On September 16, 2024, the federal government introduced the boldest mortgage reforms in decades, with the goal of addressing Canada’s housing crisis and making homeownership more accessible, particularly for younger generations[1]. With the average home price in cities like Toronto and Vancouver well above $1 million, these changes are aimed at easing the financial burden of buying a home. However, as beneficial as these reforms may seem on the surface, the numbers reveal a more nuanced reality, particularly for Millennials and Gen Z.
Key Reforms Announced
The reforms, as outlined by Chrystia Freeland, Minister of Finance, include several measures designed to help Canadians enter the housing market:
- Raising the Cap on Insured Mortgages: The government has increased the insured-mortgage price cap from $1 million to $1.5 million. This adjustment reflects the steep rise in housing prices, enabling buyers to purchase more expensive homes with down payments of less than 20%.
- Extended Mortgage Amortization for First-Time Buyers: The government is allowing first-time homebuyers and purchasers of new builds, including condos, to access 30-year amortizations. This reduces monthly mortgage payments, providing short-term financial relief and increasing eligibility for mortgages.
- Incentives for New Housing Construction: The federal government has also announced investments in infrastructure to support the construction of 4 million new homes. This move aims to tackle the country’s housing shortage by spurring new builds and enabling more supply in the market.
The Numbers Tell a Different Story
While these reforms aim to alleviate the financial stress of homeownership, an analysis of the numbers tells a more concerning story for young Canadians.
Let’s consider a scenario where you purchase a $1.2 million home with a 5% interest rate and a 30-year amortization. We’ll compare the monthly payments at various down payment levels. To live comfortably and avoid becoming “house-poor,” financial experts recommend keeping mortgage payments within 25% to 30% of after-tax income. We’ll also examine the income a single person and a married couple would need to comfortably afford these mortgage payments while staying within that recommended range.
| Downpayment % | ||||
| 5% | 10% | 20% | 50% | |
| Home Price | $1,200,000 | $1,200,000 | $1,200,000 | $1,200,000 |
| Downpayment | $60,000 | $120,000 | $240,000 | $600,000 |
| Mortgage Loan Amount | $1,140,000 | $1,080,000 | $960,000 | $600,000 |
| Monthly PMT (30 Year Amortization at 5% Interest) | $6,120 | $5,798 | $5,153 | $3,221 |
| Total interest in 30 years | $389,141 | $368,660 | $327,698 | $204,811 |
| Interest saved by higher downpayment | $20,481 | $61,443 | $184,330 | |
| Income Recommended to Comfortably Maintain Mortgage Costs at 30% of After-Tax Income: | ||||
| Monthly after-tax income should be | $20,399 | $19,326 | $17,178 | $10,736 |
| Annual after-tax income should be | $244,791 | $231,907 | $206,140 | $128,837 |
| Before tax income – Single Individual | $440,000 | $420,000 | $360,000 | $ 200,000 |
| Before tax income – Married Couple | $370,000 | $340,000 | $300,000 | $170,000 |
| (Each couple earning) | $185,000 | $170,000 | $150,000 | $85,000 |
For example, to afford a home worth $1.2 million with a 5% down payment, without overextending financially, a single Canadian would need to earn approximately $440,000 annually before tax, or a couple would need a combined income of $370,000. In stark contrast, the average income for Canadians aged 25 to 54 is around $68,000. This is why we believe this measure could end up hurting young Canadians than help in the long run. This could strain them financially, and could force them to make sacrifices in other areas of life, which could lead to more stress and increased mental health issues.
What This Means for Young Canadians?
While the government’s recent reforms are designed to help young Canadians achieve the dream of homeownership, the numbers reveal potential pitfalls.
- Stretching Young Canadians Thin: With the average home price in Toronto hovering around $1.1 million, even with extended amortizations, young Canadians will likely find themselves stretched. They may achieve lower monthly payments, but at the cost of taking on more debt and paying significantly more in interest over time. If interest rates go up in the future, variable interest borrowers could face unpleasant surprises in their monthly expenses.
- Jeopardizing Other Financial Goals: Spending a large portion of income on housing can leave young homeowners with little room for other expenses, including savings for retirement or emergency funds. By enabling buyers to take on more debt, these reforms might drive home prices even higher in the long run, exacerbating affordability issues. While the reforms might temporarily ease the burden, they do little to address underlying supply shortages, which continue to drive prices up. Higher debt loads may also lead to long-term financial instability for homeowners.
- Risk to Retirement: While monthly payments may become more manageable in the short term, the overall increase in total interest paid over the life of the loan may leave homeowners with less room to save for retirement or handle unexpected expenses. This could result in an increased reliance on credit or loans, further deepening financial vulnerability. This is particularly concerning in Canada, which has one of the highest household debt levels per capita among G7 countries[2] [3].
Conclusion
While the government’s mortgage reforms may provide some immediate relief to aspiring homeowners, they ultimately don’t address the deeper affordability crisis in Canada’s housing market. By raising the insured-mortgage cap and extending amortization periods, the government may inadvertently fuel further price increases, making it even harder for young Canadians to afford homes in the future. The focus should be on reducing barriers to building more homes, particularly in high-demand areas like Toronto and Vancouver, rather than enabling buyers to purchase homes they cannot truly afford.
For Millennials and Gen Z, these reforms may offer a temporary leg up, but the dream of owning a home remains elusive for many—especially without broader policy changes that address income inequality and the rising cost of living in major urban centers. As housing prices continue to soar, financial prudence and careful budgeting are more critical than ever for those navigating the increasingly difficult path to homeownership.
We’ve helped many small business owners enter the housing market tax-efficiently, maximizing after-tax income so you don’t become house-rich but cash-poor. If you’re a small business owner or incorporated professional looking for tax-smart strategies to buy a home, give us a shout.
Footnotes
[1] Government announces mortgage reform details to ensure Canadians can access lower monthly mortgage payments by December 15 – Canada.ca
[2] Canada’s household debt is now highest in the G7 (bbc.com)
[3] Research to Insights: Disparities in Wealth and Debt Among Canadian Households (statcan.gc.ca)
