:
I call this meeting to order.
Welcome to meeting number 148 of the House of Commons Standing Committee on Finance.
Pursuant to Standing Order 108(2) and the motion adopted on Thursday, September 21, 2023, the committee is meeting to discuss policy decisions and market forces that have led to increases in the cost of buying or renting a home in Canada.
Before we begin, I'd like to ask all members and other in-person participants to consult the cards on the table for guidelines on how to prevent audio feedback incidents.
Please take note of the following preventative measures in place to protect the health and safety of all participants, including the interpreters. Use only an approved black earpiece. The former grey earpieces must no longer be used. Keep your earpiece away from all microphones at all times. When you're not using your earpiece, place it face down on the sticker on the table for this purpose.
Thank you all for your co-operation.
Today's meeting is taking place in a hybrid format, pursuant to Standing Order 15.1.
In accordance with the committee's routine motion concerning connection tests for witnesses, I'm informed by the clerk of the committee that all witnesses have been tested, and I think everybody is good. That's for the second hour. For the first hour, everybody is here in person—oh, no, MP Sorbara is not.
I'd like to make a few comments for the benefit of the members and witnesses.
Please wait until I recognize you by name before speaking. For members in the room, please raise your hand if you wish to speak. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as well as we can, and we appreciate your understanding in this regard. I remind everyone that all comments should be addressed through the chair.
I'd now like to welcome our witness for our first panel today, in our first hour. From the Office of the Superintendent of Financial Institutions, we have the superintendent, Mr. Peter Routledge.
Welcome, sir. The members are looking forward to your opening remarks and to asking you questions.
The floor is yours.
Mr. Chair and committee members, hello.
Thank you for inviting me back today, this time in support of your analysis of the public policy decisions and market forces that have led to increases in the cost of buying or renting a home in Canada.
[English]
As outlined in our recently published annual risk outlook, we remain intently focused on the key risks facing the Canadian financial system, including real estate secured lending and mortgage risks, wholesale credit risks, funding and liquidity risks, and integrity and security risks related to the geopolitical environment.
With respect to the topic under investigation by this committee, I note that higher mortgage payments are taking up a larger part of some households' incomes, leading to more borrowers finding it difficult to pay their loans and debts. We expect rising debt service costs to be a key risk for financial institutions and their customers for the next two years. Having said that, I note that mortgage and household credit quality remains high by historical standards.
[Translation]
The Office of the Superintendent of Financial Institutions, or OSFI, along with its federal partners, wants Canadians to access and maintain mortgages throughout the ups and downs of market cycles.
Part of my role is to ensure that lenders exercise prudence in underwriting mortgages and sound risk management practices throughout the lifecycle of those loans.
[English]
We believe OSFI's prudential rules for mortgage lending foster a safe, stable financial system and will help keep Canadians in their homes over the long term.
It's our job to make sure that lenders remain resilient while adapting to evolving risks in financial markets.
With that said, I'll be pleased to take your questions.
:
Mr. Chair, the member is absolutely right in his facts. If you have an insured mortgage and you seek to renew it in an alternate lending institution, you don't have to go through a mortgage stress test or any other underwriting check.
By contrast, if you have an uninsured mortgage, you do, and that is an imbalance. The commissioner of the Competition Bureau and I have spoken about that. From our perspective, our job is to make sure institutions underwrite mortgages safely. One of the core principles of underwriting mortgages is that, when you have a new credit, you do all your underwriting discipline.
In our view, for uninsured mortgages, which guideline B-20 applies to, we ask lenders to underwrite new customers in full. That doesn't apply for insured mortgagors, because they have purchased a mortgage insurance policy.
:
I would reframe that slightly to say that we have taken steps to make the mortgage credit system a little bit safer, which in turn may cool the housing market, but our primary objective is credit quality.
What we have done is that we have put in place mortgage underwriting standards that we oblige all banks to follow, which causes them to make safer mortgages, which then sustains and makes their institutions more resilient.
The key thing that we do, and the most important thing we do, is that we set a common baseline. If all competitors in the system think they are all following OSFI's sound underwriting policies, then they themselves will follow sound underwriting policies. If we don't have those in place, they will think, “My competitor across the street is cheating so I'm going to cheat because I have to to compete,” so there is a game theoretic aspect to what we do. We put a baseline of sound underwriting standards in place to sustain the system through ups and downs.
Thank you, Mr. Routledge. I was very pleased to hear you speak French earlier. I'm not sure if you will be able to answer all my questions in French, but in any case at least you do speak it.
I would like to talk about the housing crisis. We know that housing is always the biggest household expense. If we help people with housing, we can help them live better and afford other things. For my part, I toured Quebec last year to get a feel for things and met people who help individuals with housing problems. It's really tough. Not a day goes by that we don't see encampments in Toronto, Vancouver or Montreal. The shocking thing is that we are often seeing them now in small municipalities in Quebec, in places where that had never been seen before.
I think it was Scotiabank that said we will need to build 5.8 million housing units by 2031. This is 2024, so that is seven years from now. In Quebec, we need about 1.2 million units, while the most units built in one year is 70,000. By 2031, we need to find some way to create an ecosystem, ideally with government support, to build three times the number of units that we have ever built. So it is a massive challenge.
It was the banks that conducted those studies. The figures are not from organizations advocating for social housing, but from the banks. They are the ones saying we have to build 5.8 million units.
And yet I have not heard a single politician to date say that we have to find a solution. We need a colossal plan, like a Marshall plan. Representatives of all organizations that build housing and of all orders of government need to sit down together to address this tremendous challenge.
Right now, there are people, families and single mothers living on the streets. Last year, a young pregnant woman gave birth in a tent, right downtown. That was very close to us, in Gatineau, Quebec. I don't know how we can accept that in a G7 country. I don't accept it, in any case.
What would the OSFI advise or what policies would it suggest to the government to achieve the target of 5.8 million units within seven years, or at least to get close to that?
:
I agree with what you said. We need a strategic plan to build more housing in Canada.
I am still working on my French, so I will switch to English now if you don't mind.
[English]
I agree with the notion that we need a national effort to bring our housing construction up to the level of household formation. In my first year as superintendent, I gave a speech where I said that a major potential risk is our household formation well exceeding the amount of household construction in the country. That presents a long-term potential risk to the financial system. I still hold to that.
There has been progress made, and I'm optimistic, but we have to do more to bring housing construction up to household formation. When that happens, the stresses in the housing market that make homes more difficult to afford will lessen.
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I wouldn't use that analogy to talk about the refinancing risk that's present.
For mortgagors who have taken out three- to five-year fixed mortgages and face renewal over the next two to three years, the stair-step up in higher mortgage costs will be more manageable—in the 15% to 30% range—just depending on the timing of their last mortgage.
So far, it appears to us that Canadians are managing that increased cost.
There is a small component of the mortgage market of mortgagors who, particularly during the pandemic, took out variable rate mortgages that had fixed payments. Those folks could face mortgage payment increases of around 50%. It varies by mortgage and timing, but 50% is a good ballpark. That is a very significant shock to monthly finances, and it's one we're very concerned about.
We have an early indicator on that risk, and that is people who took variable rate mortgages with variable payments. By and large, they're managing that rising cost of interest, but their delinquency rates are higher than those for people with fixed payments. It is not dramatic; it is incremental.
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It's hard to predict the future, but I'll try to give some perspective on that.
The issue right now, which the previous member spoke about, is a supply-demand imbalance. It means that, if we have a more than normal level of foreclosures and, therefore, greater supply on the market, demand conditions will be such that they will likely take up much of that supply, and housing price pressure will not be as significant.
I would point folks to the house price indices. Although they've been flat for two to three years, they haven't fallen, despite a very substantial increase in interest rates.
Thank you for coming today, Mr. Routledge. I really appreciate it. I think Canadians will be glad to hear from you as well.
There are risks and challenges whether the housing prices go up or go down. Keeping it on that narrow path, I believe, is one of your goals there. I want to talk specifically about capital gains, though, and, of course, the increase in the inclusion rate of capital gains and the impact this will have on the housing market.
First of all, I want to talk about the way the Liberals designed the implementation. Of course, that's creating the conditions for a fire sale up until June 25, which is just around the door. In my mind, if you're a cottage owner and you want to get the lower rates of the inclusion, you'll want to sell before June 25.
Do you think this will have any material impact on the prices? Obviously, if the housing prices go down, that puts the risk of mortgages going underwater....
Thank you, Mr. Routledge, for being here today, and thank you for your service to our nation.
At a breakfast that a number of us attended yesterday with Bank of Canada officials, we were talking about housing. I learned that, in a number of different countries, they do very different things with mortgages. Some countries allow you to port mortgages over 80 years and a number of generations. In some countries, like the U.S., you can lock into a 30-year mortgage but you have tons of flexibility in terms of how much to pay off your mortgage at any one time.
My question to you is this. Have you been in touch with other regulators around the world? Is there anything we can learn from them, or are there ideas that we perhaps might want to consider adopting here as we struggle with the affordability and housing crisis we have right now, that you might be able to contribute to this conversation here today?
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There's a two-part answer.
The first part is that we saw it coming, and we developed a regulatory guideline on third party risk management, which should help the banks we regulate manage new relationships that will come as a result of open banking.
Longer term, we have to be watchful that, if those new players do decide to innovate beyond their immediate business model, which is to enable, effectively, customers to own their own banking data, and move from that model to one that involves taking deposits and making loans, they do that in a regulated space. If we let that activity go unregulated, we see it usually leads to bad outcomes.
Hello, Mr. Routledge. I want to thank you for all your work and for being here today.
According to the Canadian Bankers Association, 0.19% of mortgages in Canada were delinquent in February, meaning that no payments had been made for at least three months.
To what extent do you expect that this proposal will increase the delinquency rate owing the high number of mortgages that will be up for renewal between now until 2026?
How likely is it that this increase in defaults will lead to losses for financial institutions?
Finally, what steps are you taking to limit those risks?
Thank you for your testimony today, Mr. Routledge. It's been very interesting.
One thing that OSFI regulates is basically the capital reserves of the banks, what I think you would call the domestic stability buffer. It's what ordinary Canadians could think of as money set aside for a rainy day. I note that last year, I assume out of concern for the stability of the banks, you increased that requirement from 3% to 3.5%.
Now, the language you use in your recent report for when people refinance or have these variable rate mortgages and their new payments get locked in is “payment shock”. That's very strong language. You don't use that language unless you're really concerned about something. Today it sounds to me like you've poured a little water on that, because you've narrowed it down to just people who are on the variable rate without locked-in payments.
I have a couple of questions. Are you concerned enough to increase the domestic stability buffer again this year, or are you satisfied that people are coping with their payments sufficiently that you could actually reduce it back to 3%?
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I guess we used the language because that's how we talk about it with the institutions we regulate. That's the language they use.
Now, on payment shock, the folks who are exposed to particularly acute payment shock are relatively.... It's not a lot of people. I mean, 170,000, I acknowledge, is too many, but there are five million Canadians with mortgages. The issue we have with that risk concentration is that it will harm the Canadians who have those mortgages if they do suffer that payment shock. It will strain the earnings of the institutions. It is an unnecessary risk concentration that, all else equal, I would rather have avoided.
I used the term because that's what we use in the industry, to be honest.
:
Thank you, Chair, and welcome, everyone.
Peter, it's nice to see you again. I think if I age you and age myself, we would go back about 12 years. I know you've had a number of roles from being a bank analyst at Moody's to, now, this position at OSFI. Congratulations on your career path and your appointments. They're very well-deserved. I still remember listening to you on the bank analyst conference calls with the bank earnings when I was on the bond side and you were on the equity side.
Peter, one thing we know about the banking industry is with regard to liquidity and funding. We know that when there's a banking crisis it always comes down to liquidity and funding. You can even take that to the consumer side as well.
I've read the annual report and I've skimmed over it. On the funding and liquidity risk side, what's your view on that with regard to the Canadian banking system?
:
Members, we are back with our second panel on policy decisions and market forces that have led to increases in the cost of buying or renting a home in Canada.
With us for our second panel, from BMO, Bank of Montreal, we have Mr. Robert Kavcic, who's a senior economist there. We are having technical challenges, I understand, with Desjardins Group, so Monsieur Jimmy Jean may not be able to be with us for this panel. From the Royal Bank of Canada, we have assistant chief economist Robert Hogue. From Scotiabank, vice-president and head of inclusion and resilience economics, Rebekah Young is with us; and from TD Bank Group, we have economist for TD Economics Rishi Sondhi.
Welcome.
With that, we're going to hear opening remarks first from Mr. Kavcic, for up to five minutes, please.
Honourable member, thank you for the invitation to appear at the House of Commons finance committee.
My name is Robert Kavcic, senior economist, BMO, covering analysis of housing market issues in Canada. My remarks and commentary today come from that perspective, as a macroeconomist on the housing market.
Housing affordability is pretty clearly a significant economic and social issue, and largely reflects the imbalance between demand and supply in the market. By most measures, housing affordability hasn't been this difficult from the perspective of a new homebuyer since 1990. Rent growth has also accelerated well in excess of income growth, and looking back at these measures, affordability, I would say, has really become an acute problem over the past three years or so.
In fact, when you look at our affordability measure that accounts for income, interest rates and home prices, it was more or less right in line with the 40-year average as recently as 2019.
The question is what has changed in that short period to cause a major supply-demand imbalance and drive such a dramatic deterioration in affordability. I think one popular narrative is that Canada just isn't building enough homes, but my takeaway from the housing data, from the labour market metrics and in speaking with industry participants across the country in homebuilding is that the industry has been running at pretty well full capacity.
In other words, we're already building almost all the housing that we possibly can in a natural response to market conditions. In the five years through 2019, just as an example, housing completions have averaged just over 190,000 units. In the last three years, as affordability was deteriorating, housing completions rose by about 20%. The current number of units under construction is at a record high in absolute terms or, if you adjust it, in per capita terms.
The supply side of the market isn't getting worse. It's just a matter of not being able to keep up with demand. Part of that demand growth is fundamental. We have very strong demographic demand from the millennial cohort. At the same time, we've seen international immigration rise from about 450,000 per year before the pandemic to almost 1.2 million people in the past year. This is a historic demand shock that does present a challenge to infrastructure, including housing.
To be very clear on this, I do believe that there are long-run benefits to a robust international immigration program. They are significant, and they should be maintained. We've shown an ability to meet housing demand created by that robust permanent resident program, but an additional 800,000 non-permanent residents in the past year has pretty clearly been difficult for the market to absorb on the supply side, and that is acutely reflected in surging rents.
Separately, on the demand side, interest rates were cut to historic lows when the Bank of Canada was easing them during the pandemic shock, until they began tightening policy in March of 2022. Deeply negative real interest rates drove outsize gains in house prices, which bred some speculative psychology in the market. That market psychology drove prices well in excess of underlying income, interest rate and demographic fundamentals, which we think are the root of house prices in the longer term.
Higher interest rates have since broken that psychology and have pulled prices down by 20% or more in some markets, but affordability won't necessarily improve until rates fall further, prices fall further or incomes are allowed to gradually catch up over time. They are, but it takes time.
Putting this all together, in summary, the demand-supply imbalance in housing has been created most acutely by surging demand, and the supply side is really doing all it can to keep up. Measures to improve the responsiveness of housing construction are certainly encouraged. The demand curve, though, seems like it is much easier to move in the short run, so appropriately calibrating demand to match our ability to provide adequate housing supply over time is probably where we have the biggest and, importantly, most achievable impact on affordability pressure in the near term.
Thank you for the opportunity to provide opening remarks. I'd be pleased to answer any questions later on.
:
Thank you very much. I'm pleased to have this opportunity to provide comments today.
My name is Rebekah Young. I'm vice-president and head of inclusion and resilience economics in Scotiabank Economics. I'll be providing perspectives from a macroeconomist perspective.
Also in my role, I provide thought leadership on sustainable economic growth by taking a longer-term look at structural forces impacting Canadian welfare. Clearly, housing is one of those issues.
Housing affordability in Canada has clearly been on a path of deterioration over the past few years, but the erosion of affordability has been going on for decades now. Market forces have been a big part of this story.
Picking up on some of what my colleagues said, household income has been a positive story. Household income for the average Canadian household has been outpacing inflation fairly consistently over the past few decades. This has increased their purchasing power.
While interest rates are currently high, they have been trending down structurally for decades, making it cheaper for Canadians to finance homes over time and, again, increasing their purchasing power.
Demographics are another obvious side of the demand equation. This includes both a growing population but also an aging population. What we see is that occupancy, or the number of individuals per household, has been declining over the past few decades. As a result, the demand for homes has, in fact, outstripped population growth over the past few decades.
I would just note on aging, because we are aging as a society in Canada, that it's important to acknowledge that many more Canadians want to age in place, and in some cases, alternatives like downsizing to a condo can, in fact, be more costly than staying in place, even if it means more bedrooms sitting empty.
Supply has no doubt been a major binding constraint against these demand-driven and demographic-driven forces. Again, looking past the last few years to the past few decades, there has been an erosion of the elasticity or the responsiveness of supply to housing demand. The reasons are numerous and well documented elsewhere, from regulatory to zoning issues to escalating development charges.
Labour is another one of the challenges. Despite record-high numbers of workers in the construction industry, the number of homes that we're building in Canada has not substantially changed on a trend basis. We see that CMHC has attributed this both to productivity declines in the sector as well as regulatory hurdles along the way in a very highly fragmented sector. However, the net effect is that it is taking longer, and it is more costly to build homes of all types in Canada today.
Returning to the bigger picture, all of these factors have been amplified over the past three years to push what's been a slow-burning affordability path to an acute one. There is no panacea to restoring affordability. We do think that priorities should be placed on supply, with a broad definition to include related housing infrastructure, and that care is needed when we look at demand-side measures given the risk of further exacerbating affordability. We should also be noting changing societal preferences and needs, and those should be taken into consideration.
Canada should be able to slow the acceleration of home prices over time, but this is going to take concerted and coordinated action across all levels of government and collaboration with private sector and social-purpose organizations. However, even if the home price appreciation is slowed or even decelerates modestly, there will be a subset of Canadians, namely lower, fixed-income Canadians, for whom appropriate shelter will still be unaffordable. Canada will likely need targeted solutions there.
I'll just elaborate very briefly on this point. We published a paper last year titled “Canadian Housing Affordability Hurts”, which has been raised by this committee a few times.
I underscore that a key finding was that first-best solutions still involve dismantling supply barriers and harnessing market forces to massively scale up housing across the market-based spectrum. However, that trickle-down effect will not reach—at least fast enough—a small subset of Canadians with little or no market income under most reasonable paths. Those gaps are wider than governments can reasonably alleviate through transfers alone on an ongoing basis. A do-nothing scenario is also not fiscally appropriate, as the knock-on effect on other social infrastructure from shelters to hospital beds to prisons is even more costly than the provision of subsidized or social housing.
I would reinforce, though, that the paper makes the case that it's not an either-or situation. It's not social housing or market housing, and it's not avoiding a polarization of public versus private provision. Rather, it's about the right mix that would serve all Canadians.
Just stepping back, I would point out through an economic lens that housing is part of a bigger system and there are trade-offs and opportunities to consider. The income investment and capital that go into housing are income investment and capital not going elsewhere. These do warrant full deliberation.
Just as a final point, I would also note that Canada is not unique and that, in terms of home prices to income as a ratio, Canada is about the middle of the pack relative to our OECD peers. More responsive supply is first-best, but we may need to consider more broadly how markets are structured to ensure suitable, adequate and affordable shelter for Canadians without stifling the economic growth drivers that ultimately secure welfare gains.
I'll stop there. Thank you.
My opening statement will be brief relative to those of my fellow panellists.
My name is Rishi Sondhi, and I'm an economist at TD Bank. I'm the economics group's housing-market expert, and I'm responsible for publishing research on housing and generating quarterly forecasts for home resales, average home prices in the resale market and housing starts.
The TD economics team's last official forecast was in March 2024, and we're right in the middle of updating our projection, which will be published on June 18. However, briefly I can say that conditions in housing markets have evolved broadly as we had anticipated in March during the spring season.
Last of all, I'd like to say that the views expressed today represent those of the TD economics team, including me, but do not necessarily represent the views of TD Bank more generally.
I look forward to your questions.
:
Thank you for the question.
In the context of the overall investment activity within real estate, there is potentially an impact, either when sellers look to list properties in advance of a tax change or if the long-term economics of a tax increase alter the expectations of return going forward. I personally haven't seen the exact details of the legislation either, so I don't want to comment too deeply on it. Also real estate's a very long-dated asset, so the impact may or may not be as significant as it would be in some other asset classes.
More broadly speaking, I think for an investment asset class today, macroeconomic conditions are playing the overriding factor here. Because interest rates have increased, expectations of house price growth have decreased and current levels of rental yield don't stack up very well against risk-free government assets. As well, as an investment asset class today, real estate has kind of fallen back in terms of overall activity.
How a capital gains tax change fits in that broader context of weakening activity would already be very hard to flesh out and put a precise estimate on, I would think.
:
Thank you so much, Mr. Chair.
I will be asking one question, and then passing the baton for the rest of my time to Ms. Thompson.
First, I want to start off by saying thanks to all the economists who've presented today. I'm very sad Mr. Hogue wasn't able to present to us, but we'll move forward.
I want to state very clearly that we have heard a number of testimonies at a number of different meetings that, for over 30 years, it was the lack of investment of all three levels of government, who didn't do enough to continue to build homes in Canada, that has led to the current housing crisis. I'm very proud our federal government has released a very comprehensive housing plan. It's a plan that's going to be building more single homes, it's going to be building more rental homes and it's going to be putting in far more investments to ensure there is deeply affordable housing that is created.
However, it's going to take more than just all three levels of government investing, so my question is for Ms. Young.
What role do you see banks have in potential solutions to the housing crisis?
First, I would separate two separate issues from the.... Obviously, banks provide capital. They provide capital to individuals to buy homes and also capital to developers to produce homes. Right now you also have to think of demand. What we heard from earlier testimony was around the rules and regulations. For example, chartered banks are subject to the risk-adjusted provision of capital for these activities versus the demand that's out there. Obviously, the banks we represent have a very big role through both of these channels, in both helping Canadians purchase homes and helping project developers build them.
What we've seen, including from the economics department, is that we have taken more of an advocacy role in the policy space as well, weighing into looking at some of these issues, some of the numbers, in terms of that longer-term trajectory that we're on and looking for policy solutions that benefit all Canadians, because a thriving economy is good for Canadians and it's good for banks.
:
This housing crisis has been—I would argue—decades in the making in some parts of the country. Before the pandemic, there was already tremendous stress in the Toronto and Vancouver areas, for example. What happened during the pandemic was that the stress spread out across Canada. Now you can arguably say that what we have is a national housing crisis. It's no longer a localized one.
Fundamentally, as was said before, it is an imbalance between demand and supply. The supply side has been unable to adjust or respond quickly enough to the very strong demand we've had over the last many years.
Our view is that the policy side should continue to focus on.... We're happy to see that all levels of government, now, are talking about the supply side, but we need to grow the housing stock in Canada to accommodate all that demand. When I say, “housing stock” here, I mean the entire spectrum. This is not just on the ownership side. This is also on the rental side. This is also on the social housing side.
We need to address this nationwide issue now with a big push to grow that housing stock to accommodate that demand.
:
Thank you. I appreciate the language around it being a spectrum.
Ms. Young, you also spoke about housing on a continuum. It's about being mindful of the need for social housing, as well as market and everything in between.
I'm going to ask this of you both, quickly.
Could you speak about the cultural changes needed to ensure we do everything we can to address the housing challenge—what these look like in urban areas, how we live in places, how we look at shared space and how we look at the way we live within our space?
I know I'm running out of time, but I'd like a quick answer from both of you around what we need to look at culturally, as well, to ensure every Canadian has the right to dignified spaces to live in.
:
Thank you for the question.
I agree that when you look at the Quebec numbers or the Canadian numbers broadly, we have seen, counterintuitively, new construction activity actually fall over the last two years, despite our push to continually build more. Part of that is the reality that we just have broad macroeconomic conditions that ultimately dictate what the market does.
When you have a very aggressive tightening cycle that triggers a decline in housing activity and a pullback in investment activity, you're naturally going to see a market response where construction falls. It's very difficult to push home builders to, first of all, build in an environment that's not favourable for them or that perhaps offers them a lot of risk going forward. It's also very difficult, when you have an industry that is already at capacity, to push further beyond those constraints.
In terms of a policy response, I fully agree with my colleagues that any kind of measure that can improve the elasticity or the responsiveness of supply or the productivity with which we build housing is absolutely a positive for this country and for housing supply going forward, because it can make this market dynamic play out faster.
Keep in mind that home builders take time to bring projects to market and to bring units to completion. If we have an acute demand shock on the ground today, it might be two, three or four years before we actually complete units to satiate that demand and bring rents back down to a more appropriate level.
I think that any measures on the supply side, in that context, are very important avenues to keep pushing on.
Mr. Sondhi, according to a study you conducted, 3.8 million housing units have to be built to restore some degree of affordability.
It's as though there are two housing crises right now. First, access to housing is a problem. The second issue is housing affordability, meaning it is hard for people to find housing they can afford.
On a housing tour in Quebec, I kept hearing that federal programs focus primarily on affordability right now. In other words, money is being lent to builders to build housing at 80% of market value. That means however that taxpayers’ dollars raised from government taxes are being used to build one-bedroom units in Longueuil going for $1,300 per month—which I find absolutely unacceptable—and two-bedroom units in Montreal for $2,000. Through our taxes and income tax, we are all paying part of the construction costs for housing for the rich.
Building housing is not enough; we absolutely need to build reasonably priced housing, something people can afford. We need housing at $600, $700 or $800 per month, social housing.
How can this problem be solved, Mr. Sondhi?
:
With respect to overall housing affordability, I would share some of the views of Mr. Kavcic on that.
I would say that a relatively quick way whereby we could handle that would be to work on the demand side. We could slow population growth. In the past few years, population growth has been quite strong. We could implement measures to slow population growth and bring it more in line with fundamental demand.
One factor I'll touch on as well is construction productivity. Productivity in the construction industry, according Statistics Canada, lags that of other industries. It's my belief that this is not a very well-studied phenomenon. I would dedicate some resources toward studying that. If we can improve construction sector productivity, we can boost housing supply without having to bring in more individuals.
Of course, another pillar to address our labour supply would be, in fact, bringing in more individuals. That would help in that respect.
Those are the levers I would pull to help with respect to housing affordability. I think those would bear fruit.
:
I have a related question.
The countries in Europe that are dealing with the housing crisis most effectively include Holland, France and Austria. Compared to Canada, those countries have a larger share of off-market or public housing. I am referring to non-profit housing organizations, true social housing and co‑operatives, for example.
In France, more than 20% of all rental housing is off-market housing. In Canada, it is just 5%. So we are really a long way off.
I know that the , with whom I have spoken, has a target of about 8%. I don't know if he will reach that next year, but I don't think that is very ambitious.
Do you think we could learn from those countries and work toward a larger share of off-market units in our rental market?
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I think that's a fair point, given the affordability challenges we see in the current environment.
I will note that the latest federal budget earmarked some funds towards offering low-cost loans for prefabricated units and for student housing and the like, and some investments in the affordable housing fund, for example, so there is some movement in that respect.
I do think that the point you make is fair, but I will note that my expertise has more to do with other types of housing starts—detached, semi-detached, townhouses, row houses and the like—and not so much with the affordable housing space, unfortunately.
Maybe I'll address this to Ms. Young, if I can.
In September 2022, the office of the federal housing advocate released a series of research reports that explore the growing trend of financial firms using housing as a commodity to grow wealth for their investors. The reports confirmed that this phenomenon, known as the financialization of housing, is contributing to unaffordable rent increases, worsening conditions and a rise in evictions. They note that the greatest impact of this is on disadvantaged groups, such as seniors, low-income tenants, people with disabilities, recent immigrants and lone-parent families. They estimate that about one-third of all seniors' housing in Canada has been financialized, along with 20% to 30% of purpose-built rental buildings.
First of all, do you agree with that? Are you concerned by it? What policy responses, if any, do you think the federal government should take towards organizations like REITs and others that are financializing residential housing?
:
I published a report early last year in which we did say that the government should set a target for social housing. We did see that there is a real issue, particularly for Canadians with fixed incomes, who aren't on market incomes, for whom housing affordability is going to be elusive, regardless of what policies are taken on the market side. We do think that we need to double the stock.
When we use the term “social housing”, it still requires all parties. It requires the private sector. It requires non-profits. It requires government. However, it becomes a different mix of what roles...and there are distinct roles between providing the financing, if it's construction or renovation, versus operations and managing at the individual level.
If we look at the social housing space, for example, one very positive development has been in British Columbia, and now the federal government is moving in this direction. It's basically the acquisition fund idea. We do have a lot of aging stock that, if it is going to be upgraded and renovated at market rates, is likely going to be higher value, higher rent—
:
All right. It's not so much whether I'm ready, but it's whether the microphone is ready.
It is clear by now that Canada is in a housing crisis. It is now a nationwide issue and no longer an issue that's localized in the expensive markets like in the GTA and Vancouver.
A lot happened in that. Essentially, a perfect storm occurred during the pandemic when you had housing needs that changed very quickly. The policy response to the health crisis provided tremendous firepower for lots of households to buy homes, at least in the initial part of it. The Bank of Canada cut interest rates.
All of this really started a fire for housing demand and caused home prices to spike. Home prices had increased more than 50% nationwide in the space of 24 months. Once inflation really flared up, the Bank of Canada hiked interest rates in a historic way. From a home ownership perspective, it now had this double whammy of higher prices and a higher interest rate that really hammered housing affordability.
Today, what we're dealing with is home ownership affordability that has now gotten away from many Canadians. Many of them now are pushed into the rental market. That's created tremendous pressure on rent, and vacancy rates have reached historical lows. We're dealing with a very broad-based issue that's very complicated, so we'll need a very concerted effort to address this issue from all levels of government.
:
Thank you, Mr. Chair. I will be splitting my time with Mr. Epp.
Ms. Young, I'd like to read a quote that you gave on a podcast not too long ago, and I wanted to make sure you agree with it. It's specifically with respect to the capital gains. You seemed unwilling to go into those waters, despite Mr. Morantz's questions. However, you did before, and I wanted to confirm that you feel the same way.
You're talking about capital gains, and you said, “And yet we have measures like this that are clearly punitive to an investment in Canada. So it is a big change. And, the signal probably doesn't sit well with a lot of folks in terms of what it means for the competitiveness and agility of Canada's landscape.”
Do you still agree with those comments?
I'm hoping this will be a relatively quick discussion and then we can move to a vote and carry forward with what I believe has been some excellent testimony.
Of course, we heard in discussion with Mr. Yves Giroux, the Parliamentary Budget Officer, that in fact there exists a report that, at least in accordance with Mr. Giroux's comments, would validate his findings that six out of 10 Canadians are paying more into the carbon tax than they are receiving.
I should point out that Liberals do say that it's eight out of 10, but they only tell half the story, as is often the case. That eight out of 10 is only with respect to financial or direct payment. When taking into account the economic or the indirect payments...and what do we mean by that? We mean the cost the carbon tax adds to trucking the food and adds to the farmers, and that will all funnel its way down eventually to the Canadian consumer. As Mr. Giroux said, the majority of Canadians will face a net loss.
Of course he did make a clarification on the 17th, and when asked by the parliamentary secretary for finance how he knew that his numbers were correct, he said that they were the same as theirs, which was quite telling.
Then Mr. Morantz, in an excellent round of questions, asked him to confirm that there was a report. He confirmed that there was a report, and further he went as far as to say that there was a gag order that restricted him from providing the full analysis.
I have—
:
Chair, I note the time. We're almost at the end of the meeting. It's one o'clock.
I also wanted to note that, just recently, all parties came to an agreement on the work this committee will do going forward, the issues we will study and how we will allocate our time, and we came together on a programming motion. For those watching at home, it's basically a motion that lays out the plan of how we're going to spend our time and what we're going to study.
Given that we agreed to that plan, I think we should remain focused and stick to it. I think this is a new addition of a new topic, either for debate here or for further study. I don't think that's appropriate, given that all the parties came together and came to an agreement.
That said, I move that we adjourn debate.
(Motion agreed to: yeas 6; nays 5)