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OTTAWA, Wednesday, April 21, 2021

The Standing Senate Committee on Banking, Trade and Commerce met by video conference this day at 6:30 p.m. [ET] to study matters relating to banking, trade and commerce generally, as described in rule 12-7(8); and, in camera, for the consideration of a draft agenda (future business).

Senator Howard Wetston (Chair) in the chair.


The Chair: Honourable senators, I have a few comments before we begin. I would like to remind senators and witnesses to keep microphones muted at all times unless recognized by name by the chair. Before speaking, please wait until you are recognized, and I will ask senators to use the “raise hand” feature. Should technical challenges arise, particularly in relation to interpretation, please signal this to the chair or the clerk. If you experience other technical challenges, please contact the ISD Service Desk number, which I believe you have. Please note that we may need to suspend during these times to ensure that all members are able to participate fully.

Finally, I would like to remind all participants that Zoom screens should not be copied, recorded or photographed. You may use and share official proceedings posted on the SenVu website for that purpose.

With that, good evening and welcome to today’s meeting of the Standing Senate Committee on Banking, Trade, and Commerce. I want to thank those who have come into the premises of the Senate to assist us with our meeting this evening. We all recognize the challenges in doing so. I’m not going to name individuals or divisions, but I want to thank everyone for doing that.

My name is Howard Wetston. I’m a senator from Ontario. I have the privilege of being the chair of this committee.

I would now like to ask the members of the committee to introduce themselves.

Senator Wallin: I am Pamela Wallin, a senator for Saskatchewan and standing member of the Banking Committee. I am glad we are back at it.

Senator Smith: I’m Larry Smith, a senator for Quebec. I am proud to be a member of the Banking Committee as a deputy chair.

Senator Marshall: I am Elizabeth Marshall. I represent Newfoundland and Labrador.

Senator Klyne: Welcome to our guests. I’m Marty Klyne, Saskatchewan.

Senator C. Deacon: I am Colin Deacon, a senator for Nova Scotia. I am thrilled to be back in a Banking Committee meeting after 21 months.


Senator Ringuette: Pierrette Ringuette, a senator for New Brunswick.

Senator Bellemare: Diane Bellemare, a senator for Quebec, from the Alma district. I’m pleased to be part of this committee.


Senator Loffreda: Tony Loffreda, a senator from Quebec. I am looking forward to a great meeting.


Senator Moncion: Lucie Moncion, a senator for Ontario.


The Chair: Thank you for that. I think other senators are not present. We can proceed with the meeting.

As you all know, part of the reason for these comments involving a virtual meeting is that we are conducting this by video conference to hear from witnesses. We are going to focus on an update with respect to certain aspects of the Canadian economy to be followed by in camera discussion on future business.

Before we start with our first panel, I would like to ask senators and witnesses to keep interventions brief to ensure that every member can at least get one question during the short time that we have with the witnesses. Obviously, if time permits, we can proceed with a second round of questions.

If you permit me, I would like to begin with our first witness, Mr. Greg Peterson, Assistant Chief Statistician, Economic Statistics Field at Statistics Canada. I want to thank you very much for joining us this evening, particularly on short notice, Mr. Peterson. The floor is yours.

Greg Peterson, Assistant Chief Statistician, Economic Statistics Field, Statistics Canada: Thank you very much to the chair, deputy chairs and senators for inviting me to be here with you today.

While my focus today is the economy, I would be remiss if I didn’t say anything about the toll that COVID-19 is taking. This pandemic has inflicted suffering that is truly hard to fathom. More than 1.1 million Canadians have caught it, and more than 23,000 have paid with their lives. Each person who is no longer with us has left behind so many broken families, broken hearts, and we all grieve in solidarity for their pain. Even those who have recovered still face numerous hardships. Let us also salute the courage of front-line workers who, each and every day, push themselves even harder as they continue to provide care and compassion.

If I had to choose a single word to describe how the Canadian economy has been affected by the pandemic and how it could recover, it would be “asymmetry.” Asymmetry encapsulates what we have observed as the pandemic continues to influence consumer demand and economic activity. Changes to consumption continue to play out for businesses and households in different regions in different ways.

You may recall that prior to the pandemic, we were talking about shutdowns in the auto sector and rail blockades. We were not starting 2020 on a very strong footing. However, in the last two weeks of March and into April 2020, we observed the largest individual monthly drops in GDP in Canadian economic history. Activity was down in 17 of 20 industrial sectors, with economic output at the end of April sitting at approximately 18% below where it was two months earlier.

Year over year, consumer spending was down 6%. In terms of income, the impact of the pandemic was felt unevenly among various Canadian households. However, between January and September 2020, disposable income for the lowest-income households increased more than one third — a larger proportion than what was observed for higher-income households. At the same time, households made up of younger Canadians recorded an increase in their net worth of nearly 10% — the largest year-over-year gain this cohort has ever experienced.

These changes were driven by unprecedented increases in transfers to households as the value of the Government of Canada’s emergency income supports exceeded losses in wages and salaries as well as self-employment income.

This lower rate of spending, together with higher disposable income, has led to record levels of savings. These savings, combined with low interest rates, have contributed to a strong housing market.

At the onset of the pandemic, inflation fell from 2% in February to minus 0.2% in April. This decrease was the fastest two-month slowdown in nearly 30 years. Prices did not return to pre-pandemic levels until October 2020.

The initial impact of COVID-19 was steep and rapid, with 3 million fewer Canadians employed between February and April 2020 and the unemployment rate surging to nearly 14% last May. The rebound resulting from the easing of public health restrictions was initially robust with nearly 2.4 million Canadians returning to employment between May and November. However, with the onset of a second wave between the fall of 2020 and the winter of 2021, the labour market’s rate of recovery slowed down once again.

In the months following the initial drops, activities across most sectors began to increase and in some cases quite rapidly. As public health restrictions eased and economic activity began to pick up, strong increases were recorded between last May and July. Several sectors even returned or exceeded their pre-pandemic levels of activity. By the end of last summer, total economic activity had returned to within 5% of where it was one month before the pandemic restrictions began.

Among the sectors that rebounded the quickest are construction and manufacturing. Activity in residential building construction continues to recover against the backdrop of rapidly rising home prices. Activity in the manufacturing sector has returned to near pre-pandemic levels on the strength of continued demand for natural resources, thinking particularly of wood and lumber. While the output of transportation equipment manufacturers, which had shown weakness prior to the pandemic remains weak.

Where are we now? Total economic activity in January 2021, the most recent month for which we have released the latest data, is about 3% below where we were in February 2020, the month before pandemic restrictions began. Again, asymmetry is the theme. Sectors such as accommodation and food services as well as arts, entertainment and recreation continue to struggle. By contrast, strong activity in agriculture, wholesale trade, finance, insurance, real estate sales as well as professional services have contributed strongly to GDP.

In closing, Statistics Canada is rising to the challenge of supporting Canadians as our country moves from pandemic response to recovery. At no time has the role of data been more important in helping Canadians, not only to survive this crisis but also to thrive once we move past it. Through this process, COVID-19 has fundamentally transformed the way in which Statistics Canada operates. A number of our statistical programs have pivoted to pandemic response, resulting in new methods to collect and analyze data to address urgent needs. These include flash estimates of key economic indicators as well as a forward-looking Canadian Survey of Business Conditions we conduct with the Canadian Chamber of Commerce. All of these pivots required additional cooperation from Canadian businesses, for which we are eternally grateful.

With this, I would like to thank you, senators, for the opportunity to be in front of you today and would be happy to answer any questions you have.

The Chair: Thank you very much, Mr. Peterson. I appreciate your comments. I believe we all received copies of that before the meeting, which was very helpful. I think we are open for questions at this time. We could start with the deputy chairs if you like or we could just proceed with questions from whoever is ready.


Senator Bellemare: Thank you, Mr. Peterson, for that succinct, yet very detailed presentation.

Everyone was a little surprised when the statistics came out about the increase in disposable income during the pandemic. It makes you wonder, did the money go to the right place? I want to know whether Statistics Canada conducted a study to determine whether there was a decrease in income inequality or whether the statistics remained the same after the increase in disposable income. Have there been any changes in poverty rates during this period?

Mr. Peterson: Thank you for your question.


You are exactly right. We found when we started producing GDP estimates for the second quarter of 2020, there was a significant decline in compensation to employees over the entire stage of the pandemic. The government transfers over that same period were more than able to offset the decline in income.

A couple of months ago, we released an experimental series which attempted to take these macroeconomic variables and tried to split them by income quintile as well as by age of the household. There we found that the lower-income households, the ones that were more likely to receive these government supports, were the ones who saw the largest increase in disposable income. So you did see some narrowing in terms of income distribution largely as a result of these government transfers.

Senator Marshall: I’m following up now on the question that Senator Bellemare just asked you, Mr. Peterson. I was watching a meeting over in the House of Commons today. They were actually quoting some numbers and they had indicated that for every $1 that an individual lost that, it was replaced with $7 in government assistance. Would you have that information? Is that information correct?

Mr. Peterson: That’s information that I’m not familiar with. It’s not consistent with the household disposable income numbers I was talking about.

Senator Marshall: Do you have your numbers?

Mr. Peterson: Again, I’m not certain of the context around the discussion you heard earlier today. I would be happy to follow up.

Senator Marshall: Well, we know that there are substantial savings by employees. Is there any indication yet as to what they are spending their money on, are the savings still sitting there? I know that some provinces are experiencing a third wave. Is there any indication as to what they are spending their money on or what they might be spending their money on? I’m thinking specifically the housing sector is doing rather well. Would you have any statistics that would feed into those theories?

Mr. Peterson: Yes. If I can compartmentalize that a little bit. In terms of household savings, we published at the end of 2020 households that had accumulated about $207 billion in terms of deposits in 2020 and that reflects savings. That’s in addition to the spending we have seen over the course of 2020. Where we have seen increases in spending has been for sure in construction. We have seen a boom in housing as well as sales and durables.

Where we have seen decreases in consumption, it’s been largely in personal services. If you can’t go to a restaurant, you are no longer paying for a meal out. Travel has declined, of course. Clothing has declined. We are seeing strength more in durable goods and a build-up of savings, about $207 billion.

Senator Marshall: I hear renovations are doing well. Thank you.

Senator C. Deacon: Thank you very much, Mr. Peterson, for your presentation. Thanks for the work that you and your colleagues do on behalf of all Canadians and helping us to have a dashboard into the economy.

I’m looking mainly at CPI and the effects especially on more marginalized Canadians. The growth in housing prices certainly in my part of the world, Nova Scotia, has been absolutely remarkable over the last year, and increasing rents and people really being affected disproportionately at the lower end of the income scale. How well you feel the basket of goods and the way you balance elements within CPI are reflecting these sorts of changes. You spoke about the fact that the different effects of growth rates in the economy and certainly costs and expenses are quite disparate across the country. In the CPI, if you look at the weighting of shelter costs, they haven’t really changed in 20 years, yet there is a perception that it has changed quite markedly in certain districts.

Could you speak to that a bit, particularly as it relates to public policy related to those who are more marginalized. I think this has a very significant effect. Those who were fortunate enough to benefit from housing increases are thrilled but there are many who are not.

Mr. Peterson: Thank you for the question. The issue of the composition of the basket of the CPI is a good one and one that we have been paying attention to throughout this pandemic. At Statistics Canada we undertake an update to the basket and different countries have different frequencies, but we are in line with other OECD and G7 countries in terms of the frequency of the update.

At the start of the pandemic, we were concerned that the pattern of consumption changed pre- and post-pandemic. At that time, we undertook an exercise with the Bank of Canada to try to draw together kind of an updated COVID basket, if you will, and put together an alternate CPI that reflected the change in consumption.

Overall, this alternate CPI basket revealed a CPI that was maybe half a percentage point above the officially published CPI measure. There were price changes as a result of the change in the composition of the basket, but the changes were not very large. At Statistics Canada, we are planning another basket update this summer, again to better reflect the changing patterns of consumption.

On the specific item of shelters, we did release CPI estimates this morning where we indicated an increase in shelter costs of, if I recall correctly, 2.2%. I could be corrected on that. Yes, we are seeing a large increase in the replacement cost for housing, but that is being partially offset by decreases in mortgage costs.

Senator C. Deacon: Thank you very much.

Senator Wallin: I just want to follow up on the question of Senator Deacon, if I could, because the announcement was exactly that, that it’s up 2.2%.

Can you clarify whether that would have applied to the alternate CPI COVID basket you created or whether that was on the traditional basket?

Mr. Peterson: I’m sorry, I’m having difficulty hearing. If I understood your question correctly, you’re asking about the numbers we published, whether it was the actual basket or —

Senator Wallin: The COVID basket, yes.

Mr. Peterson: It was for the actual basket. But I would caution, as we indicated in our daily release this morning, we went from an inflation of 1 point something per cent, and we published 2.2% this morning. A large part of that increase is — I hate to use jargon — kind of a “base year effect,” and it’s not so much reflective of an increase in prices this month. It’s much more reflective of the very rapid decline that we saw in prices this time last year. The price of gas, for instance, nose-dived about a year ago, and that is something that feeds into that 2% increase.

I wouldn’t interpret it as inflation taking off. I would interpret it more in terms of something happened last year that is causing that year-over-year percentage increase to look big. I would expect the same thing to happen again next month.

Senator Wallin: I’ll go on second round so everybody can be involved. Thanks.

Senator Loffreda: Thank you, Mr. Peterson, for your presentation. I will stay on the topic of inflation. It is a concern. We are starting to see what is required for inflation, which is excess liquidity and scarce resources as a result of high savings rates and lockdowns.

If we go back to the times when we had difficulty controlling inflation, do you see any similarities, any statistics, any red flags that are of some concern? Any comparisons, thoughts or learning you can share with us at this point in time to control inflation? As you know, once it does take off, it’s very difficult to control.

Mr. Peterson: It’s been a very long time since we have been in that situation. This recession has been different from other recessions that I have experienced over the course of my career. If you recall 2008-09, for sure it started with a liquidity issue, but then it moved to impact on the real economy. That was a recession that hit largely the goods-producing sector. We saw strength in natural resources but we also saw manufacturing badly hit. We saw challenges around household disposable income.

This recession has been different because the cut-off of supply has been different. The characteristics of what households are going through is different. I don’t think we have seen a buildup of savings like we have this time around.

It’s hard to draw comparisons. I think the nature of this recession has been completely different from anything I have experienced in my lifetime, so I’m sorry I can’t draw on those lessons learned.

Senator Loffreda: Thank you.

Senator Ringuette: Thank you very much. In the last year we witnessed over 3 million Canadians working from home, and many businesses are saying that when we recover, at least half, 1.5 million Canadians, will remain at home for work. I take that premise, coupled with the fact that people living in urban areas have moved quite often to more rural settings.

Statistically, are you able to see a difference with regard to public transit requirements? Should the priority of those huge, mega-urban transit projects be reviewed in light of these new realities and maybe focus more on community-based public transit systems to satisfy this new reality? I’m wondering if you have the data in that sense.

Mr. Peterson: Coming from Statistics Canada, I can’t comment on what public policy should be around transit. We measure urban transit, and have found that over the course of the pandemic, there has been a complete drop-off of urban transit across all jurisdictions. We can provide numbers on that.

The notion of where people work and where they live is going to be an absolutely critical issue moving ahead. Next month we launch the 2021 census, which is probably the best vehicle for obtaining information on where people work and where they live. Getting that picture from the census will be key to understanding how work patterns have changed, while understanding how transit patterns may be impacted by change in work.

Senator Ringuette: Maybe I’m too early in my request, but once that is done, could you provide us with that analysis?

Mr. Peterson: We’ll take notes and I’ll make sure that you get that information.

Senator Ringuette: Thank you.

The Chair: Mr. Peterson, when you get that information, you can share it with the clerk, and then the clerk will share it with the senator. Thank you very much.

Senator Klyne: Welcome, Mr. Peterson. I want to remark on your opening comments and your reflection on the environment that we are all currently managing within. I appreciate that you observed that.

I want to follow on the same theme as Senator Ringuette, where she has indicated that the pandemic has demonstrated that Canadians are willing to move out of highly populated areas when they can work remotely, opting instead for suburban and rural areas. There are suggestions this paradigm shift is for the foreseeable future.

My question is just kind of a preamble to the real questions I want to ask. Are you seeing any trends around interprovincial movement of Canadians’ residences during the pandemic? In that regard, how are population distributions changing or expected to change among the provinces and territories? Also, how might these changes influence local median incomes as higher salaried workers opt for the suburbs and rural areas in other regions where the average household income is made up of relatively lower incomes before the movement?

Mr. Peterson: I would have to get back to you with information on interprovincial movement. My area of responsibility at Statistics Canada is economic and environmental statistics. I would have to defer to my colleagues on the social side of the shop to get that information, but I will get that information to the clerk.

What we have seen, to state the obvious, is increases in housing prices, but from the information we are gathering it has been spurred by increased demand related to exactly what you are talking about, the desire of folks to move to detached housing. I’ll get that information to the clerk.

Senator Moncion: You have spoken about the savings that households incurred in the last year. You talked about $270 billion. Could you talk about the ration on the debt side? How did that fare out in the last year? Did you calculate this?

Mr. Peterson: We did see an increase in savings. At the same time, we did see an increase in mortgage debt, but we did see a decrease in non-mortgage debt.

At the end of 2020, households ended the year with 1.6% less non-mortgage debt from all lenders compared to 2019. However, mortgage borrowing was up 7.1% from the previous year. So as a result, total credit market debt rose 4.1% over the year.

Senator Moncion: So what is the ratio now, 170 or 180 for every dollar?

Mr. Peterson: I don’ have that number off the top of my head.

Senator Moncion: Thank you.

The Chair: Would you be able to provide it, Mr. Peterson?

Mr. Peterson: I could, yes.

The Chair: Please, I think it’s of interest to the senator. That completes round one. We could proceed with the second round.

Senator Smith: Thank you for your presence, Mr. Peterson. In the 2021 budget, the government pledged $250 million over five years to Statistics Canada to develop a disaggregated data action plan and fill critical data gaps. I would like to get a sense of critical data gaps that exist today which hinder Statistics Canada from carrying out a more fulsome review of the state of the Canadian economy.

Do the data gaps impact our ability to respond to the COVID-19 pandemic and our recovery?

Mr. Peterson: Earlier, I talked of the data that we released taking a look at income distribution by income quintile coming from macroeconomic accounts as an experimental series.

Increasingly we were asked to produce data on finer levels of demographic detail or finer levels of geography. If I think of data requests or data demands for information about the well-being of people in a visible minority, racialized communities, I think about greater detail information on city-level data.

Throughout the pandemic, the feedback we received is that users are not satisfied with national level macro aggregate level detail. The drive is to have better information on what’s happening within a particular socioeconomic groups of people, what’s happening within finer levels of geography. That funding is driven toward getting at that greater degree of granularity.

Senator Smith: Does this review allow you to make a call on if there is a path to recovery, or are there turbulent times ahead? From what you’ve seen to this point, are we on the path to recovery? If so, is part of that recovery dips that could provide some challenges to the Canadian economy? Is there anything you could share about that?

Mr. Peterson: I would go back to calling what we’re going through asymmetric. Throughout the course of the year, some sectors have been barely affected by an economic turndown. The agricultural sector has been cruising along. Other sectors like construction and manufacturing took a big hit right from the get-go but bounced back. Wholesale trade is performing better than it was prior to the pandemic.

Industries that are facing the consumer, they remain laggards, if you will. Until restrictions come off and until these personal services can come back on line, they are still going to be operating at a reduced capacity.

I think the big question is what happens to the $207 billion in household savings. Where is that going to go? I can’t speculate on what the answer to this will be, but if you follow the cash, I think that will drive us toward important product stimulus.

The Chair: Thank you. We have about five minutes left. I would like to get at least a couple of second round questions in. I think we do have Senator Bellemare to begin that. Could we make the questions and answers quick? I think I know where the savings are going, Mr. Peterson. They are going into the stock market. Just kidding. They are very frothy markets.


Senator Bellemare: We know that, in terms of employment, it will take us a long time to get back to previous levels. I wanted to hear you speak about the discouraged unemployed people. Unemployment rates are going down. However, in your opinion, are certain groups dropping out of the labour market to a significant extent? I’m thinking in particular of young people. I want you to talk about the employment situation of young people and their labour market participation.


Mr. Peterson: There has been a weakness in the youth in the labour market recently. Much of this can be tied to the industries that have been affected by the pandemic. This is something we are keeping an eye on. I don’t have a crystal ball, but it’s something we are keenly tracking as we are moving forward.

Senator Wallin: I just want to come back to this question of housing. We are getting some mixed signals. I know we’ll talk about it with our next witness as well.

So $200 billion in savings, and we know that the millennial group has used the income support programs that have been there to help them get into the housing market, and we see mortgage debt growing as well. I know you don’t talk on policy matters. Regarding the interest rate and inflation movement, is there something you are tracking where you think you would have information that would put up a warning sign?

Mr. Peterson: We would pay attention to what is happening in the national balance sheet accounts. These are the accounts that track household wealth, household debt. That would be a series that we pay attention to. It’s good to triangulate on a range of different indicators. The wealth will give measures of financial sustainability.

The Consumer Price Index, or CPI contains measures that are useful as well. I talked earlier about shelter costs. We are keeping track. You can decompose that into housing replacement costs as well as mortgage costs. If you take a look at a range of these variables, I think you can triangulate on the sustainability of the household, if you will. But I think there are a range of indicators. I would pay close attention to the national wealth accounts.

Senator Marshall: Mr. Peterson, where do you get your data that you come up with all these statistics? Do you get data from the Canada Revenue Agency or the banks? I know you do surveys and you are going to do a census. Where is your data coming from?

Mr. Peterson: The data to compile the macroeconomic accounts come from a range of different sources. On the household side, we are relying on administrative data such as payroll deduction accounts and the Labour Force Survey. From the business side, we are relying on information coming from taxation administrative records.

We don’t collect any transaction information from banks, so we build them up largely from either surveys or public sector sources.

Senator Marshall: And the data is anonymous, isn’t it? Would you have data on other individual people or individual companies?

Mr. Peterson: We do have data on individual companies. We don’t have a big database that tracks the Canadian population. I cannot tell you that you were at Tim Hortons this morning purchasing a cup of coffee. In all the work we do, the protection of privacy and confidentiality is key to what we do.

Senator Marshall: Thank you.

The Chair: I have two other senators who want to ask questions. It’s important that we manage this carefully. If you can ask the question very quickly with a very quick answer, then I think we can complete the evidence of Mr. Peterson, who has been kind to provide this helpful information.

Senator Loffreda: As of Q3 2020, 43.9% of businesses reported that they could not take on additional debt. Have you seen this historically in the past? If so, what was the result in bankruptcies? Thank you.

Mr. Peterson: I believe that data comes from our business conditions survey. That is a relatively new survey. We’ve only struck it since the pandemic, so I don’t have a time series to go back on that number.

If you’re looking for a barometer, take a look at the national wealth accounts. The analysis that I provided on households we could provide on businesses. We could provide to the clerk information on the balance sheets we’re seeing for businesses.

Senator Loffreda: Thank you.

Senator Klyne: I’m not expecting an answer. Perhaps it can be provided to the clerk.

We know that Indigenous employment has been disproportionately hurt through the pandemic. The data also demonstrates some gender differences. My question is: Does Statistics Canada have an up-to-date, detailed labour-force survey examining the impacts of the pandemic on employment versus unemployment rates for Indigenous peoples by industry sector in comparison to non-Indigenous Canadians? I couldn’t find it in the 2020 report.

Mr. Peterson: I’m not sure, exactly, what data we have available off the shelf, but again I’ll look into this and provide what data we can to the clerk.

Senator Klyne: Thank you, Mr. Peterson.

The Chair: Mr. Peterson, your evidence today, the notes that you provided us and your answers to the questions will be very helpful. Once again, we appreciate very much your coming to the meeting on short notice. Frankly, getting this kind of proper and fulsome analysis is of great assistance to us, and I thank you very much for coming today. I’ll ask the clerk whether it’s possible for you to stay on so you can listen to our next witness. I believe you may be able to. If not, it will be on SenVu. But I’ll leave that to the clerk to respond to you in that way. Thank you very much, Mr. Peterson.

Mr. Peterson: Thank you.

The Chair: Our next witness is Mr. Bob Dugan, Chief Economist from the CMHC, Canada Mortgage and Housing Corporation. I want to thank you so much, once again, for joining us this evening on short notice. The floor is yours, Mr. Dugan.

Bob Dugan, Chief Economist, Canada Mortgage and Housing Corporation: Thank you very much, Mr. Chair. I want to acknowledge that I am joining you today from Ottawa, the traditional, unceded territory of the Algonquin Anishinaabe people. I’m pleased to be here on behalf of the CMHC, or Canada Mortgage and Housing Corporation, to discuss the current state of housing markets across the country.


As Canada’s national housing agency, CMHC has a mandate to support the stability of Canada’s financial system and housing markets. We do this largely through our mortgage funding and mortgage loan insurance activities and by working with other governments and stakeholders to improve housing affordability, particularly for vulnerable populations.


As part of our work, we regularly monitor the state of housing markets across Canada. The unbiased market intelligence we collect helps other levels of government, developers, researchers and ordinary Canadians to make informed housing decisions.

It can also help us identify potential trouble spots in housing markets. Our quarterly Housing Market Assessment report, for example, evaluates market conditions in 15 census metropolitan areas for signs of imbalances that could lead to financial instability.

The HMA or Housing Market Assessment framework measures four potential imbalances in markets. First, we look at overheating, which is when demand exceeds supply in existing home market. Second, we look at price acceleration; when price growth is increasing rapidly. The third factor we look at is overvaluation, which occurs when the level of house prices is much higher than what can be supported by economic and demographic fundamentals, factors such as mortgage rates, population growth and income growth. And finally, we look at excess inventories, which is an indication of an elevated number of unoccupied units in the new home market or of high vacancy rates in the rental market.

The results of our most recent Housing Market Assessment were released just last month. Despite the renewal in many jurisdictions of stringent measures to mitigate the second wave of COVID-19, indicators of economic activity and labour market confidence showed signs of resilience and recovery in the fourth quarter of 2020.

As the committee is no doubt aware, housing sales remained strong in markets across the country during this period, while new listings continued to be weak. These factors contributed to ongoing price acceleration. As a result, new imbalances emerged in some markets, and existing imbalances were exacerbated in other markets that were already vulnerable.

The end result is that the number of census metropolitan areas, or CMAs, with moderate to high levels of vulnerability increased in the last quarter of 2020 due to evidence of overheating, price acceleration and overvaluation. For Canada as a whole, which includes regions outside of these 15 CMAs included in our Housing Market Assessment framework, we have assessed a moderate level of overall vulnerability.

While this remains unchanged from the previous quarter, it is worth noting that some of the most significant upward pressure on house prices occurred in smaller and rural communities and in smaller CMAs not covered by our Housing Market Assessment. These include markets such as Tillsonburg, the Lakelands region of Ontario, Niagara, Kawartha Lakes, Bancroft, North Bay and other smaller centres where price growth over the last year has been much higher than average. These, of course, are centres that are not usually on the radar for housing market imbalances.

Among the three largest metropolitan areas, the degree of overall vulnerability in the housing market in Toronto moved to high, while it remained moderate in Montreal and Vancouver.

Looking to the future, we are forecasting that economic activity, employment and net migration will gradually return to pre-COVID levels over the next three years as broad immunity to the virus takes hold and restrictions are lifted in Canada and abroad.

Over the same period, the pace of both home sales and price growth are expected to moderate. Rental demand will recover as immigration returns to more normal levels, but vacancy rates are likely to remain elevated in the near term. We also expect housing starts to stabilize at levels more consistent with household formation by the end of 2023.

These, of course, are just projections, and they are highly dependent on the speed of Canada’s economic recovery. A slower-than-expected vaccine rollout, for example, could prolong the pandemic, and stronger-than-expected inflationary pressures could lead to higher mortgage rates. Either of these scenarios, as well as other unforeseen economic disruptions, could impact the future stability of housing markets in Canada.

I’d like to end by thanking you for the opportunity to make these opening remarks. I would be pleased to answer any questions the committee might have at this time.

The Chair: Thank you very much, Mr. Dugan. We’re going to open it up to questions from the committee.

Senator Klyne: Welcome, Mr. Dugan. Thank you for your opening remarks. In its budget, the government proposed a 1% property tax on vacant properties of foreign owners who are not permanent residents or Canadian citizens. It’s been estimated that foreign owners make up a very small proportion, approximately 2%, of housing purchases in Canada. Can you tell this committee how effective a 1% tax on vacant properties of foreign owners who are not a large proportion of owners will influence housing prices, when the national housing prices have increased 25% and more over the past year, with projections of an additional 16% in 2021? Have there been any projections on the amount of revenue this policy objective will generate for the federal government?

Mr. Dugan: Thank you for that question, a great question. I would start by saying we haven’t done the estimations of the impacts of these programs ourselves. That would be something you would have to ask the Department of Finance. But what I will say, maybe as a partial answer to this question, is one of the key elements that is hindering affordability and really is helping to stoke house-price growth in the country, from our perspective, is the lack of supply.

We’ve had some very strong demand-drivers over the past year and a lot of folks with higher incomes who are able to afford housing are choosing to move to more suburban areas or places where they have more personal space. There’s been a real lack of a supply response to meet that demand. In fact, that’s been something that’s been behind price escalation for some time in Canada.

Here’s where I get to the answer to the question. I think any initiatives that might unlock supply — for example, a vacant home tax that would hopefully encourage some of these homes to contribute to the supply available to local residents who need a place to stay — could be helpful. In terms of size of the impact, I apologize; I just don’t have an answer to that question.


Senator Bellemare: Thank you for joining us today. The housing market is complex. I’m not very familiar with it. I know about it because I looked into it when I bought a house or when my children searched for apartments. However, it’s different from regular markets. You put it nicely. The housing supply is important in terms of making it easy to get a good price for housing.

My question is the following. Housing is a basic need, just like food. Can you tell us about any experiences or programs in other places where governments are helping people to afford decent rental rates? I’m talking about tenants. The system here is very decentralized. At the same time, could measures be put in place to help people pay these increasingly exorbitant rental rates?

Mr. Dugan: That’s a very good question. I’ll go back to my answer to the last question. The way to resolve this issue over the long term is to increase the supply or to build new housing. This is happening in a number of cities across Canada. The year 2020 was somewhat of an exception. As a result of the pandemic, immigration to the country has decreased. Many students stayed home and studied remotely. Nevertheless, the vacancy rate in major cities rose in 2020 and rental rates continued to climb. In my opinion, to resolve the issue in the long term, the amount of housing in Canada must increase significantly.

In recent years, with the exception of 2020, we’ve seen a housing shortage in cities such as Toronto and Vancouver, where vacancy rates are around 1% and under. There’s a great deal of competition right now for rental units. That’s really the area that requires the most work in terms of affordability. The majority of people with low incomes are trying to get into housing in these places. During the pandemic, we’ve seen how the impact on households has been uneven across Canada, depending on income levels. Lower-income jobs aren’t well suited to remote work. People who work in restaurants or hotels have been the most affected. For these people, it’s necessary to significantly increase the availability of reasonably priced housing.

Senator Bellemare: I’ll let the others continue, but I’ll have more questions about this topic in the second round. Thank you.


The Chair: Mr. Dugan, I think it’s going to be important, because we have a lot to cover, that we try to keep our responses as precise as possible, if we could. But thank you very much.

Senator C. Deacon: Mr. Dugan, thank you for your presentation. I really respect the job that you and your organization do. It’s so important to bringing stability to the foundational element of Canadians. It worries me, though, the position we’re in right now. I’m a senator from Nova Scotia, and we’ve seen a huge bump in our housing prices that has had a significant effect. It’s “bubble-esque,” without question.

I don’t say this in any way to be critical, but I know that you predicted it. You did see, about six months ago, the prospect of a significant drop in housing prices in Canada.

I look at the challenge we have at the moment of a bubble-like atmosphere, the risk of inflation and what effects that might have on mortgage costs. Where do we put our focus right now? As a group that is very concerned about the stability and growth of the Canadian economy, where do we put our focus right now? This is an awfully big range of risks potentially affecting a foundational element of most people’s wealth and certainly one of the biggest costs in their households. Tough question. Thank you.

Mr. Dugan: It is a tough question and a very good one in terms of where to focus. There’s no doubt this is a big challenge. When you look at what’s happening to house prices, the numbers released the other day show they’re up about 32% year over year across Canada. As you mentioned, certain municipalities are above that average, and it’s a hard pace to keep up with. There are low mortgage rates. There are all kinds of strong demand-drivers right now that are pushing that demand up.

Again, I know it sounds like a broken record but, to me, with that kind of strong demand, I think supply is an important thing to keep track of. It’s starting to respond. We saw strong housing starts in March, a record level, in fact.

The other thing is, there may be some targeted areas, to the extent that there might be speculation in the market. The kinds of behaviours that may be enhancing the froth are things to be preoccupied with as well.

In our own housing market assessment, we detect some price acceleration in certain centres. That’s an indicator that correlates with speculative activity in the market. It’s not helpful. Especially when affordability is a challenge and prices are rising rapidly, having that extra demand from speculators taking advantage of the price gains can add to the problem. It’s something we’re trying to get a grasp on, and something that concerns us.

Senator Loffreda: Thank you, Mr. Dugan, for your presentation. When CMHC appeared before our National Finance Committee on November 13 of last year in the context of Bill C-9, I asked officials about vertical living. There was some concern, as you could imagine, due to the pandemic and condominium projects. There were so many being built across Canada, especially in major cities. At the time, Ms. Leblanc said:

To your point on condos, this is a risk area we are monitoring. We have seen softening in that market in the last couple of months, and our property risk models are demonstrating a trend such that we need to continue to monitor the condo markets.

It is five months later. Is there any update on the condo markets? I’m concerned that if, for obvious reasons, there is a decrease in value in the condominiums, it might have a domino effect on our residential market. Thank you for your response.

Mr. Dugan: Thank you for that question. The condo market has begun to firm up in major centres. As you correctly pointed out, during the pandemic, when there was a bit of a flight from urban centres toward the suburbs and smaller communities, condo demand weakened, and prices came under downward pressure.

In the last couple months, we’ve seen a firming up of those price pressures. Condo prices are starting to grow in places like downtown Toronto and Vancouver. There’s been a recovery in condo prices. Part of this probably has to do with optimism about the rollout of vaccines and people seeing the light at the end of the tunnel, so demand is strengthening in those markets again. It’s early days, but we are seeing improvements.

Senator Loffreda: Thank you.

Senator Wallin: Thank you very much. I have a quick question, Mr. Dugan. You’ve tightened up your lending rules at CMHC, and your private sector competitors say they have seen a boom in business in response. That gives you less room to respond and react in these boom-bust cycles that we see going on, some of which COVID related but sometimes just there. Are you concerned?

Mr. Dugan: The total share of mortgage insurance in the market is still, I believe, somewhere around 40% of all mortgage underwriting. To the extent that the Department of Finance has control over the parameters of mortgage insurance, for companies that want access to Canada’s guarantee framework, the government still has a lot of leverage.

It’s not necessarily CMHC that would engage in those macro-prudential measures. We made decisions to change our own underwriting policies last spring because we were worried about the market situation, underwriting at a time when there was volatility in the market and potential downsides in the market. We thought it was the right thing to do at that time. We were trying to make a responsible decision.

In terms of boom-bust cycles, between the OSFI, or the Office of the Superintendent of Financial Institutions, which set the B-20 and B-21 regulations, and the Department of Finance, who have the government guarantee framework that presides over mortgage insurance, the government still has tools at its disposal to deal with housing markets in boom and bust cycles.

Senator Ringuette: My question is in regard to realtor practice and how much it has influenced both the rising prices and inflation in the housing market.

I like to look at real estate. I love it. Since COVID started, I have seen a practice from realtors where instead of one buyer bidding, some negotiation and another buyer coming in with another bid, it’s like a silent auction on one day at a specific time. What is the impact of that practice from realtors on this inflationary price?

Mr. Dugan: Excellent question. That’s something I would like to be able to answer with a precise number, so I can’t tell whether that adds 5%, 10% or 20% to prices. However, there’s no doubt that in a situation where you don’t have much supply in the market and multiple bidders competing for a house, once you’ve lost one, two or three of these houses, I’m sure these blind bidding processes make bidders more aggressive as they buy a home.

My own daughter went through buying a home back in December. Houses were going for $100,000 above asking, and I’ve heard of even higher numbers in some areas. It certainly puts pressure on buyers to put up the money and compete. That concerns me somewhat.

As an economist, I believe that making decisions without full information leads to suboptimal decisions. The more information one has when buying a home, the better. The blind bidding practice is something I would personally discourage so that buyers have more information when they’re buying homes and so they can make better decisions.

Senator Ringuette: If I may, I’d like to add a short supplementary to that. At CMHC, you must have very tight relations with all these real estate operators. Do you not have some kind of influence on that practice?

Mr. Dugan: I’m just an economist, so I’m not the person in the business who has the ability to reach out to do that. I’m not sure, to be perfectly honest, how much influence we can have in this area.

I do agree with you. I don’t think it’s a great practice. I think better decisions would be made if you had full information, and blind bidding is something that contributes to price growth.

The Chair: Thank you, Mr. Dugan. It’s the first time I’ve heard someone say, “I’m just an economist.” We’ll have to remember that.


Senator Moncion: Mr. Dugan, you said that you expect housing prices to return to pre-pandemic levels within three years. Is that right? This brings me to another question.

Mr. Dugan: We haven’t yet finished our forecasts. The forecasts will be released in a few weeks. However, upward pressure on prices is expected to ease. The pace of growth will decline, but it will still remain strong over the next few years.

In terms of price growth in 2023, I don’t have the numbers in front of me. The rate of price growth is expected to slow down as mortgage rates rise. This will reduce demand somewhat and the markets will be more balanced. This will relieve the upward pressure on prices.

Senator Moncion: However, prices won’t return to pre-pandemic levels. That’s what I understand. You’re saying that prices will stabilize. Property prices won’t necessarily drop to pre-pandemic levels.

Mr. Dugan: That’s our baseline forecast. Some sort of shock could lead to a price correction, but that isn’t part of our scenarios. You’re right. Prices will be higher in 2023 than they are today.

Senator Moncion: My next question concerns the risks associated with CMHC doing a great deal of underwriting. Maybe at some point, people will no longer be able to afford the mortgage rates because of rising interest rates.

I want to know what type of risk analysis you have done with respect to a possible increase in interest rates, where households wouldn’t be able to afford that increase.

Mr. Dugan: I ultimately believe that this type of dynamic, along with rising mortgage rates, will create a lower demand for homes in the future. In terms of the solvency of payments for homes that already have a mortgage, households that bought a home at 2% are at risk when it comes to what will happen in five years when they must renew their mortgage at a higher rate.

Fortunately, in Canada, mortgage stress tests give homeowners an interest rate that’s currently about 300 basis points, or three percentage points higher than the rate that they negotiated with their bank. This provides some breathing room, because the homeowners qualified for the higher mortgage rate. This enables homeowners to pay higher mortgage rates without affecting their ability to pay their mortgage, because they qualified for that rate.

However, with higher prices, the increase in mortgage rates will definitely affect demand and create a more balanced market, where upward pressure on prices will decrease in the future.

Senator Moncion: Thank you.


Senator Marshall: Thank you, Mr. Dugan, for being here.

How much mortgage insurance is on CMHC’s books now? I haven’t looked at the financial statements for quite a while, but I think it was a substantial amount.

Also, what has the experience been like the past year? Have there been any signs with problems with regard to people paying their mortgages? I would tend to think not because of the financial assistance programs of the federal government, but could you just tell us a little about the experience of the past year and exactly what the exposure is there with regard to CMHC and the mortgage insurance program?

Mr. Dugan: Sure. Also, I apologize; I don’t have the exact number for our mortgage insurance as it currently stands. So I’ll have to look that number up and send it in writing after the fact.

It has come down in recent years. In terms of the performance, in 2020, of course, there was the possibility for households to defer their mortgage payments during the pandemic, if their income was disrupted because of the pandemic. At the peak, about 18% of our mortgage insurance in force was under deferred payments. That was the peak, and that was probably around August and September of last year. Since then, it has tailed off to — I don’t have the exact number, but it is very low. OSFI suspended that program, and now the banks have to recognize deferred loans on their balance sheets as non-performing loans, whereas during the period when the program was in place, they were allowed to recognize them as performing loans on their balance sheet. That’s changed.

So the level of deferred loans has dropped off. I don’t have the exact percentage, but it’s probably something like 1% or 2% at the most, and that might be a high number.

What we have been watching closely, as those deferred mortgages become current again, is this: Does it result in an increase in our arrears rate? We haven’t seen that yet. We are looking at shorter time spans — one and two months in arrears as opposed to the 90 days. We don’t want to be surprised 90 days after the fact by a rise in arrears, so we have been watching it closely. There hasn’t been a significant upward trend.

Part of the reason is that most of the households that own a home have more income. We have seen a dramatic increase in the savings rate in Canada during the pandemic. I mentioned the uneven distribution of job losses. At the higher end of the income spectrum is probably where all these savings are taking place. This is probably mostly in the homeowner segment of the market. Homeowners are sitting on a significant amount of savings that adds to the cushion they have to get them through the rest of the pandemic.

Someone is typing to me that our current mortgage insurance in force is $438 billion. At its peak, back in 2012-13, it was close to $600 billion, so it has come down over the past few years, and $438 billion is the most recent number.

The Chair: A second round may not be achievable, senators. We need to move on to our in-camera meeting. However, if there is a burning question that somebody feels they need to ask, it is possible you could put up your hand and we could have that.

Senator Smith: I wondered if I could ask a question to this witness.

The Chair: That’s fine. That’s the burning question.

Senator Smith: I prepared something, so I thought I might as well.

Mr. Dugan, thank you for being here. First-time purchasers — younger demographic. It’s great that interest rates are low today to encourage people to get into the market. We also know that the government set up a sort of first-time homebuyer incentive program that has not really produced the results I think the government was hoping for or that CMHC was hoping for.

My question is really simple: What’s the percentage of first-time homebuyers in the last year or so? Is there some discussion as to how to improve the program to incentivize young people and give them the chance to own a home?

It’s great to have low mortgage rates; however, we all know this is going to change with inflation. If you get a five-year fixed rate at this point in time at, say, 1.82 — whatever the rate is — it’s great, but what happens when the term ends for young people if they have bought, as an example, a house that costs normally $300,000 to $400,000 but they paid $500,000 because it’s been bid up by multiple bidders? I wonder if you can talk about the challenges for young homebuyers and what CMHC can do to incentivize people.

Mr. Dugan: It’s an excellent question. For first-time buyers, there is no doubt in today’s market it has become more difficult to get into the housing market. Incomes just do not grow by 25% to 30% year over year, and that’s what we’ve seen for house prices in terms of growth. We’ve seen 32% as of March. Incomes are not keeping up.

Low mortgage rates certainly help people get into the market right now, but ultimately, in terms of helping young homebuyers, the key — and I sound like a broken record saying this, but it really lies in supply. We’ve done different analytical work that shows that when you introduce demand-side factors to try to deal with house price growth to limit demand, what usually happens is that, because demand is always growing because the population is growing, very quickly those measures get taken over by growth in demand, and you get back where you started in terms of house price growth down the road but with these restrictions in place that further limit access.

To deal with house prices in the long term and make them affordable, the best thing we can do is to increase housing supply to bring about better balance. Ideally, if you build enough homes, they actually cause prices to come down. If you oversupply the market a little bit, that might be something you could try to do, or try to build more houses on the affordable end of the price spectrum to try to bring down prices and make access for young people and first-time buyers a little bit better.

With the shared equity program you mentioned, the takeup was light but it was also designed as a small program to begin with. We wanted to help first-time buyers in certain targeted markets, but we didn’t want the program to be so big that the spike in demand that it caused added inflation in the housing market and further eroded affordability for those who are not in the program. It really is like walking a tightrope when you are trying to deal with policy responses that deal with escalating house prices. I have talked to many economists about this, and the only sustainable way to do it in the long run is with supply increases. I think that what we have to work to try to facilitate is the supply response, particularly in more expensive markets.

Senator Smith: The only caveat is that material costs have gone wacky in terms of wood and access to materials. It doesn’t help the case. On that particular program, we only had 9,000 people take it up, which is not a big dent out of the 1.25 billion that was put up.

The Chair: Senators, I apologize, but we are not going to have an opportunity for a second round. We have to move on to in camera. Mr. Dugan, thank you for coming on short notice. The information you have provided to the committee is of great assistance as we are getting back into committee action. The information you have provided tonight is most appreciated. Thank you so much for coming.

Mr. Dugan: Thank you for having me.

The Chair: Senators, I think we have to pause for a moment or two. You may wish to take a short break. We are not going to take a lot of time, and then we are going to move in camera proceedings. Once that begins, I’ll move a few motions quickly and then we can have a discussion. I have a bit of a contingency plan that I will talk about if we should run out of time. Let’s proceed to the second part of our meeting. Thank you so much.

(The committee continued in camera.)