This helps explain the cool reception Morneau has received.

The big banks, who largely endorsed the last major move in 2012, expressed concern this time. Just about everyone in the industry — from brokers to builders — are pleading for policy makers to turn their attention to supply instead of demand.

Financial Stability

While Morneau says he was compelled to act for financial stability reasons, the supply issue hasn’t been lost on him. Finance officials tried to persuade the British Columbia and Ontario governments to take steps to increase home supply as part of a more comprehensive effort, but have so far received little interest.

New housing supply is particularly acute in Toronto, where the number of low-rise homes built in the city fell 22 percent in 2015 from a year earlier to 12,156 units. That’s the lowest since 1995. Completions of new single-detached homes fell 18 percent to 7,871 units in 2015, the lowest since 1978.

New home completions in Vancouver have been doing better — within the average of the past 15 years — but even here remain below long-term historical levels. Including the demolition of older homes however, the Canadian Homebuilders’ Association estimates the stock of low-rises in Vancouver is actually down 20 percent from 10 years ago.

“The statistics speak for themselves. Builders are building as much as they are allowed to build,” said Kevin Lee, chief executive of the Ottawa-based advocacy group, who thinks Morneau’s measures will be counterproductive. Federal government blanket rules “are not the way to deal with this.”

Five Decades

Federal officials have been tinkering with the availability of government insurance for at least 50 years, but nothing to the extent of the past decade.

Dodge was forced to respond 10 years ago to then-Finance Minister Jim Flaherty’s decision to allow the country’s mortgage insurers to cover no-money-down, 40-year amortized mortgages.

Since then, federal officials — from Dodge to his successors Mark Carney and Stephen Poloz and now Prime Minister Justin Trudeau — have agonized over the issue. Flaherty, who said privately he was embarrassed by the initial loosening step, would later reverse course and rally the tightening charge.

The net result has been a Canadian government that has become hardwired to worry about the problem — the heads of all the main regulators after all are veterans of a financial crisis that was rooted in a U.S. housing bubble.

The question is whether the pendulum has swung too far, especially as Morneau considers forcing lenders to share in losses associated with defaulted mortgages — a part of the system considered hallowed ground for the industry. After all, the 100 percent guarantee is designed to ensure banks continue to lend even when house prices plummet, something Dodge says will happen at some point.

“It is conceivable there could be further tightening rules but I think the issue is going to come when all of a sudden one of these markets go sour and there is a desire on the part of government to encourage home ownership again,” Dodge said.

http://www.bloomberg.com/news/articles/2016-11-17/why-trudeau-s-tighter-mortgage-rules-are-likely-canada-s-last