Housing Crisis? Look to Canada for Answers
September 9, 2010
For decades, the United States has actively promoted homeownership through a raft of programs: generous mortgage interest tax breaks, subsidized loans, Fannie Mae and Freddie Mac loan guarantees, limits on what banks can repossess when a borrower defaults and so on, says Jim Powell, senior fellow with the Cato Institute.
The result has been an increase in homeownership, but it has also convinced far too many people to buy homes who couldn't afford them, helping to unrealistically push up home prices, which inevitably led to the subsequent collapse.
What's needed isn't more government involvement to help to prop up homeownership, but less, says Powell. And if you don't think so, look at what's happened in Canada.
- More Canadians (68 percent) than Americans (66 percent) own their homes, yet the Canadian government has interfered very little in the private housing market.
- Canada doesn't have an income tax deduction for mortgage interest. Nor is there a tax advantage to converting home equity into debt.
- In Canada, mortgages aren't issued without verification of employment and income, and people must buy mortgage insurance if their down payment is less than 25 percent of the purchase price.
- Unlike Americans, Canadians cannot walk away from their homes without serious consequences -- Canadian mortgages are generally full recourse, which means a bank can attach an individual's other assets and wages/salaries if necessary to pay the deficiency in the event of a mortgage default.
As a result of these policies, people in Canada generally buy a home when they can afford it and the Canadian housing market has been remarkable for its long-term stability, says Powell.
Source: Jim Powell, "Housing Crisis? Look to Canada for Answers," AOL News, September 3, 2010.
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