Canada’s real estate market is bound to take a hit this year thanks to the government’s new mortgage rules that took effect on January 1st.

The rules, aimed at making sure Canadians can afford to meet their monthly mortgage payments if interest rates rise, will intentionally make it harder for buyers to qualify for an uninsured mortgage.

Buyers who are making down payments of more than 20 percent on a home, do not need mortgage insurance — they will now have their incomes “stress-tested” on a mortgage rate two percentage points higher than whatever rate they originally qualified for.

“This will impact roughly 10-12 percent of mortgages, so you’re going to see a further slow down in the market,” said CIBC’s Deputy Chief Economist Benjamin Tal.

Canada’s real estate market saw a slight slowdown in 2017, primarily because of falling home prices in Toronto after the Ontario government’s 15 percent tax on foreign buyers took effect last April. That decline, says Tal, is set to continue, simply because fewer Canadians will be able to qualify for mortgages with these new rules in place.

In a November 2017 report, TD Bank economist Brian DePratto estimated that the mortgage changes would depress housing demand by five to 10 percent and reduce price growth by two to four percent in 2018. Tal echoes that prediction, forecasting demand for housing to decline by seven to eight percent.

Average home prices in Toronto have declined by almost 10 percent since May 2017, with single-detached homes bearing the brunt of that decrease. Some critics of government intervention in the housing market argue that the mortgage rules were badly timed, given that Canada’s hottest real estate markets like Toronto were already cooling.

“These rules were necessary, but to what extent was there a need to do it at this particular time?” asked Tal.

Buyers who are intent on making a property purchase but might not be able to qualify for a mortgage through a prime lender (i.e. one of the big six banks), will seek lending help from credit unions and private lenders, a trend that Tal called “suboptimal”.

“We are moving risk from the regulated market to the unregulated market. The problem is, the government is using demand to deal with issues that are supply-driven,” Tal told VICE Money.

A survey conducted by the Fraser Institute in the Toronto area last year showed that it typically takes one and a half years for homebuilders to obtain a permit to begin construction. To compound the problem, in many neighbourhoods, community groups actively resist any kind of addition of new houses or apartment complexes for fear that it will bring in a surge of newcomers and alter the neighbourhood’s feel and identity.

“As long as supply remains low, housing prices are not going to drop as much as the government wants them to. And then you’ll see them slapping on more regulation, to a point where people are scared to buy or sell,” says Toronto realtor David Fleming.

A 2018 housing forecast from realty firm Re/MAX predicts that prices in the Greater Toronto Area will remain relatively flat on average, rising just 2.5 percent.