With all of the government intervention over the last year, one thing has become painfully clear, according to one industry veteran: Banks will win big.
President of First Source Mortgage, David Mandel, says that the only winners at the institutional level will be banks, which will scoop up consumers – whom he says are being bamboozled – looking to renew their mortgages.
Not only are monolines being undercut by new underwriting, banking retention levels are about to increase considerably. Mandel not only says it stinks of anti-competitive practice, he also says the issue is multifaceted enough to obfuscate the stakes, to the detriment of consumers.
“People’s mortgages are coming up for renewal, and if they go anywhere they’re going to be subject to new underwriting, and likely in many cases aren’t going to be able to qualify under the new rules, so they’re stuck,” he said.
“So if the banks now send out their renewal notices at posted rates – guess what – people are going to likely have to pay that posted rate. I’m quite confident the bank knows specifically if these people are going to meet requirements for whether they can look elsewhere or not.
“Considering the boom we’ve had over the last 10 years, and people utilizing their homes for credit purposes, the banks are going to win huge at the expense of the monlines, and what we see ultimately, that nobody is talking about, is further concentration of the banking industry in Canada. There’s no competition for them. I think Canadians are getting a raw, raw deal, and it’s just a little too sophisticated and a little too widespread for the average person to understand.
“I would suggest that the government focus on legislating and reining in credit card companies as opposed to telling Canadians how much they should spend on a home and where they should live because that’s essentially what they’re doing.”
In addition to Mandel’s criticism of the government’s treatment of consumers, Mandel blames it for being ill-prepared to deal with market realities. For starters, if it were more organized, intervention might never have been necessary.
Inventory supply simply hasn’t kept apace demand, and it’s inevitably driven prices upward. For that, Mandel blames substandard governmental coordination – and again, the consumer is the loser.
“More specifically if the government had a policy of cooperation between policy divisions relating to immigration, housing, planning, real estate, then it could be seen that intervention may not have been require,” he said. “In a more perfect world, government would have developed a coordinated plan to keep up with the demand for real estate through better planning. Better planning for the development would, in a timely manner, provide necessary incentives for rental accommodation, reduce red tape associated with required changes in zoning to promoting higher density development, and perhaps reducing development charges to be passed on to consumers, who have little idea how much of their housing budget are filling government coffers with yet another form of tax. Builders are forced to pass on numerous development charges to consumers who end up paying more for their home. It can be noted that development charges can add as much as $100,000 to the cost of a townhouse in the GTA and not much less for a condominium apartment. Development charges are out of hand.”
Mandel censured the government’s plan overhaul the Ontario Municipal Board, which he credits with pushing through high-density developments and curtailing NIMBY pandering, and says it’s not curbing sprawl, it’s creating it.
“As urban centres see price growth, there’s a wave of growth that flows outward,” said Mandel. “People who would normally be able to buy closer to urban centres may be pushed outward, so perhaps what you will see is more demand within commutable distances to the city – like Oshawa – and with more demand there may be some more price appreciation.”
“If you can’t buy that 1,500 square foot townhouse in the GTA where you work, you’re going to go within an hour of the city,” said Mandel. “Look at Millennials. Just getting established in the workforce, maybe getting married, maybe starting a family, that one- or two-bedroom condo in the city just doesn’t cut it. This legislation seems to discard demographics, and demographics tell us a lot. Unfortunately, policies in planning, policies in finance, they act independently. There needs to be some coordination. They need to talk to each other because all of these things have interdependencies and government is not dealing with them.”
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