In a recent interview with the Globe and Mail, Canadian Minister of Finance Jim Flaherty expressed worries about the financial burden laid on taxpayers by having the Canada Mortgage and Housing Corporation (CMHC) deal and trade mortgages. As a remedy, he suggests privatizing the federal Crown corporation within the next 5 to 10 years (a suggestion quickly criticized in the daily Le Devoir in Québec).
Initially, the announcement can come as a bit of a surprise. Indeed, the Conservative government regularly resorted to CMHC until recently to intervene in the housing market. Was it not a tacit recognition by the Minister of the virtues of such an institution's public character each of the four times he turned to CMHC to restrict access to mortgages and thereby slow down the worrying real estate boom? Has he not also counted on certain CMHC programs to bail out banks threatened by the world economic crisis?
At the same time, if the Minister carries out his intentions, he would not be in complete contradiction with the direction Ottawa governments have successively wanted to impose on CMHC since the '90s. It might not yet be the entirely private company called for by lobby groups such as the C.D. Howe Institute, but it has nonetheless undergone important reforms which certainly prepared the ground for it to eventually be privatized.
As reported by IRIS last June, the effect of these reforms has been to move CMHC away from social housing development so it could concentrate instead on its lucrative insurance operations. That's when CMHC launched into creating new financial products destined to widen its mortgage insurance's eligibility criteria and thus enlarge access for Canadian households. It was thus seeking to increase its commercial revenues, as would have done any private insurance company.
Still according to IRIS, CMHC's turn to the commercial and the fact that it is now submitted to a logic of profitability at all costs are in great part responsible for the recent overheating in the property market. The irony is that it's this very problem that Minister Flaherty expects to be able to solve by completing the process which contributed to creating it in the first place: privatizing CMHC is the final outcome of a progression which led to overheating in the property market.
On the bright side, the Minister's statement drew attention to the important limitations of how CMHC currently works. Is it really acceptable for public authorities to continue to insure mortgage loans by banks and thereby to encourage them in feeding both the real estate frenzy and household debt? The Finance Minister's recent interventions have clearly demonstrated that real estate development should be submitted to other criteria than simply racing to higher yields. Why then deprive ourselves (by privatizing it) of the sole institution which allows us to do so?
Admittedly, one can imagine that privatizing CMHC would eliminate the federal government's explicit guarantee on certain mortgage loans, but where will the banks turn to if one day their use of debt when left to themselves provokes a similar crisis to that known in other countries? The answer to that question is unfortunately already too well known.
Louis Gaudreau is a researcher at IRIS, a Montréal-based think tank.
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