Walk the Plank

As we look to head into the long weekend, it gives us time to reflect. Where is our business at, where was it supposed to be, and what changes can we make to tweak it here and there to finish the year strong.

The best laid plans of mice and men seems to come to mind a lot lately in the mortgage business. On the daily we are constantly thrown a curve ball that can disrupt our businesses. The good news is that the ones who can overcome it will flourish, the bad news is that it will become a lot more frequent.

With the loss in Monday’s by-election in Toronto, it has the rumour mill swirling on the future of the LPC, and policies that will be brought forth to try and recoup some popularity heading into October of 2025. This, of course, is par for the course in political circles, but heading into 2025, it will be a lot more common that it will effect our business on the day to day.

The downside to Canada being real estate crazy is that no matter who you speak with, what conversation you are in, or where you are, somehow we always circle back to real estate. Fortunes have been made or lost, generations have been set up for life, or not, and housing has become the biggest, and really only investment in Canada. The problem is that whenever one ‘thing’ – whatever that thing is, gets too big, it also becomes a very easy target. Housing is to the point where it will become the largest policy plank in the next election – like it or not.

Anyone who knows me, knows I tend to lean a little more right than left in politics. I prefer to call myself a social liberal, but a fiscal conservative. That being said, I am always in amazement at how well the Liberal PR machine works and succeeds over the last 9 years. To understand our industry will be at the forefront of the next election will be critical, but just as important is that we remain level headed throughout the next 17 or so months. In order for any party to win, they will have to appeal to the most voters. Up until now, we all thought that the baby boom was the largest voting block – and for the most part we were right. However, Monday night showed that younger Canadians are getting mad, and they are showing their frustration at the ballot box.

Affordable housing has been a lightening rod issue in Canada for years, but it has really amped up lately. People who cannot afford a house, or an apartment tend to get a bit pissed off. Previous to the last couple years, we simply reminded the younger generation to stop buying avocado toast and that would fix all that ails them financially. But, with the recent onslaught of higher interest rates, and higher rent payments, simply changing their breakfast won’t afford them a place to live. In May’s inflation report it showed rental accommodations are still rising at 8.9% per year. If you are only getting a raise of around 3% a year, you simply spend a whole year going farther and farther behind. This has the effect of pissing people off.

Politicians know this. The problem is that they have to come up with a solution that will garner the most amount of votes, cost the least amount of money, and somehow not have Canada devolve into a land of have’s and have not’s. It is a tricky balancing act, and one that if done correctly can ensure the victor gets all the spoils ( parliamentary majority ). Some might wonder if helping Canadians is actually a priority, and unfortunately it is not. Oh sure, politicians will tell you it is a priority, but actions speak louder than words, and well, actions call bullshit. So, in order to try and win the most brownie points, parties will have to develop a very strong plan on housing. This solution is exactly the problem.

As a society we are always supposed to leave things better than we found them. It is the ‘replace 2 divots on the golf course’ theory. While that is a great mantra, in reality we are not doing it. As a society, we have completely fucked up housing – here’s looking at you baby boomers!! The crux of it all is that to make housing affordable for the younger generation (buyers) – you have to make it worth less for the older generation (sellers). Housing in Canada is now a zero sum game. In order for a younger person to save a dollar – the older person selling the house has to lose a dollar. This is quite to problem now, isn’t it? The bigger problem is that housing is now so atrociously unaffordable, it isn’t a dollar we are talking about – it is HUNDREDS OF THOUSANDS OF DOLLARS. I have not met one person in my life that is like ” Hey, ya, I really want to help the next generation out, so I am totally cool shaving 250K off my home price to give them a chance at settling down”. Never once!! Canada is now one large Mexican Standoff insofar that no one party can win without crushing the other party completely.

Unfortunately for the next group of politicians looking to call Ottawa their working home, making one side happy will lose you just as many votes on the other side, and vice versa. So, what is a politician to do? Well, that is where it is going to get fun.

As politicians look to try and find middle ground, they will throw out an absolute shit ton of ideas. I will contend that there is no better political party at floating trial balloons than the current Liberal government. They are the absolute world champion in suggesting things, putting out ideas, seeing how those ideas are taken, and revising as appropriate. Over the next 17 months, you will probably see 8 to 10 different “proposals” on housing. Some of them will seem well intentioned, and some will seem just downright bat shit crazy. But please remember, this is how the process works. You float an idea ( no matter how stupid it may seem ) and you see how the majority react. You see how it helps you in the polls, and you revise as need be. If everyone hates it – you scrap it, and try again. Rinse, lather and repeat until you have a housing policy that is slightly less worse than the previous one, and that gets you slightly more votes than it loses you. It is going to be important that when you see these trial balloons come out you do not get emotional and react. The sooner you see the potential policy released – the less likely it is to become actual policy. Clients will call you looker for answers, and how it will affect them. They always do. Have a speech or a script prepared before hand to deal with these types of things. The media has a way of distorting things, so every time you see a potential policy idea released, find a source you trust and read up on it. Find out the good, the bad, and the ugly on it. Being level headed, trusted, and providing sound reasonable advice to your clients will go a long way.

As an example, I imagine a lot of the policies that will be released will center around first time homebuyers. The victor of the election will be a party that can get people into their first home – some way some how. I imagine it will have to do with extending amortizations, allowing a higher TDS ratio, or maybe even lowering the minimum down payment from 5% to 2.5% or 3%. Anything to get first time buyers into the market without pissing off the seniors trying to get top dollar for their existing home. Even if it revolves around first time buyers, you know that someone who isn’t a first time buyer will call you freaking out. I can also see a rule being brought it whereby home sales are taxable if sold within a prescribed timeline. Something along the lines of 100% of the value is capital gain taxable in the first 12 months, 80% from 13 to 24 months, 60% from 25 to 36 months, etc. etc. This will kill off some investor demand, and allow first time buyers a chance to compete – again, without pissing off grandma who has owned her house for 43 years. Ironically this policy will have a much larger bite now that capital gains was raised from a 50% inclusion rate to a 66.6% inclusion rate. Make sure that you understand the loopholes and rules if a policy like that is introduced. There is always rules that allow for exceptions – and being able to walk a client through that will be a huge win for you.

No matter what the policy is around housing, it will go through many revisions before a party evens gets elected. Dozens of trial balloons will be floated by all 3 parties to try and win the lion share of the vote. Never before has our industry had so much interest in outcome of an election. So much of our business is governed by OFSI that is under the control of the Federal Government, and so I wouldn’t ignore the possibility of banking changes coming around qualification rules as well.

No matter the rumours, no matter the policies that get floated around, our industry has been adapting to change for decades now. Every single time there is a policy change, I watch the oldtimer’s lament on how it will kill our industry. Every policy change has always had unintended consequences that we cannot see at first, but eventually pop up to open up another area we can use to our advantage. After 2008 we saw so many changes that many predicted our channel would fold, but here we are 16 years later booming like never before. Like I always like to say ” it is never as good as it seems, and it is never as bad as you think”.

No matter the policies that ultimately get rolled out come late next year, we will just keep walking one foot in front of the other, and onward to greatness.