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The federal government’s move to allow first-time homebuyers to extend mortgages to 30 years is unlikely to provide much relief for London renters fighting a tight vacancy rate and rising prices, industry watchers say.
The federal government announced last week it’s expanding its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody purchasing a newly built home.
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In December, Ottawa is moving the cap for insured mortgages to $1.5 million from $1 million to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
Some analysts believe the changes, coupled with expected drops in interest rates, could help some buyers finally break into the housing market by making it easier to qualify for a mortgage.
In turn, this potentially could lead to some tenants moving into homeownership, freeing rental units at a time when the city is dealing with a vacancy rate of only 1.7 per cent.
But the number of people who will benefit from the new rules won’t be big enough to increase supply significantly and bring London’s turnover rate – the percentage of rental units that become available or change tenants during a 12-month period – back up, said Diana Mok, an associate professor of real estate at Guelph University.
“The mortgage with a longer amortization is only addressing one side of the issue, which is cash flow,” she said. “But it does nothing about the asset price.
“In other words, the problem is (housing) is still expensive. It’s still a large debt . . . and our income is not increasing at a rate that will match the rate at which house prices have grown.”
In its latest rental report, Canada Mortgage and Housing Corp. said the city’s turnover rate was 14.4 per cent in 2023, down from 2022’s 15.1 per cent. The rate has been trending down during the past few years.
The federal agency says London’s low turnover rate, the result of the city’s shortage of affordable housing, contributes to pushing rent prices higher as the number of units available for rent decreases.
“The effects of all these changes may seem appropriate if your goal is to make (housing) a bit more affordable for some people and may work in the right direction, getting people from rentals and into homeownership,” said Stephen Williamson, an economist at Western University.
“But these programs are mainly directed at first-time homebuyers, and that makes the effect smaller.”
Though rents in London have continued to increase, the pace at which they have done so in 2024 has slowed down.
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After years of double-digit increases, the average asking rent for an available one-bedroom apartment in London, for instance, was $1,775 in August, according to Rentals.ca, a website used by landlords to advertise their units.
That represents a year-over-year drop of 1.4 per cent.
“August is when we get a flurry of demand, so the fact there was a little bit of disinflation during summer rental season is kind of telling,” said Rentals.ca’s Giacomo Ladas.
Yet, Ladas also said the key fact remains a lack of homes will continue to put pressure on prices, and while any measures that help make homeownership more affordable will have a positive impact on the rental market, more is needed to bring meaningful relief for renters.
“We do expect demand is still going to be fairly strong just because the supply and demand dynamics right now are not great,” he said.
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