Canada has one of the highest homeownership rates in the world thanks in part to its low minimum down payment requirements, but Evan Siddall, president and CEO of Canada Mortgage and Housing Corporation (CMHC), believes those requirements may be contributing to the lack of affordable housing in some parts of the country.

“Politicians are tempted to help first-time homebuyers enter the market, but low down payments may be part of the problem adding to affordability pressures and macro-economic vulnerabilities,” he said last week during a speech at the Bank of England’s offices in London.

According to Siddall, in 1992 the Canadian government lowered the minimum down payment for first-time homebuyers from 10% to 5%; it then extended that benefit to all homebuyers in 1998.

Unsurprisingly, those adjustments sparked demand from homebuyers who would not have been able to enter the market under the original requirements. Now, however, the changes are creating problems, particularly for the first-time homebuyers who should be benefiting from them.

Siddall believes that the “extra demand” that Canada’s low down payment requirements have triggered are “simply feeding higher house prices.” And it’s “wealthier home sellers” that are reaping the benefits, not first-time homebuyers. “I have yet to be convinced that people in our country ‘need’ access to 19:1 leverage to buy homes,” he said.

He did acknowledge that there have been some changes since 1998. For example, when Justin Trudeau became prime minister at the end of last year, the country’s new Liberal government increased the minimum down payment from 5% to 10% on the portion of home prices above $500,000.

But for Siddall, “the objective of supporting housing affordability demands that CMHC explore a potential future path to higher minimum down payments.” He also believes a loan-to-income limit should be explored.

CMHC : Canada’s Low Down Payments are Harming — Not Helping — First-time Buyers by Charlotte McLeod | Buzz Buzz Home