mark Baum — a fictional character based on Steve Eisman — played by Steve Carell, made that famous speech: “Average people are going to be the ones that are going to have to pay for all this, because they always, always do.” It was at the American Securitization Forum conference in Las Vegas where this speech took place, in early 2008, as the financial world was crumbling due to the collapse of subprime mortgage-backed securities and collateralized debt obligations.

Baum’s words ring so true in the Canadian finance world. Not that I feel we are destined for a financial crisis, but I find that the Canadian financial regulatory intervention we have experienced post the 2008 financial crisis has been for the benefit of large financial entities to the detriment of consumers.

What are mortgage-backed securities anyway?

I’m not here to shed a bad light on mortgage-backed securities. They certainly have a role in the housing industry. Banks issue thousands of mortgages to homebuyers every year. In the case of the U.S., they do not want to wait 30 years to get their money back; in Canada, they do not want to wait for five-year mortgage maturity.

Lenders bundle similar mortgages together (i.e., five-year fixed) and the investor receives a monthly blend of interest and principal as the homeowner makes payments — passive income through securities. This is done to support housing liquidity. Furthermore, the Canada Mortgage Bond Program converts these mortgage bundles into a bond, making them more attractive to foreign investors, and repays the full principal at end of term.

Our debt can be sold to foreigners — but not our housing?

One hand proverbially washes the other, but it makes you wonder: who is all this financial intervention really for? We can sell our mortgage debt to foreign investors but we can’t sell housing to them. Housing is an industry like anything else. I do not believe that any level of government would ban any manufacturer of a good or service from selling it to a foreign buyer — unless that foreign entity was sanctioned. So why can’t we sell houses to foreign buyers? All governments, political parties, opposition leaders and competing municipal candidates agree that we need housing. The only way to produce more housing is to build more supply, but to build more supply we need a demand market — and that’s where we are falling short.

Who is the stress test really for?

It sure isn’t for the consumer. It shrinks buying power even when consumers can afford the payments. The stress test requires borrowers to qualify at the higher rate of 5.25 per cent or their contract rate plus two per cent. Lower-income and young buyers are practically shut out of the market and have to rely on a top-up from parents, if they are so fortunate. I’m a 30-plus-year veteran in this industry. When I started, first-time buyers qualified on their own merits — and they were proud of that fact. The stress test forced those with resources to seek them out, which further increased the socio-economic gap and, in turn, rapidly raised the prices people were willing to pay.

Furthermore, buyers who opted for variable rates during the mid-2020s to early 2022 found themselves unable to lock into fixed rates because they could not qualify for the escalating fixed rates under stress test rules. They were dragged into higher amortization periods, and in some cases borrowers hit a trigger point in their mortgage where they had to make lump-sum payments to avoid default.

Coincidence or bailout?

The federal government and the Province of Ontario recently announced they would jointly suspend all HST on most new construction homes to boost residential construction, which hasn’t seen this type of distress since the 1990s. Estimates suggest more than 7,000 condos currently built sit empty. As a solution to this glut, High Art Capital — a private real estate investment firm — has partnered with the Building Ontario Fund (a Crown agency established by the Ontario government in 2024) to purchase surplus condominium units, primarily in the GTA. On Mar. 10, High Art and the BOF formally joined forces. On Mar. 24, the Ontario government announced a $300-million investment through the BOF. On Mar. 25, the full HST rebate was announced. Coincidence — or just in time to bail out the construction industry?

Please don’t get me wrong. I am very grateful for the one-year elimination of this regressive harmonized tax. When it was established in 2010, a $400,000 sales price threshold was set at which the HST would be rebated. Ironically, the average price of a new construction home in Ontario in 2010 was between $350,000 and $400,000 — which makes me wonder whether the original intention was to have little or no effect on consumers buying new construction homes. The powers that be never raised that $400,000 threshold; they simply enjoyed the revenues while consumers paid the freight on the unaffordability train. The question on most existing property owners’ minds — those who paid the price before this HST announcement, sometimes in the same building or complex — is how they will compete with neighbours who received a rebate of $90,000 or more.

System stability at the expense of the homebuying consumer

Did you ever notice that regulatory focus is explicitly on lenders’ safety, not households? The Office of the Superintendent of Financial Institutions (OSFI) is on record stating that its B-20 underwriting standards exist to protect the safety and stability of federally regulated lenders and the broader financial system. Consumer affordability or access to housing is not the core objective — which ultimately makes sense, but it should not go so far as to lock some consumers out. It is estimated that buying power is reduced by 20 per cent due to the stress test, forcing consumers to seek out lower-cost housing that is often in ill repair, burdening them further and potentially leading to greater financial insecurity.

The one-sided cushion costs borrowers

Bankers can put their heads comfortably on their pillows at night knowing their money is safe. The stress test creates a built-in payment cushion that mainly protects investors through mortgage-backed securities — and of course the banks — by lessening the risk of defaults if rates rise.

Borrowers pay the price through reduced loan size and delayed homeownership. There is no symmetric rule forcing lenders to offer relief if rates fall or if borrowers prove a long-term solid payment history. Clearly, this is a one-sided risk relationship.

Convenience can mask deeper dependency

Renewal dynamics can trap borrowers. OSFI clarifies that lenders are not expected to re-apply the stress test qualification rate at renewal — which on the surface protects existing customers. However, this also discourages consumers from obtaining mortgages from competing lenders, giving the incumbent bank leverage at renewal, because switching will trigger new qualification hurdles elsewhere. The stress test then acts like a moat around the incumbent financial institution, further entrenching the existing big-bank oligopoly and keeping consumer choice limited. This is further illustrated in consumer mortgage search data (Globe and Mail, source: Semrush and Ahrefs), where top mortgage searches include the brand name of the bank followed by the words “mortgage rates.” In the United States, by comparison, generic “mortgage rate” searches outpace branded searches by 40 to one.

Learned helplessness is alive and well in Canadian lending

OSFI’s guidelines are intentionally principles-based, urging lenders to “carefully consider” income verification, appraisals, non-conforming loans and their appetite for risk. That flexibility largely sits with institutions, not borrowers. Homebuyers have to accept the bank’s risk interpretation to access credit, with little transparency into how those internal policies are set or adjusted. Some institutions have instituted blanket appraisals — especially in the new construction condo market, where units may not appraise — creating a workaround that protects banks and developers but traps buyers in negative equity once the deal closes.

Home stable home

There are countless studies on how stable housing promotes a stable economy and mindset. Housing has long been both a financial stability tool and a social good. There seems to be a disconnect between regulatory guidance documents — where the focus is on sound underwriting to promote public confidence and the health of Canada’s small circle of financial institutions — and the lived reality of buyers.

I am not here to advocate for a relaxation of underwriting rules, but there are times in our housing financial history when the pendulum has swung too far the other way. We are finally seeing action on the supply side of housing with an HST holiday for all buyers of new construction homes, and a provincial and federal mandate to reduce municipal development charges by 50 per cent in Ontario.

These regressive taxes have become a runaway train over the last decade, and reducing them will go a long way toward affordability. But it’s time to treat the demand side with the same vigour — by eliminating the stress test or modifying the rules to waive it when rates are above the five-year average, allowing more consumers to enter the market. Let’s promote greater access and flexibility in financing. And instead of focusing on keeping our banks well-capitalized, let’s make sure our citizens are, too.

Conrad Zurini

Conrad Zurini has had a front row seat in many facets of the real estate industry, with a focus on improving the overall customer experience. He is a principal in two real estate brokerages with over 1200 agents.