Flaherty thinks privatization

By Sam Reiss

Since taking a number of measures over the last few years to quell the Canadian market through the Canada Mortgage and Housing Corp, it seems Finance Minister Jim Flaherty has done an about-face. He now says he’s done intervening and thinks the CMHC, which dominates mortgage insurance in Canada, should be privatized within a decade.

“We’ve taken four steps over the last four years to reduce the exposure there for taxpayers, so I don’t think there’s a lot more to do with CMHC or mortgage insurance, certainly not in the foreseeable future,” Flaherty told the Globe and Mail.

CMHC has come under much scrutiny for being poorly supervised, encouraging foreign investment purchases that artificially drive up housing costs, insuring properties destined for student housing, being too liberal with mortgages that don’t require income verification, fostering enormous debt that could help facilitate a US-scale economic housing-driven meltdown, and generally making a balls-up of everything they do.

In December, the International Monetary Fund told Ottawa it needed to review CMHC’s governance and oversight, and assess whether it should do more to protect itself — ergo, us — from potentially devastating housing market risks.

The Federal government has made a few slight changes in recent years, like putting CMHC under the official watch of our banking regulator, but nothing too notable.

And now, having made sufficient changes to knock many first-time buyers out of the market, Flaherty would like to see the Crown corporation privatized.

About time.

What is the government even doing in the mortgage insurance business? I’ll admit to leaning right of centre, so in a general ideological way, I like to keep the government out of business, period. Ditto gambling. Keep the roads paved, the police services operational, and the schools open, and leave the rest to us.

Given that CMHC was formed in the first place to help Second World War veterans find places to live, hasn’t it outlived its purpose? Why are mortgages insured anyway? Let the banks take the risks. They’d weed out unsuitable borrowers pretty quickly.

TD Bank economist Craig Alexander told the Globe about Flaherty’s July changes (which involved cutting amortization periods from 30 years to 25), “My concern is that the changes in the mortgage insurance rules will probably be felt for three to six months, and then the market will go back to really just focusing on underlying fundamentals, and one of the things that’s going to be there is extremely low interest rates that will still incent people into real estate.” He concludes, “I think we may end up in an environment where we might actually need the mortgage insurance rules tightened further.”

I’m not without concern for what privatization may mean, but what’s next? Fifty per cent down payments? Yes, as Alexander says, “If we got hit with an unemployment shock or an interest rate shock, the household sector would be quite vulnerable,” but isn’t that the point of a free economy?

The housing market should be vulnerable to the quality of the decisions we make — the intelligence, experience, and well researched knowledge we, the people, bring to it.

I do have some left-leanings, too, especially when it comes to affordable housing and kids, so let’s put the government in charge of getting art and music back into schools and solving the homeless crisis.

A self-regulating market is a dynamic landscape where things can really change, and people can really change their lives. Without our government nannies looking after us, maybe we’d have more entrepreneurs, more manufacturers making actual products, more cutting-edge thinkers, and more ethical investors.

I’d take any of those things over a falsely stabilized housing market.