Proceedings of the Standing Senate Committee on
National Finance
Issue 17 - Evidence - October 1, 2014
OTTAWA, Wednesday, October 1, 2014
The Standing Senate Committee on National Finance met this day at 6:45 p.m. to study the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2015.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, welcome to Standing Senate Committee on National Finance. This evening we are continuing our examination of the Main Estimates for the fiscal year ending March 31, 2015.
[English]
From Canada Mortgage and Housing Corporation, we're very pleased to welcome, some back from another visit and others for the first time, Mr. Brian Naish, Chief Financial Officer; Michel Tremblay, Chief, Audit and Evaluation — and we may want to ask you some questions about the audit side of things as well; Charles MacArthur, Senior Vice President, Regional Operations and Assisted Housing; and Michel Laurence, Vice President, Policy and Research. We thank you all for being here.
I understand, Mr. Naish, you may have some introductory remarks.
Brian Naish, Chief Financial Officer, Canada Mortgage and Housing Corporation: Yes. I'm pleased to be here on behalf of Canada Mortgage and Housing Corporation. I'm joined by my colleagues, whom you have introduced, so I won't do so.
[Translation]
CMHC is a federal crown corporation that reports to Parliament through the Minister of Employment and Social Development. Our mission is to help Canadians meet their housing needs. We do this in three main ways.
[English]
First, CMHC supports the stability of the housing markets and the financial system through our housing finance activities. Our mortgage loan insurance products help Canadians access a wide range of housing options and our securitization programs ensure continuous access to funding markets. Thanks in part to these activities the housing needs of some 80 per cent of Canadian households are met through the marketplace.
[Translation]
Second, CMHC helps Canadians meet their housing needs through our housing market analysis work and policy, research and information transfer activities. Information and analysis from CMHC supports informed decision- making and efficient housing markets across the country.
[English]
Third, CMHC works with the provinces, territories, First Nations communities, municipalities and other stakeholders to support low-income households and others who need housing assistance. The federal investment is provided under various housing programs and initiatives, including on First Nation reserves. As is the case with our market analysis and research activities, these programs are funded through appropriations voted by Parliament.
CMHC is estimating budgetary expenditures of $2.1 billion this fiscal year. Just over $2 billion of this amount will be used to provide assistance to Canadians in housing need including low-income families, seniors, people with disabilities, Aboriginal people and victims of family violence.
This funding supports close to 600,000 households living in existing social housing. It also includes some $250 million annually for new affordable housing, renovation, shelter allowances, rent supplements for social housing and accommodations for victims of family violence, all delivered through the Investment in Affordable Housing, which has been renewed to March 2019. Close to 190,000 households have benefited from the Investment in Affordable Housing since it was launched in April 2011.
The balance of CMHC's budgetary expenditures — some $46.5 million — will support our market analysis and policy, research and information transfer activities.
CMHC projects savings of $71.8 million this fiscal year as a result of Budget 2012 reductions. These reductions are partially offset by an increase of $70 million in funding for housing in Nunavut, provided for in Budget 2013, and an increase of $4 million in funding for housing construction and rehabilitation on reserve. CMHC total estimated budgetary expenditures for 2014-15 therefore represent a net decrease of $3.2 million from last year's Main Estimates.
This year's Main Estimates also reflect non-budgetary expenditures for CMHC. As was the case last year, the number in the estimates is negative, as we will repay more than we borrow from the Consolidated Revenue Fund in 2014-15.
CMHC is estimating non-budgetary repayments of $10.9 billion this fiscal year, which is $31 billion less than our repayments in 2013-14. The reason for this decline in net repayments is that the bulk of repayments under the Insured Mortgage Purchase Program were made last year. The final repayments under the IMPP, which helped Canadian financial institutions raise longer-term funds for lending at the height of the global credit crisis, are due in 2014-15.
Thank you again for the opportunity to be here. My colleagues and I would be pleased to answer any questions the committee may have.
[Translation]
I will do my best to respond to questions in French, if asked in French, but I would ask for your patience if I revert to English as I am still learning French.
The Chair: You speak French very well. Thank you for your presentation.
[English]
I'm reading the next to last paragraph and I'm trying to understand what you're saying. ''CMHC is estimating non- budgetary repayments of $10.9 billion this fiscal year, which is $31 billion less than our repayments in 2013-14.''
Mr. Naish: Correct.
The Chair: Am I reading that correctly?
Mr. Naish: Yes.
The Chair: What's the total amount you want to ultimately have repaid?
Mr. Naish: The total amount under the IMPP to be repaid is $69.5 billion. I think it's $69.35 billion.
The Chair: Was last year your first year of repayment?
Mr. Naish: No. The year prior there was a small repayment, the bulk of it last year, and this year the remainder.
The Chair: Does the $10.9 billion clean it up?
Mr. Naish: Yes, it does.
The Chair: Thank you.
Senator L. Smith: Going back, it's fascinating to read the stories of the crash and how the CMHC was involved. Would you be able to give us a capsule version in précis format of what you went through, what were your challenges, what were the major changes, what did you learn and where do you go from here?
With interest rates being so low in terms of the availability of mortgage money at these low rates, is there a fear on your part or is there some contingency that you put in place to manage potential faulty loans if the interest rates go from, say, 3 per cent on a mortgage to 5 per cent or 6 per cent? To have it double for a person with a $300,000 mortgage could be catastrophic.
Mr. Naish: At the height of the credit crisis, which, from a financial institution perspective — and when I say that, I mean from a liquidity perspective — the banks were having difficulty raising liquidity in the private markets. That crunch hit roughly five years ago, plus or minus the windows around the repayment that Senator Day and I were just discussing. Funding that normally would have been available in the private market for banks to raise liquidity dried up because the financial institutions were essentially scared of lending to one another in case there was a problem in the repayments. The Government of Canada, through CMHC, stepped in to provide liquidity that otherwise would have been provided through the normal functioning of the credit markets.
To address the question of the learning, because of the programs already in place at CMHC, both the mortgage loan insurance programs and the securitization programs, we were able to execute on this Insured Mortgage Purchase Program with little to no change to what we were already doing. In fact, that was at no additional risk to the Canadian taxpayer because these mortgages were all previously insured, which the government holds the backing for that insurance, and we're ''securitizable'' in that the banks had prepped them for securitization and we stepped in to purchase that securitized product.
The second part of the question is in regard to homeowners and current low interest rates and the impact on Canadians should interest rates rise. That certainly is an item that we, as well as many members of government and lending institutions in the private sector, are aware of and look at very closely. We maintain capital buffers in our commercial activities to provide against losses should they occur. That capital buffer is roughly $15 billion in our mortgage loan insurance portfolio.
As we stress test those capital buffers, we found that the risk to the Canadian homeowner is less so changes to interest rates and more so changes in unemployment. In order to default on a mortgage, one first needs to lose the ability to pay. Most individuals in Canada have five-year fixed rate mortgages and so there is a time lag between when interest rates would rise. Indeed, our modelling has shown that, based on past experience, those who are in a variable rate mortgage at the onset of what are anticipated to be interest rate rises will switch into a fixed rate and get some breathing room.
Our losses — if I can put it that way — from a CMHC perspective are more predicated on unemployment than on changes to interest rates, notwithstanding interest rates are very low and that absolutely has an impact on the Canadian homeowner.
Senator L. Smith: Was that $69 or $70 billion the government's move? Was that Finance's move to put that money into the market with you folks to cushion the fall? Is that how it worked?
Mr. Naish: It certainly was a Government of Canada initiative that was executed through CMHC.
The Chair: Perhaps for those watching, and maybe some senators around the table, including me, you could explain ''securitization'' and ''securitizable.''
Mr. Naish: The lending institutions will issue mortgages to Canadians. Many lending institutions then take a pool of those mortgages and package them up in a process known as securitization. They then sell that pool of mortgages to the public markets. That could be institutional investors, other financial institutions or mutual funds. Those other institutions buy the pool of securitized mortgages from the financial institutions and, as a result, benefit from the ultimate interest and principal that is paid on those mortgages in return, and in return the banks get an upfront payment of cash to continue funding their operations.
All of that is facilitated by CMHC's securitization guarantee programs, whereby we guarantee the timely payment of principal and interest on those pools of mortgages that the banks have packaged up.
The Chair: Does that last service you provide avoid high-risk mortgages being put into this bundle?
Mr. Naish: It's not that that prevents it, but certainly we have very stringent standards as to what gets put into these bundles, and absolutely there would never be any type of U.S. sub-prime debt, which is very small in Canada to begin with because of the rigorous lending standards that exist in the private sector. But there are very clear and stringent guidelines as to what gets packaged by the lenders.
[Translation]
Senator Hervieux-Payette: What is the total amount of insured mortgages backed at this time by CMHC? I am referring to all of the insured mortgages; are we talking about a total figure of $30 billion, $50 billion or $100 billion?
[English]
Mr. Naish: The total amount of insured mortgages that CMHC issues mortgage insurance for is currently $550 billion.
That is different and that is not the amount that is securitized through the lending institutions.
Senator Hervieux-Payette: What is the amount securitized?
Mr. Naish: We have issued $400 billion of guarantees through our securitization program.
[Translation]
Senator Hervieux-Payette: What is your part of the mortgage insurance market as compared to Genworth Canada, or other companies? Is it 80 per cent, 90 per cent or 50 per cent?
[English]
Mr. Naish: It is approximately 60 per cent on the mortgage insurance side.
[Translation]
Senator Hervieux-Payette: Do you and your competitors insure 100 per cent of mortgage loans? Or are you the only entity that insures 100 per cent of mortgage loans?
[English]
Mr. Naish: Canada Mortgage and Housing Corporation is the only government organization that provides 100 per cent backing of our mortgage insurance products.
[Translation]
Senator Hervieux-Payette: Could you remind us of the current policies, since they change with every budget, practically? What is the minimum percentage deposit to purchase a property? What is the maximum insurable amount, and the maximum insurance term when you buy a property?
[English]
Mr. Naish: The maximum term of mortgage that is insurable by CMHC is 25 years. The maximum amount is up to $1 million, and I'm sorry, I missed the third.
[Translation]
Senator Hervieux-Payette: The minimum deposit, as a percentage.
Mr. Naish: Five per cent.
Senator Hervieux-Payette: Five per cent?
Mr. Naish: That is the minimum.
Senator Hervieux-Payette: That is not very much. In 2013-14, did you have to release some employees? Were there staff cuts during the year?
[English]
Mr. Naish: In 2013-14, no. There were obviously employees entering and leaving the organization, and certainly there were performance issues and some terminations that occurred through that, but nothing that wouldn't be normal course, employee on-boarding and off-boarding.
[Translation]
Senator Hervieux-Payette: Regarding energy, do you intend to extend the energy efficiency assistance program for existing homes or new construction, so as to allow Canada to make progress in reducing greenhouse gases and other such effects?
Michel Laurence, Vice President, Policy and Research, Canada Mortgage and Housing Corporation: In fact, that is a government decision, rather than a CMHC one. The CMHC has a certain flexibility regarding mortgage insurance for dwellings that are energy efficient, but it ends there.
Senator Rivard: I would like to ask some questions about the pension fund for the 1,900 employees. In the past you had a defined benefit plan, but I suppose that as of a certain date you will have a defined contribution plan.
What was the actuarial deficit in the last actuarial report?
[English]
Mr. Naish: The going concern deficit within the defined benefit pension plan is less than 5 per cent. I don't have the exact figure, but I believe it's north of 95 per cent is the funding ratio.
[Translation]
Senator Rivard: But what is the actuarial liability: $50 million, $60 million? I suppose it is higher than that with 1,900 employees.
[English]
Mr. Naish: The total deficit for the pension is roughly $2 billion, and 5 per cent of that would be obviously $100 million.
[Translation]
Senator Rivard: When the system changed, was this a harmonious change with the unionized employees? What are the employee and employer contributions to the pension plan? Is it fifty-fifty, or is the employer's part still the highest? If so, what is that percentage in the new pension plan?
[English]
Mr. Naish: There are no unionized employees, so the issue in terms of controversy was —
[Translation]
Senator Rivard: You are saying that the 1,900 employees are not unionized.
[English]
Mr. Naish: Correct.
[Translation]
Senator Rivard: I will not say ''bravo!'' so as not to be labelled as anti-union.
[English]
Mr. Naish: In terms of the funding of the defined benefit pension plan, for those individuals currently in the defined benefit program, we are 52 per cent employer, 48 per cent employee, and we are moving towards and will be at a 50-50 sharing by 2017.
[Translation]
Senator Rivard: My last question is about the board of directors. I suppose the members of the board of directors are appointed by the Governor-in-Council?
Mr. Naish: Yes.
Senator Rivard: How many people sit on the board of directors?
Mr. Naish: There are 12 members.
Michel Tremblay, Chief, Audit and Evaluation, Canada Mortgage and Housing Corporation: Most of those 12 members come from outside of the CMHC and so are completely independent, except for the chief executive of the organization. The president is the chief executive. Some members are appointed by virtue of their position, such as our deputy minister and the deputy minister from the Department of Finance.
Senator Rivard: Is there an equal number of women and men, or are there more men on the board?
Mr. Tremblay: I think it is about fifty-fifty.
Mr. Naish: Thirty per cent.
Senator Rivard: When appointments are made, does the Governor-in-Council take Canadian regions into account? For instance, does it appoint two from Ontario, two from Quebec and so on? Are the members appointed because of merit? Is their residence and place of employment taken into account?
Mr. Tremblay: If you exclude the president, there are 10 members who are appointed on recommendation of the minister. The regions are certainly taken into account, but as the CMHC is a very important financial institution in Canada, financial skills are also of the utmost importance.
Senator Rivard: Thank you, Mr. Chair.
The Chair: These are interesting questions, because recently we discussed audits, and I think it is very important to understand what is going on.
[English]
Senator Eaton: Speaking of auditing, we hear horror stories, as you all do, about housing in Aboriginal communities. I see that you're proposing $4 million for additional housing construction, rehabilitation on reserve, funding allows for construction, purchase and rehabilitation of suitable, adequate and affordable rental housing. What kind of audit do you do, or what kind of performance evaluation? Do you just write the cheque? How is the money given out?
Charles MacArthur, Senior Vice President, Regional Operations and Assisted Housing, Canada Mortgage and Housing Corporation: We have operating agreements, so we give money out, and we have an expectation that the buildings will be built for new construction up to the national building code or a similar code. Provincial codes are different.
The First Nations have the responsibility to ensure that the buildings or housing on reserve is built to code, and we require a certification from them that it has been built to code. And recently, within the last year, we implemented a second level of certification, which requires inspections at different stages of the construction to ensure that it is built to the National Building Code.
Senator Eaton: How is the money allocated across the country?
Mr. MacArthur: It's allocated according to population, and we work in most jurisdictions with First Nations organizations.
Senator Eaton: Who come and ask you for the money and present a proposal to you?
Mr. MacArthur: Yes, we would receive proposals from First Nations. We would review the proposal to make sure it made sense. Then we would agree to it and ensure that it was built to code. But it is the First Nation as the governing jurisdiction that would have the responsibility to provide us with assurance that it's built to code.
Senator Eaton: So horror stories, like Attawapiskat —
Mr. MacArthur: Yes.
Senator Eaton: — was that a one-off? I'm sure there are many different and more complicated reasons, the flooding, et cetera, but they kept going on about the housing, the overcrowding, there were photographs of the housing. How many of those kinds of situations do you think exist across Canada?
Mr. MacArthur: I wouldn't be able to speculate. I could only speak to the CMHC housing, and we have only a portion of the housing on reserve. Much of it is band owned so for the CMHC housing on reserve, we ensure that it's certified to the code.
Senator Eaton: So they have to come to you? In other words, if a band doesn't come to you, there's no way that you look after housing if they don't come to you with a proposal.
Mr. MacArthur: No, we only ensure that the CMHC funding is administered in a way that is consistent with the National Building Code or a similar provincial code.
Senator Eaton: But nobody goes in afterwards and checks?
Mr. MacArthur: No, it is the responsibility of the First Nation to ensure that. Like a municipality, they ensure that it is built to their code, and as the government with the jurisdiction, we rely on them to have the certification. But we have processes in place so that we're provided with certification and now sign off by a qualified inspector or engineer they would hire to do that.
Senator Eaton: Inspectors that sign off on Aboriginal communities, other First Nations, would they be to the same standards as non-First Nation sign-offs?
Mr. MacArthur: It's the First Nation who employs or engages them, and our expectation is that they would be qualified to sign off.
Senator Eaton: But you don't know? In other words, there's not a national sort of testing? Like anybody could have the right and give you the —
Mr. MacArthur: We've implemented within the last year a certification where we are assuring ourselves that it is signed off by a certified inspector, and the chief and council have to certify that. In the past, since the beginning of our program, we've asked for that, and the chief and council have been doing that. We put a second level of checking in for the CMHC administered housing only, senator.
Senator Eaton: Thank you. Can I ask another question?
The Chair: Yes.
Senator Eaton: Getting to Nunavut where you have an increase in funding of $70 million, what proportion of residents is currently in need of housing?
Mr. MacArthur: I don't know the answer to that question. I would have to give that to the clerk.
Senator Eaton: One last question, then. What proportion of your total budget is devoted to First Nations and Nunavut people?
Mr. MacArthur: Okay. I don't know the proportion, but $152 million annually for on-reserve housing, $116 million off-reserve goes to First Nations individuals, and $100 million for Nunavut over the last two years, plus the investments in affordable housing would have been $11.72 million.
Senator Eaton: Now $116 million to individuals who live off-reserve, is that just ordinary housing, subsidized housing in any city, in other words?
Mr. MacArthur: Yes.
Senator Eaton: So that's all audited according to code? You're better off reserve?
Mr. MacArthur: We would hope for the quality of the housing on-reserve that the inspections would be made there and yes, housing off-reserve by the jurisdiction responsible, so whatever municipality would have had to do the inspections.
Senator Eaton: And in Nunavut, are you allowed to go on and do the inspections or, again, is it up to the local community to provide you with —
Mr. MacArthur: It would be the local communities. The government jurisdiction where it's being built would be responsible for the codes.
Senator Eaton: Do you train individuals?
Mr. MacArthur: No, we would provide funding if an individual wanted to be trained in certain circumstances, but we don't train individuals. Through some of our funding programs we may provide funding for courses, but we don't do the training.
Senator Eaton: Do you think it would be a good idea, perhaps?
Mr. MacArthur: I wouldn't want to speculate on that, senator.
Senator Eaton: All right, thank you.
The Chair: Senator Eaton asked a question, Mr. MacArthur, and you didn't have the information here, about the percentage of residents in Nunavut. Is that information that you can readily access back at the office?
Mr. MacArthur: I think so, yes.
The Chair: If you could send that to us, that would be appreciated.
Mr. Laurence: I can offer some statistics. I'm not sure if it is exactly what Senator Eaton was looking for, but we do have some core need estimates in terms of the number of households that are looking for or are in need of suitable, adequate and affordable types of housing. In Nunavut, the percentage of households is around 30 per cent. I don't have the exact percentage.
[Translation]
Senator Eaton: About 30 per cent of families?
Mr. Laurence: I was referring to households and not to families. In large part, it is because of financial capacity and the fact that housing units are overcrowded.
Senator Eaton: How many people are in each household, on the average?
Mr. Laurence: It varies from one household to another. I do not have those statistics in hand.
Senator Eaton: You should obtain that data. It would be interesting to know whether we are talking about 4 or 10 people on the average.
Mr. Laurence: That information can be found through the Statistics Canada National Household Survey.
[English]
The Chair: Any information you're able to find that you don't have with you, if you send it to the clerk it gets distributed to everyone on the committee, and it's helpful for us to have that.
[Translation]
Senator Chaput: Your 2013 annual report indicates that there are close to 600,000 Canadian households that are housed in social housing throughout the country.
Does that figure, 600,000, include on-reserve Aboriginals?
[English]
Mr. MacArthur: Yes.
[Translation]
Senator Chaput: What percentage of that 600,000 are Aboriginal persons?
[English]
Mr. MacArthur: Approximately 29,000 would be on reserve. I'm not sure about the percentage.
[Translation]
Senator Chaput: Currently, how many households are housed in social units? There were 600,000 in 2013, but how many are there now?
Mr. Laurence: It is still approximately 600,000. The precise figure is 584,000.
Senator Chaput: So it is still about 600,000. There is not really much fluctuation?
Mr. Laurence: Not at this time.
Senator Chaput: Do you think there will be some in the years to come?
Mr. Laurence: Yes, the agreements we concluded for certain projects are coming to term.
There will be fewer subsidies for these specific projects and this will decline gradually over time. So we will see that between now and 2038.
Senator Chaput: How many years do those agreements cover?
Mr. Laurence: They were signed a long time ago and last for periods of 25 to 50 years. They are very long.
Senator Chaput: Would that not allow you to accept other requests? Is that what you are saying? There are a maximum number of agreements, because you have maximum funds?
[English]
Mr. MacArthur: The last agreements off-reserve were in 1993, but through investments in affordable housing and agreements with the provincial governments, as Brian mentioned in his opening remarks, an investment of $1.25 billion over five years has been made for the period of 2014 to 2019, so that allows provinces to make investments in new affordable housing.
[Translation]
Senator Chaput: Is that sufficient to meet the needs?
[English]
Mr. MacArthur: We continue with the funding. We continue with the agreements that are in place. We will continue. When those agreements were signed 25 to 50 years ago, it was known when they would end, and we'll continue to live up to the obligations that we have. When those agreements end, generally the mortgages will be paid off and the proponents will have those dollars made available to them.
The funding, the $1.25 billion, can be used for social houses that come out from under the agreement.
[Translation]
Senator Chaput: Are there Canadian regions where the need for social housing is greater, aside from reserves?
[English]
Mr. MacArthur: I think there are needs across the country. I couldn't pinpoint the differences in the regions, ma'am.
[Translation]
Senator Chaput: So you have no statistics showing, for instance, that there are greater needs in western Canada than in Atlantic Canada?
Mr. Laurence: This brings us back again to the assessment of pressing household needs. Nationally, the average is about 12 to 13 per cent. It does not really vary all that much from one province to the next and from one region to the next.
In the metropolitan census areas there may be certain centres, like Vancouver, where the figures are higher, i.e. 15 to 16 per cent, but that reflects accessibility, which is lower in Vancouver than elsewhere.
So, it varies provincially according to housing availability.
Senator Chaput: And does it vary according to whether the provinces are rich or poor?
Mr. Laurence: I am not sure how to interpret your question. This is strictly related to the household census, and knowing whether people are able to pay for the housing units they occupy as renters, or as owner-occupants, and other criteria. There is no connection to the wealth of the province.
Senator Chaput: Statistics Canada carries out this households survey?
Mr. Laurence: Yes, the National Household Survey.
Senator Chaput: Every 10 years?
Mr. Laurence: At every census. The first census that was done in 2011was the National Household Survey and it replaces the census.
Senator Chaput: So this was done for the last time in 2011.
Mr. Laurence: Yes.
Senator Bellemare: I have some questions concerning the type of assistance provided to low-income Canadians. You say that you help low-income people with housing. There are agreements with the provinces to that end.
You issue loans for social housing to the provinces, to non-profit organizations or to individuals.
Can you tell us more about the assistance provided to low-income families? How is it delivered? If I understood correctly, we are not talking about direct assistance to individuals, but assistance to organizations that, I imagine, deliver social housing.
[English]
Mr. MacArthur: Eighty per cent of the existing social housing stock, when we talk about the 600,000 units, is administered by provinces and territories through a variety of agreements entered into between 1946 and 1993, so there's a variety of different programs in there, and 20 per cent is administered federally by CMHC. It takes a variety of forms of how the aid is provided.
Through the newer funding, the $1.25 billion that I spoke of — by the way, that's matched by the provincial governments as well — there's flexibility for the provinces because they are closest to the communities to make decisions about what the needs are best in their communities, whether that's renovation, new construction, rent supplements or other forms of aid that meet the local needs.
[Translation]
Senator Bellemare: With regard to social housing for low-income families, assistance can be obtained for the creation of social housing that is then rented at very affordable rates. There is also the cooperative formula, where a number of people can get together to create interesting housing at an affordable cost.
Does the Canada Mortgage and Housing Corporation encourage the cooperative formula, or is it impartial? Does the province encourage this?
I will tell you why I am asking that question. We often see that with cooperative social housing, families feel a sense of belonging to their cooperative. This helps to make people more independent than other types of services offered to the population.
So, in light of that, I was wondering if you have a marked preference, or if the provinces have any. Is this an avenue you would like to encourage?
[English]
Mr. MacArthur: I wouldn't want to speak on behalf of the provinces, but there's a variety of housing out there, and we support all of the forms of housing. It's like Canada. There's a diversity of needs and there's a diversity of ways of meeting those needs. Cooperative housing is one way, and we work very closely with cooperative housing providers on an ongoing basis, through agreements that are in place, or if there are folks who are looking to do something, we have small programs such as our seed funding and our program development funding. If folks were looking at that, we would be there to help them formulate their ideas, look at their ideas and see whether it was something that would work in their communities.
[Translation]
Senator Bellemare: Is a fairly large part of the budget allocated to this type of housing? Do you know?
[English]
Mr. MacArthur: We could get the figures and break that down for you, but there are a lot of cooperative housing entities within our 600,000. We'd have to break it out for you.
[Translation]
Senator Bellemare: It could be significant. It is not insignificant.
[English]
Mr. MacArthur: No, it is a large factor, yes.
Senator Bellemare: It is a large factor.
Senator Wells: Does CMHC provide advice on housing trends and that sort of thing that fits into the government's fiscal policy?
Mr. Laurence: CMHC does provide a long list of publications that is related to housing market trends and housing market outlooks. It is at a national, provincial and local level. It really is to a long list of different clientele groups. Lenders, builders and consumers also have information in terms of the rental market and resale market. It's quite widely spread.
Senator Wells: Especially for retail and rental markets. So does that feed into fiscal policy on a direct basis, or do you just provide publications that may or may not be consumed by policy-makers?
Mr. Laurence: There is no link with this information to the fiscal side of the government.
Senator Wells: How closely linked is the U.S. housing market to what eventually happens in Canada?
Mr. Laurence: The situation that happened in the U.S. was quite special, and there were a number of triggers behind that. One of them was the precariousness of lending that was done in terms of non-prime, risky types of loans that you have not seen in Canada to any great extent. So the likelihood of a U.S.-style debacle in Canada is very low.
Having said that, we always have to be vigilant in terms of risks, from a global perspective and even domestically in terms of the household debt; it's always a concern. That's why the government has moved several times since 2008 to try to limit risks related to household debt and housing markets.
Senator Wells: Is that primarily related to our banking system and the controls that are in place for lending?
Mr. Laurence: The banking system is a key driver or key element in terms of maintaining stability in the housing markets and the housing finance system for sure, as you would have seen back in 2008-09 when the IMPP came into effect.
Senator Wells: Was there a little bit of pride on behalf of CMHC when we weathered that 2008-09 financial storm? Because we did weather it better because of our systems, of which CMHC is a part.
Mr. Laurence: Even if we did come through better than other countries, the point is that we always need to be vigilant and be ready for the next thing. That's why we always try to look at what we can do to reinforce the robustness of the housing finance system. It's very nice to, as I would say, se péter les bretelles, but we still have to be careful.
Senator Wells: I will ask a final question. I know the Newfoundland and Labrador Housing Corporation has an excellent relationship with CMHC. I speak with their leadership quite often, and they're very happy with the work that you do and the relationship that you have. How much is delivered through the provincial agencies versus what is delivered directly from CMHC?
Mr. MacArthur: In Newfoundland, all of the off-reserve housing would be delivered. As I mentioned, we have some small programs for start-up, seed funding and early stage, but the Newfoundland and Labrador Housing Corporation — through the social housing agreement.
Senator Wells: Understood. Besides off-reserve or on-reserve, is it pretty much the same across Canada with the other provincial agencies?
Mr. MacArthur: It is in most provinces except for Quebec, Alberta and P.E.I.
Senator Wells: They would prefer you deliver it?
Mr. MacArthur: We're open to signing social housing agreements with all of the provinces and the like, and we've talked with them about it.
Senator Wells: In the absence of those three or four provinces, the delivery systems and being on the ground, as I mentioned earlier, what happens in place of that? Are you on the ground making the decisions?
Mr. MacArthur: No. A lot of it is still the provincial government. So a lot of it is federal-provincial agreements where they're administering significant portions of it.
The Chair: Mr. Naish, I'm looking at the Main Estimates here. The $2.1 billion seems to all be under vote 1 — reimbursement under the provisions of the National Housing Act, et cetera. I don't see anything in there for salaries of employees.
Do you generate your own revenue that you use to run your business through the interest rates you charge and that kind of thing? Why do your statements look like this?
Mr. Naish: We have commercial activities that are for-profit. Those are our mortgage-loan insurance and securitization. Then we have our appropriation-based activities, which are funded through parliamentary appropriations.
The $2.1 billion that you see here is on the non-commercial — the appropriation — side. A portion of that is used to pay internal CMHC overhead, including salaries for those individuals in CMHC who work on those activities.
The Chair: And that's included right in this one vote?
Mr. Naish: It is.
The Chair: That's helpful.
During your presentation you indicated you had savings of 71.8 in the last fiscal year, by reason of tightening up, but your written presentation said 78.1 as opposed to 71.8. Is that an error, one way or the other? Which way should we read this?
Mr. Naish: I'll go back to my speaking notes in a minute. I apologize if there was an error in there. There is a $78- million reduction. The vast majority of that — $76 million to be specific — is as a result of changed future interest-rate projections and, as a result, lower subsidies that we would provide to social housing sponsors through these long-term commitments that Charlie has been speaking about.
As a result, we've been able to reduce the amount requested from the federal government to fund these programs without actually impacting Canadians.
The Chair: I know you're asking us to vote on $2.1 billion. What is the commercial aspect? We don't vote on that, but it would be of interest to us.
Mr. Naish: It is correct that Parliament does not vote on the commercial activities. Those are the mortgage-loan insurance and the securitization activities. For each of those activities, we charge our clients, which would be primarily lending institutions, fees for the provision of mortgage-loan insurance and fees for the securitization guarantee that we provide in that product.
The Chair: Can you tell us the total revenue generated on an annual basis?
Mr. Naish: The total revenue generated from that is approximately $2 billion.
The Chair: It's about the same as what we're voting.
Mr. Naish: Correct.
The Chair: The total number of employees — did that change as a result of this 78 in savings?
Mr. Naish: No.
The Chair: So you have roughly the same number of employees now as you had last year?
Mr. Naish: Roughly. Through the Deficit Reduction Action Plan of 2012, there have been specific targeted areas of reduction; mainly, we had a program called CMHC International, which we shuttered. That was in relation to promoting housing in foreign jurisdictions.
So there have been a number of targeted initiatives as a result of the Deficit Reduction Action Plan. However, in comparison to last year specifically, the reductions have been normal course employee onboarding/off-boarding performance issues.
The Chair: That's helpful. My final question of clarification is for Mr. Tremblay.
[Translation]
The Chair: Mr. Tremblay, we discussed audits; does the Auditor General do your audits, or are they done by a private firm?
Mr. Tremblay: We are talking about the audit of our financial statements?
The Chair: Yes.
Mr. Tremblay: The audit is done jointly by a public external firm and the Office of the Auditor General. The same thing applies for the special audit, and my group also does internal audits.
The Chair: Thank you very much for that clarification.
[English]
Senator Mockler: I want to touch on the subject of the national building codes in Canada. Are you consulted to recommend if there should be a change of the building codes in Canada?
Mr. Laurence: No, we're not.
Senator Mockler: You're not. Do you have a place at the table of the National Building Code Association that you would be consulted on?
Mr. Laurence: Not that I'm aware.
Senator Mockler: Did you have it in the last, let's say, 10 years?
Mr. Laurence: Not in the last 10 years. I think you have to go way back to have CMHC involved in building codes.
Senator Mockler: In consideration of the building code in Canada, you cannot construct with wood in non- residential construction. The building code says it cannot be higher than three storeys for those particular buildings. When I look at your low-income family units and/or seniors or persons with disabilities, persons at risk and affordable housing, do you have any buildings beyond three storeys of wood only that would be directed to that particular vote and one of those particular sectors?
Mr. MacArthur: The funding would flow through the provincial governments for the new construction that is happening and it would be driven by the particular codes in the jurisdiction. I believe there are some jurisdictions that allow for wood frame construction to be higher than three storeys. It would be driven by the jurisdiction. In British Columbia I believe they allow higher than three storeys for wood frame but I'd have to confirm, and I'm not sure whether they've built affordable housing to that standard.
Senator Mockler: Could you provide us with that information?
Mr. MacArthur: Yes.
Senator Mockler: In so doing, would you please provide us with all the provinces and territories?
Mr. MacArthur: Yes.
Senator Mockler: To take the example of New Brunswick, N.B. Housing would determine if it's low-income families, seniors, persons with disabilities, persons at risk, homelessness, or even to some extent Aboriginal people, with the understanding that they're working with different reserves?
Mr. MacArthur: It would be the off-reserve. They could choose an Aboriginal group or, like we do, the on-reserve.
[Translation]
Senator Mockler: In your reply to Senator Chaput's question concerning new construction, you mentioned 600,000 and 584,000 units, correct?
Mr. MacArthur: Yes.
Mr. Laurence: Perhaps I misunderstood you, but we are not talking about the creation of 600,000 new units. These are existing units that house 600,000 households. As for new construction, I do not have that figure.
Senator Mockler: That is my next question.
[English]
Mr. MacArthur: Under the investment in affordable housing since 2011, up until June, there have been about 190,000 units constructed under the investments in affordable housing.
Senator Mockler: New units?
Mr. MacArthur: Household assistance.
Senator Mockler: How do you define ''household assistance''?
Mr. MacArthur: The jurisdiction decides how they're going to spend the money. Some jurisdictions might use rent supplements for a low-income individual and put them in a unit and supplement their rent. It's not necessarily units, it's 190,000 folks.
Senator Mockler: Of those 190,000, how many new units would you have? Can you provide us with that region by region?
Mr. MacArthur: I believe so. We'll have to check. It's the provinces who provide us with it and I'm sure we can find that.
Senator Mockler: Do you have access to the information?
Mr. MacArthur: Yes.
Senator Mockler: Could we do the same in all the other categories: seniors, persons with disabilities, persons at risk, homelessness and Aboriginal? Will you agree to provide that?
Mr. MacArthur: Yes.
The Chair: You need a department to work here. They only get half of their budget from us, don't forget.
Senator Mockler: Can you provide us with any specific example of efficiencies realized through the spending review?
Mr. Naish: By spending review, I assume you're referring to the deficit reduction action plan. There were a total of $102 million of efficiencies identified through that that will be achieved through this fiscal year, i.e. through March. As I said earlier, that comes with no impact to low-income Canadians because a very large portion of those savings were due to reduced future interest rate projections and, as a result, a reduced need for funding from the government to provide subsidies because those subsidies were in fact less, given that the sponsors were paying less.
As I also said, there are a handful of targeted areas that we looked at internally at CMHC, like CMHC International, that we shuttered. Those would be the more internal efficiencies identified.
I'm not sure if that gets to the heart of what you're asking.
Senator Mockler: Not necessarily, but I had another question. Could you expand your thoughts on promoting housing in foreign jurisdictions?
Mr. Tremblay: Is that the CMHC international reference Brian made?
We used to have a small unit of 25 to 30 people who would help Canadian exporters related to housing promote their exports in foreign countries. They also promoted the services such as how to build a strong housing finance market in countries that were not as advanced as Canada. That's what that was.
Senator L. Smith: I think you gentlemen see that we're trying to get at the quality control issues. If I understand correctly, if we look at the Aboriginal folks, you have on-reserve monies that you guarantee and off-reserve, correct? So you don't have direct financing like the RBC or National Bank. Do you do direct financing?
Mr. MacArthur: We do on reserve. We would act like an RBC. So we would ensure the work is in place. If it were a bank, their role would be to go out and see that the work was in place, whereas they would rely on the municipal or the government in the municipality to do the overall inspection for the quality.
Senator L. Smith: Is the inspection on reserve through the municipality?
Mr. MacArthur: The First Nation would be responsible.
Senator L. Smith: What would it be for off reserve?
Mr. MacArthur: It would be the City of Ottawa to ensure that it's built to the code.
Senator L. Smith: The question that we're trying to find out is: How do you protect your credibility, especially with the general public? Many of us, whether or not we're in politics, have read stories of great reserves or great band councils with a fantastic local population and housing; and then you have other areas in the country with disastrous cases and people are suffering. If you folks are financing or guaranteeing some of those residences and there are these problems, and you are an arm's-length government operation, how do you protect your own credibility and ensure that your money or your guarantee is going to the best possible use? It seems like you were getting a little nervous when we were asking those questions, and I understand why, but it's important. Maybe there's an opportunity for you in terms of management practices.
Mr. MacArthur: We do manage the portfolio. We do the lending and we rely on the First Nation to do the inspection. But then after the fact there's a subsidy flow and we do portfolio management, where we work with the First Nation to ensure that, if there are issues, they're trying to manage them as an asset so that they're putting money away for any repairs that are required. So on a cyclical basis we do property reviews and we work with them on a constant basis to look at the financial stability of the First Nations portfolio.
Senator L. Smith: That's a good standard answer, but if there are situations whereby there are problem areas, and hopefully you folks would be conscious of those problem areas, is there an opportunity to tighten your requirements and tighten the guidelines in terms of the type of feedback that you get so that you're not getting misled by some of these local folks?
Mr. MacArthur: Absolutely, we would be clear on the feedback and what would need to be done. If a portfolio wasn't being managed, it might lead to us not investing further taxpayer dollars in that community, as we worked with them to improve the portfolio they had.
Senator L. Smith: If you guys do such a great job through the various groups that you work with in these on-reserve or off-reserve situations, what happens to the people who are on reserve who know you're doing such a great job and everyone is living in nice houses and then there are some houses that are really crappy houses? Do those folks have access to try to recognize or deal with the people who are going to give them a better service and ultimately a better product?
Mr. MacArthur: That's a tough question. Hopefully, the band would learn from some of the practices that we try to bring and the rigour that we try to bring to the management of portfolio to the other houses on reserve.
Senator L. Smith: Does that type of news get out to the community? Is there any form of education that you could do so that the messaging is getting out, so that the quality control will be adhered to more stringently?
Mr. MacArthur: Like I say, we don't do the inspections. I don't want to go there.
Senator L. Smith: I understand.
Mr. MacArthur: When we do, we go in and we do some training in the community about how to manage a portfolio. The housing manager and the housing staff would be managing the other band housing and the like. The training we would do there would permeate into the other housing, the band-owned housing.
Senator L. Smith: I think you understand where we're coming from. We're not trying to be critical of you. It just appears that there may be some management opportunity to take steps that will enhance the deliverable.
Mr. MacArthur: I understand.
Mr. Laurence: I'd like to add also that in terms of management and governance, management on reserve, it's not just CMHC but also Aboriginal and Northern Development Canada that also plays a part. From a CMHC perspective, we look particularly at the housing itself, whereas AANDC looks at it more from a community level. There is sharing of information between the two organizations. Among the reserves, if there are any governance issues from a prudential perspective or otherwise, information is shared between the two organizations. If we see there are certain on-reserve communities that are more problematic, we put more of an effort into those reserves to try to improve the situation, through capacity-building or other methods. But there is coordination between the two organizations on these.
[Translation]
Senator Chaput: I would like a clarification. I understood that provincial contributions were mandatory for affordable or social housing; does the province have to contribute financially to the project in order for you to help? Is the provincial matching funding mandatory?
[English]
Mr. MacArthur: For investment in affordable housing? Yes, ma'am.
[Translation]
Senator Chaput: Is that also mandatory for reserves? For reserves in Manitoba, for instance, does the province also have to contribute financially, or is it different in Manitoba?
[English]
Mr. MacArthur: On reserve, Manitoba does not need to make a contribution.
[Translation]
Senator Chaput: And in the case of Aboriginals who live off-reserve, for instance Aboriginals who live in Winnipeg, does Manitoba have to contribute?
[English]
Mr. MacArthur: Yes, through either the federal-provincial agreements that exist or through investments in affordable housing.
The Chair: Colleagues, this concludes the time we had allotted for this meeting.
On behalf of Standing Senate Committee on National Finance, I thank each of you for being here. CMHC plays a very important role in society. We thank you for the good work you're doing.
(The committee adjourned.)