June 7, 2019

Randeep Sarai Member of Parliament, Surrey Centre Valour Building, Suite 860, House of Commons , Sent by email: [email protected]

Dear Mr. Sarai,

RE: B-20 stress test

Thank you for arranging a roundtable discussion with housing sector professionals at the Surrey City Centre Library on May 22. We appreciate the opportunity to connect and provide feedback on how federal policies impact BC REALTORS® and the housing market.

The B-20 stress test has had a pronounced regional impact in BC, causing harm to the BC economy and making it harder for British Columbians to realize their dream of home ownership.

Home sales have declined by 25 per cent across BC and by 33 per cent in Surrey in 2018. Research from the BCREA Economics department shows that the B-20 stress test resulted in an estimated 30 per cent of that decline, or 8,000 lost home sales. The B-20 policy creates vulnerabilities, resulting from an overreach in policy is likely to result in negative economic outcomes, including a decline in new home construction and rising unemployment.

BCREA estimates that home price declines exceeding 10 per cent in one year would have a negative impact on housing supply. A decline in housing starts means that once housing demand recovers from a price shock, it is likely that supply will be inadequate, leading to future price accelerations. This concern has been corroborated by homebuilders across BC, including

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several in your riding who shared their stories at your roundtable discussion in May. A price decline exceeding 10 percent would have an adverse effect on unemployment, resulting in an estimated 26,000 jobs lost throughout the province.

Another concern from the current policy is the two per cent risk- buffer. We have estimated that the Bank of returning its overnight rate to its neutral level is consistent with a 5-year mortgage rate of 4.8 per cent. Given B-20’s current structure, Canadian homebuyers would be facing a stress test rate of nearly 7 per cent, which is not tenable.

To alleviate the current negative effects as well as prevent future negative outcomes, BCREA recommends that the federal government make two legislative changes: 1. Reinstate 30-year amortizations for both insured and uninsured mortgages 2. Reduce the current risk buffer from two per cent to one per cent.

Using a model developed by the Bank of Canada, BCREA estimate that implementing our two recommendations would result in an increase in economic activity of $512 million and 7,600 more home sales in BC compared to the status quo.1 Reducing but not eliminating the stress test would also help achieve the government’s goal of ensuring young are not taking on more debt than they can bear, while protecting jobs and housing starts.

We look forward to discussing these matters with you in the coming months. We would also be interested to work with you to form a working group on housing affordability in BC. Please contact me any time we can be of assistance ([email protected]; 604.742.2798).

1 Taylor Webley, “Fundamental Drivers of Existing Home Sales in Canada,” Bank of Canada Staff Discussion Paper, December 2018.

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As you know, BCREA is the professional association for about 23,000 REALTORS® in BC, focusing on provincial issues that impact real estate. Working with the province’s 11 real estate boards, BCREA provides continuing professional education, advocacy, economic research and standard forms to help REALTORS® provide value for their clients.

To demonstrate the profession’s commitment to improving Quality of Life in BC communities, BCREA supports policies that encourage economic vitality, provide housing opportunities, respect the environment and build communities with good schools and safe neighbourhoods. Yours sincerely,

Trevor Hargreaves Vice President of Government Relations and Stakeholder Engagement

Copies: Ben Chin, Prime Minister’s Office ([email protected]) Ian Foucher, Ministry of Finance ([email protected])