Government

The hulking guy in the grey suit with the silver hair grabbed my elbow as I held up the back wall of the caucus room.

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“Talk?” he said.

We slid through the sound-proofed double leather-covered doors into the coffee room. A few other government MPs were there making phone calls. Two staff wrote messages on small slips of paper which were given to trusted messengers who ducked inside to press them into the hands of caucus members, as party bosses and the prime minister stared down from their podium.

It was early 1990. I’d been in Parliament for less than two years and had a large measure of respect for this man – largely because I knew he was about to blow himself up for all the right reasons. Michael Wilson was the country’s finance minister, tasked to find a way out of a debt and deficit spiral which threatened to hobble Canada.

His solution was a new value-added tax. It would prove to be powerful enough to turn the national deficit into a surplus within five years, and destroy forever the Progressive Conservative Party which ushered it in. Me included.

Wilson had a fat sheaf of papers in his hand. On the top was a white business envelope covered with numbers – his favourite place to jot things. We went to a quiet corner out of earshot and he asked me the question: how much of the new GST should be levied on houses?

I mention this for a couple of reasons. First, today there is no GST (or HST) on residential real estate, except high-end new construction. If you wish to worship me, I shall try to be worthy. Second, you’d be amazed at how casually major policy issues are sometimes decided in Ottawa.

Sure, MPs are made busy forming committees and traveling the country to hear briefs laboriously prepared by citizens and special interest groups, but the guys who actually write budgets never even see them. It’s political theatre. If any real influence-peddling is done, it’s to key MPs and ministers directly. It happens in their offices, and behind closed doors. And it is never written down.

These days F is the guy with the two big offices – one on the Hill and the other five blocks away on the top floor of 140 O’Connor, where the Department of Finance lives. In recent months he’s been whispered to by the CEOs of several major banks, the country’s real estate cartel, the governor of the bank of Canada and his own concerned officials. The issue is simple: real estate and debt.

Emergency interest rates, needed to keep the economy from withering and blowing away, have also resulted in unfettered borrowing and a consequent run-up in house prices which threatens to pop. Too many families are over-extended and mortgage borrowing has hit unprecedented levels. The bulk of new home loans being taken out are high-ratio and high-risk, with virtually all new first-time homebuyers opting for 5% down payments and 35-year amortizations.

Carney, F, the bankers, the Finance guys – they all know it’s unsustainable. They know rates will normalize. They know the consequences. They watch CNN. They realize what a real estate meltdown would do to consumer spending and the economy. And they’ve been trying to find ways to slow down this runaway freight train – the one which turned housing, the staple of middle class wealth, into a casino and a futures market.

Under consideration are several main reforms.

• Requiring higher minimum down payments for home purchases where mortgage insurance is required (any time less than 20% is put down). Today buyers must pony up just 5%, and while the bankers have suggested this be moved to 10%, the bet is F will settle on 7%.
• Tightening rules for condo purchases. Today just 50% of condo or strata fees must be included in a list of expenses measured against income to see if a buyer qualifies for financing. That would be moved to 100% – not unreasonable when monthly maintenance payments in some buildings today equal what rent used to be.
• Banning no-money-down mortgages, now widely offered by a slew of independent mortgage brokers; tightening up on the ‘liar loans’ or self-declared income mortgages where self-employed people are not required to prove their income; and, setting new rules for cash-back bonuses some banks give new mortgage customers. In the real world these are called ‘bribes.’
• Shortening the maximum amortization on a mortgage eligible for mortgage insurance from 35 years to thirty.

Will this make a difference? Yeah, probably. It will hasten the inevitable, cool the market faster, remove more first-time buyers and clean up some of the sleaze which has bred at the edges of a sweaty business. But it will also give F and his boss the patina of action, casting them as guys who moved in the best interests of a nation of house porn addicts.

When, of course, they are the guys who peddled it.

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Had it not been for government intervention when house prices were coming back to earth in late 2008, today home ownership would not be at 70%, families would not have historic levels of debt, a Vancouver SFH would not cost a mil, equityless young couples wouldn’t be at risk, the savings rate would be higher, real estate would not equal gambling and Mike Holmes would still be insulating basements in Woodbridge.

But this is politics.

“I’m from the government. I’m here to help you.”