THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, October 26, 2023
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:30 a.m. [ET] to study matters relating to banking, trade and commerce generally.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Hello to everyone and welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy.
My name is Pamela Wallin, and I serve as the chair of this committee. I would like to introduce the other members of the committee with us today: Senator Loffreda, who is our deputy chair, Senator Bellemare, Senator Gignac, Senator Marshall, Senator Massicotte, Senator Miville-Dechêne, Senator Petten, Senator Galvez and Senator Yussuff. Welcome to you all.
Today, of course, we will continue our discussion on housing affordability.
We have the pleasure of welcoming, in person — we are still saying that because we’re still excited that we can do it — Bob Dugan, Chief Economist, Canada Mortgage and Housing Corporation; direct from Kelvington, Saskatchewan, Carla Staresina, Vice President, Commercial Products; and with us as well, Neil Levecque, Vice President, Housing Operations, Canada Mortgage and Housing Corporation.
Thank you all for joining us. I believe Mr. Dugan, you will begin with opening comments. The floor is yours.
Bob Dugan, Chief Economist, Canada Mortgage and Housing Corporation: Thank you, Madam Chair, for the opportunity to speak to this committee once again on behalf of Canada Mortgage and Housing Corporation.
I am joined by my colleagues, as mentioned, Carla Staresina, Vice President, Commercial Products, and Neil Levecque, Vice President, Housing Operations at CMHC.
[Translation]
We are pleased to offer the committee CMHC’s unbiased data and research on the housing market, and our expertise in delivering federal housing programs. We can also provide insights on the commercial programs we deliver, like mortgage loan insurance and securitization. These act as shock absorbers in difficult times, helping to maintain the stability of Canada’s housing system.
And these clearly are difficult times for Canadians. Both renters and homeowners are struggling to keep a roof over their heads. Young Canadians are finding homeownership increasingly out of reach.
[English]
House prices have been escalating for some time, along with rents. Now inflation, higher interest rates and record levels of household debt are making matters worse.
There are many factors leading to Canada’s housing affordability challenges, but the single biggest factor is our country’s severe housing shortage, especially of purpose-built rental homes.
We estimate that to reach affordability by the year 2030, Canada needs 3.5 million more homes than it is already on track to build. Further, our research shows that reaching that goal would take an investment of about $1 trillion. This is a staggering sum of money. It shows that government alone cannot fix this problem. We need to work closely with the private sector, especially given that it supplies 96% of housing in Canada.
The federal government should continue to invest more in the non-profit housing sector to create more community or social housing for low-income Canadians. Decades of under‑investment in this sector have contributed to long wait‑lists and rising levels of housing need and homelessness for our most vulnerable neighbours. At the same time, the federal government can incentivize the private sector to dramatically boost the stock of purpose-built rentals for middle-income Canadians and, since housing exists on a continuum, this would ultimately reduce housing costs for everyone.
Some measures are already in place. For example, the Rental Construction Financing Initiative provides low-interest loans for developers at the early, riskiest stages of a project. The new Housing Accelerator Fund provides incentives to municipalities to make changes needed to get more homes built more quickly or faster. As the only mortgage insurer for multi-unit projects, CMHC supports the construction of large rental products across the country. Our MLI Select product, for example, offers developers reduced premiums and longer amortizations based upon their commitment to affordability accessibility and climate compatibility. The recently announced GST exemption and additional financing available through the Canada mortgage bonds will also help spur construction of purpose-built rental.
Governments can also work with the private sector to address other barriers to housing supply. For example, how can they develop innovative building techniques and more reliable supply chains, and can we, as a country, address labour shortages in trades?
In other words, we need an all-hands-on-deck approach. We also need a whole-of-government approach that looks at housing as a system and considers all aspects of housing and its policies. We must urgently pull on every available lever if we are going to make housing more affordable and provide much-needed relief for Canadians.
Thank you for your attention to this issue. We are happy to answer any questions that you may have.
The Chair: Thank you.
We are just delving into this. We received a lot of testimony yesterday, including some about you. I know that there will be questions.
I am just going to remind senators today that we have a short time with three panellists. I will be extremely strict about preambles to questions. They are really not needed or necessary at this time. Today I have a stopwatch, just FYI.
We will begin with our deputy chair, Senator Loffreda.
Senator Loffreda: Thank you to our witnesses for being here.
We had an interesting session yesterday with Jon Love, and he suggested numerous recommendations in four key areas: people, capital, innovation and alignment. With respect to capital, one of his suggestions or proposed solutions was to expand the CMHC mandate. What are your thoughts on expanding your mandate, and how can you expand your mandate to appease the housing affordability crisis we’re currently faced with?
Carla Staresina, Vice President, Commercial Products, Canada Mortgage and Housing Corporation: Increasing our mandate based on the National Housing Act, where we are part of the important housing system, we do offer three areas that I would say are in our mandate right now. We offer commercial products like mortgage loan insurance and funding for securitization. We also deliver, on behalf of the government, many programs. We also offer housing insights, research, market analysis. I am not sure where he was hoping we would go into as far as our mandate. Sorry.
Senator Loffreda: For the loans, for example, simplify and accelerate the CMHC approval process. Accelerate it. For example, the funds of 10% requirements. Your requirements, with the fact of implicating the banks and accelerating your responses. Everything with respect to your mandate. How can you improve it and expand it to alleviate this crisis we’re faced with?
Neil Levecque, Vice President, Housing Operations, Canada Mortgage and Housing Corporation: In terms of our NHS program response turnaround time, we’ve improved our turnaround time to 51 days at this point. We do note that we have made significant progress in terms of our response time to proponents. We are regularly working with our proponents to improve our response time and understand needs in order to change our approach to respond to proponents’ needs.
I would also add that, for remote and northern communities, we typically allow longer construction periods and longer response times to be able to reflect the remote nature of those communities.
Senator Loffreda: Thank you. I will leave it up to my colleagues to expand on that.
The Chair: We had a technical problem yesterday in that spot. Are you okay with it? We will have our clerk take a quick look.
[Translation]
Senator Massicotte: I’d like to thank the witnesses for being with us this morning.
You’ve made a list of all the things that need to be done, but what concerns me — it’s good to make a list, because it means you recognize that there’s a major issue. It’s a huge issue, and when I look at it, I don’t think we’re going to make it. That’s kind of you, but I don’t think we’re going to make it because we don’t have a champion talking about this every morning. It’s a really big issue.
To make prices affordable, the only solution would be to bring house prices down, and that’s not very popular among those who already own a home. It seems we’re stuck in a corner. Maybe it’s just that I’m too discouraged by the slow process.
Mr. Dugan: That’s a very good question, thank you.
You’re right to say that, when it comes to affordable housing, prices are high, whether you’re talking about houses or the rent people have to pay every month.
To improve the supply of affordable housing, it might take a decrease in prices, but it would also take income growth; that’s very important. We have a bit of a productivity issue in Canada, and that limits income growth without creating inflationary pressure. That’s one of the challenges, increasing the country’s productivity to have more pronounced income growth.
However, at the same time, efforts should be made to increase the supply of residential housing and build more houses. A higher supply could limit or perhaps even halt price growth while income growth catches up.
This is very important. It’s a challenge, I agree. Housing production must almost double if we want to build 3.5 million more homes by 2030. That’s a huge challenge. It’s very hard to do and it requires very innovative solutions for building more homes.
That brings me back to productivity: With the resources available right now and an unemployment rate of 5.5% — so very low — we don’t have much labour available to help us build. We need more productivity.
Senator Massicotte: So I’m right to be worried and afraid, because on your list you talk about productivity, which is not part of our strategy.
I will refer back to a comment we heard yesterday from a witness, John Love, that a developer who has bought land and planned to build an apartment building can’t get an interest rate until all those steps are completed. By then, he will have committed quite substantial amounts of money.
Is there no way your organization could implement a program early in the process that would include a fixed interest rate?
Mr. Dugan: I’m going to give the floor to my colleague to talk specifically about programs. It’s a very good question.
When we look at the conditions for investors, whom we need to build more housing, we have to think about incentives. With the capital they bring into the residential sector, they have options; there is an opportunity cost and they can invest elsewhere.
In my opinion, we need to consider incentives to attract capital to real estate.
[English]
Mr. Levecque: As part of the Rental Construction Financing Initiative, there is a locked-in interest rate, to exactly what Bob was referring to, in terms of locking in that financing rate early in the process which is in the riskiest part of the building process for a multi-unit building. The Rental Construction Financing Initiative does that. The Rental Construction Financing Initiative provides for 20% of the units in those particular projects to be less than 30% of the household income. There is an affordability metric there as well.
The Chair: I would like to seek clarification as we go on.
Part of our discussion yesterday was that when we use the word “house,” people think stand-alone house, yard, grass and white picket fence. Our witness yesterday was talking about how we need to change the psychology and talk about rental units. When you are answering questions, when you say houses versus units, that would help to clarify for all of us.
Senator Galvez: Thank you for being here.
The Housing Accelerator Fund is intended to encourage initiatives to increase housing supply and promote the development of affordable, diverse and inclusive communities that are low carbon and climate resilient. In your document, only one of the top initiatives includes a climate-positive action, which is number six, to reduce or eliminate the parking standards to increase project viability. As we experience the impacts of climate change, we are losing housing that is already available. We also have problems with insurance, not being able to insure some homes. How can we expect to reach a point where we have housing for all? Why are low carbon and climate-resilient initiatives not more prominent in your top initiatives?
Mr. Levecque: Thank you for your question.
As part of a number of our housing programs, as a part of the National Housing Strategy, there is a climate component to those programs. I can give you a few examples of that. As a part of the National Housing Strategy, we have the National Housing Co‑investment Fund. With that fund, projects in the repair stream are required to provide 25% more energy efficiency as part of their funding. As part of the Rental Construction Financing Initiative, there is a requirement for the units to be 15% more energy efficient than the National Building Code. Those are a couple of examples of some of our programs as part of the National Housing Strategy that require an energy efficiency component.
You referenced the Housing Accelerator Fund. That is intended to supply over 500,000 units over 10 years, in conjunction with municipalities. You did mention parking standards. There is also a component around allowing more municipal lands to be available for affordable housing. While that doesn’t directly respond to the climate component, there is a requirement for them to be compliant with the National Building Code which has energy efficiency components in it.
[Translation]
Senator Bellemare: Yesterday, we heard about all the coordination issues in the construction sector, starting with the lack of skilled workers and right up to the Building Code; there are multiple problems.
Could the Canada Mortgage and Housing Corporation be the organization across Canada to coordinate an in-depth strategic review and tackle the housing crisis in conjunction with the provinces and municipalities? If not you, who else could do it?
Mr. Dugan: That’s a very good question, but perhaps it’s outside my area of expertise.
[English]
Ms. Staresina: Thank you for the question.
CMHC is part of a huge system, as you know. We have federal, provincial, municipal, First Nations, and all levels of government have many roles to play. In my domain in commercial products where we work with lenders and developers in building rental units, we are just one part of it. In Neil’s world, where we deliver on the government half, again, we are just one part of it.
Is it something to coordinate? It would be a very big ask of CMHC because we’re not in every part of the housing system. But I do think that we play a cohesion role. The programs and services we offer do try to make sure that things are coordinated, and we take into account all those municipal and provincial lender programs, building codes, all of that. It is a big ask to say that we play the central role in all of housing.
Mr. Dugan: It’s tricky because there are jurisdictional issues, too. A lot of it is provincial or local jurisdiction. Federally, we have limited ability.
[Translation]
Senator Bellemare: Who could play that role to coordinate efforts?
[English]
Ms. Staresina: CMHC can and does play that role to coordinate to bring all of the partners to the table. Things like the co-investment fund that take investment from all levels play that role, as well as trying to coordinate with provincial and municipal. The HAF program does try to coordinate with municipalities. I think that CMHC is trying to take on that role, but does it do it well in every instance? That would be misrepresenting what we do.
Senator Yussuff: Thank you to the witnesses for being here.
Of course, the challenges we face are as multifaceted as homeownership that young people and others want to get into. In the urban environment, the biggest challenge is just having enough stock for people to live and, of course, there is a cost factor because rent or whatever ways you are going to get a property takes a significant part of income.
Co-op housing used to be part of a greater strategy to bring partners together and put resources into it and, of course, the previous government got rid of the co-op program. To my knowledge, the unions were able to come to the table because they were members of the community and wanted to take some of their union investment fund and put it in there. Are we looking at how we can do that again?
There is a real challenge right now because people are saying, “Where do I live? How can I afford it?” Rent control is not paramount in most jurisdictions. It is a part of the overall strategy, but a lot of people are struggling on low income, and rent is taking a significant part of their income.
Are we looking at getting back into the co-op business? How do we partner with union pension funds to help build more stock and, more importantly, bring the debate back to the local level where they can take an active role in municipalities and local governments to deal with the challenges that we face?
Mr. Levecque: Thank you for your question.
There are a couple of responses that I will provide to that. One is that CMHC administers something called the Federal Community Housing Initiative, which is a continuation of federal support for those social housing projects coming off of agreement. Some of those are co-ops. There is a continuation of funding to support low-income households so that no more than 30% of their income is paid on their rent. That is a support for co-ops.
As part of a budget announcement, and I believe it was Budget 2022, there was something called a co-developed co-op housing program developed which is carved out from some of our existing funding to support the creation of new co-op housing across Canada. That’s net-new co-op housing.
In response to your question, there is a recognition on behalf of the government that there is a role for co-op housing to play, and we have a program to develop and administer to do that.
Senator Yussuff: What has been the uptake since the program has been announced to get people to partner with the government?
Mr. Levecque: The program has announced but has not launched yet.
Senator Yussuff: So 2022, and we’re almost going on 2024. Isn’t that a problem given the crisis on low-income housing challenges across the country?
Mr. Levecque: Certainly, there is a desire to do more, faster, and that is what we are working on.
Senator Marshall: I want to pick up where Senator Loffreda left off.
We had Mr. Jon Love testify yesterday, and during our meeting he said, “CMHC needs to simplify its approval process.” I was pressing him to explain that a little bit, and he said that he did not want to throw CMHC under the bus, so I am on my own here.
I know that you did say earlier that you are tracking the length of time to process applications. It would be really helpful to us if you could give us an example. I was thinking of the Housing Accelerator Fund that got approved in the budget a couple of years ago. We thought it was going to be implemented last year, but it is just getting off the ground now. I had asked in a previous committee meeting why there was a delay. What was the issue? What was the problem? Could you just explain to us what happened with regard to that specific program? That might be able to educate us as to some of the challenges that you are facing.
Mr. Levecque: What I can say about the Housing Accelerator Fund is that there were over 500 applications received. Part of the desire to speed up the process is actually accelerating the way we’re looking at those applications. We had over 500 applications received. It is working in conjunction with municipalities. It is not a unilateral decision on the part of CMHC or the broader federal government to approve certain programs. It is really working with municipalities to encourage them to be as ambitious as possible in their approach to affordable housing in their particular jurisdictions. Part of that is working with municipalities. It is not as though we could simply say, “Here is the application; we’re going to do this.”
Senator Marshall: It is not all internal.
Mr. Levecque: It is not all internal. It is really working in partnership, and it is a bit to what Bob was talking about. The housing situation in Canada requires all levels of government, non-profit and private to participate in bringing Canada to a better place in terms of housing. The Housing Accelerator Fund is one of those things where the federal government is working closely with municipalities to accelerate what we are doing.
Senator Marshall: Everyone has to align.
Mr. Levecque: We have to align and work together.
Senator Marshall: I was looking at your website and the board of directors. I know that you have an audit subcommittee of the board. There must be some sort of internal audit function within the corporation. I was looking through your website to see if I could find some of the internal audit reports, because I thought if I read some of them I would get a better appreciation of some of your challenges. Is that publicly available? I could not find it. Would your internal audit reports be available on your website?
Mr. Levecque: As a company, we do have an internal audit function. Those internal audits are not public documents.
What we have related to our programs that we deliver are program evaluations, which are published on our website. We can take an action to provide those evaluations that are publicly available.
Senator Marshall: Why would your internal audit reports not be available? Quite often they are for other organizations in the government.
Mr. Levecque: That I do not know.
Mr. Dugan: We can find out.
Senator Marshall: Could you find out? If you could give the committee clerk the link to the information that is publicly available, that would be helpful.
The Chair: I want to follow up with a related question in terms of process.
I am looking at a story from September of this year talking about the government’s plan to convert surplus Crown property into affordable housing. This was announced, I think, in 2015 as part of the ministerial mandate back then. To date, if this story is correct, in eight years, 12 new homes have been built out of all of this property. CMHC expected to build more than 670. Only 12 were built, all in Sherbrooke, Quebec. Again, this speaks to process. What takes so long when we know there is a lot of Crown land out there?
Mr. Levecque: In terms of federal lands, there are some constraints in terms of making federal lands available. Once again, it is a partnership activity. There has to be someone open and available to actually develop that property.
There are times when those federal lands need to be remediated, and that takes some time. And by remediated, there could be other contaminations or constraints related to the property. That does take some time to address.
The Chair: You would acknowledge that 12 versus 672 is not a great record?
Mr. Levecque: We want to do better, for sure, yes.
[Translation]
Senator Gignac: I’d like to come back to a question I have already asked.
I was looking at the statistics and I noticed that in 2022, we had about the same number of housing starts as we did in the late 1960s. However, the population is growing much faster now: It grows by over a million people a year compared to back then.
There are two things I want to talk about: First, I’m trying to understand if you know what happened. We went from undersupply to oversupply during that period.
Second, did the federal government consult you about the immigration thresholds it has adopted? We learned this morning that the federal government is beginning to realize that there might be a link between immigration and the housing crisis, and that it may need to review immigration thresholds.
Mr. Dugan: Thank you for the question. I totally agree with you. We looked at the number of housing starts per 100,000 inhabitants. In fact, there’s been a downward trend since the early 1970s. We’re now at a very low level historically, according to the statistics.
I didn’t check the early 1970s. We’re starting to do that kind of analysis because, if you look at the early 1970s, how did we build so many houses with a much smaller population and workforce? The construction industry was smaller then in terms of the number of workers, and other aspects.
We need to try to understand and find ways to innovate and do more with the labour we have at the moment to build enough houses. You just made a very good point. I totally agree with you, there’s something we need to understand there.
Senator Gignac: If you consider that government adopted new immigration thresholds because the population is growing very quickly, you understand that the government is starting to realize that it should have thought about that before, because it’s putting pressure on housing. Newcomers can’t become carpenters, plumbers or electricians without a permit from the province. There is paperwork to do in that field.
Were you consulted or not when the government adopted the new immigration thresholds?
Mr. Dugan: No, not personally, but that doesn’t mean CMHC wasn’t consulted. I totally agree that welcoming more immigrants creates demand for housing. That has to be taken into account.
If we want to be able to attract immigrants to Canada, but we don’t have enough space in hospitals and schools, and not enough affordable homes, it gets harder to attract them to come and help us resolve our labour issues. It’s a problem that must be solved.
Senator Miville-Dechêne: Following my colleagues’ previous questions, I’d like to read you part of CMHC’s mandate that struck me.
CMHC is the federal agency responsible for housing. You ensure that Canadians have access to a wide range of quality, affordable housing. You work to improve financial options for housing in Canada, you help low-income Canadians access homeownership and you should be improving housing construction standards.
I’m reading your mandate, I’m listening to you, we’re in the middle of a crisis and I get the feeling that you’re having a hard time with it. Did you see the crisis coming? Did you try to prevent it and mitigate it given your key role, because it’s not going well at all?
I understand that the provinces have a role to play, but here, you are the agency in charge and obviously, some things are moving slowly; there are issues at CMHC, so you don’t seem to be fully in control of the situation. Am I wrong?
Mr. Dugan: That’s a very good question. There are a few questions in there. I’ll start by giving you a bit of my perspective on what we’re doing to try to help.
We’ve done a lot of research that I believe has changed the housing debate in Canada, and it’s based on a great deal of research and analysis that we’ve done. We started to raise the issue of supply.
If you go back 5 or 10 years, everyone was talking about demand, what needed to be done to reduce demand to stop housing prices from going up, and we really identified the supply issue. That truly changed the focus of more recent policies to try and address the problem.
Senator Miville-Dechêne: Did you tell the government it wasn’t investing enough? I understand that you don’t hold the purse strings, but you say it’s a problem. As the federal agency responsible for housing, did you say publicly or privately that things weren’t working at all?
Mr. Dugan: Yes, we’ve released research on that.
If you look at the policies put in place recently, like the Housing Accelerator Fund and eliminating the GST for apartment building construction, they aim to increase supply.
If you look at the National Housing Strategy, 80% of the funding goes to increasing supply, to resolving the supply issue.
Senator Miville-Dechêne: Isn’t it a bit late? Aren’t they a little late?
Mr. Dugan: Given that there is a supply shortage, yes, absolutely. As I said to Senator Gignac, housing starts have dwindled as our population grew for quite some time now. We may have caught the problem a little late, but at least we’ve caught it and we’re trying to fix it now. It’s an important step, even if it’s a little late.
Senator Miville-Dechêne: Thank you.
[English]
Senator Petten: I’m trying to understand the big picture of what you’re doing. What percentage of the residential variable mortgages are being insured by Canada Mortgage and Housing Corporation, also with the private-public mortgage insurers? I’m trying to get a sense. What is it that you’re doing? Who are we missing out? Can you help with what?
Ms. Staresina: I can help with that answer.
As you stated, CMHC is one of three agencies that insure mortgages for homeowners. This is in homeownership. We have about a third of that market, which is about 20% of the whole homeownership market. We have a third of that 20%.
Our book doesn’t have very many variable rate mortgages. It’s less than 1%. Our arrears are at an all-time low, even in the tough economic times right now. The arrears speak to people paying their mortgages first, even in tough economic times. That’s where we are in the scheme of mortgages.
The 80% of people have had their 20% to put down. They come to us and the other two private insurers to help them if they have less than 20% to put down on their home.
Senator Petten: Thank you.
Ms. Staresina: You’re welcome.
Senator Martin: I think my colleagues have asked a lot of very good questions. I’ve been listening carefully.
My question is related to the vulnerable population that is being impacted by this housing crisis. You have said you play a cohesion role. You’re not the only agency but an important one because you’re federal.
Mr. Dugan, you mentioned toward the end of your testimony that we need an all-hands-on-deck approach and innovative building techniques. What are these techniques and these innovative solutions that could be employed to reduce the cost and increase the speed of housing construction? Could you unpack and articulate some of those innovative techniques that you have been looking at through the research and data you’ve collected?
Secondly, what are you doing to target specific interventions to support the most vulnerable population — the homeless, the elderly, low-income families — in accessing affordable housing?
Mr. Dugan: There were some very good and challenging questions there.
I’ll start with the innovation piece. I don’t have all the answers there. I’m making an observation that we have a situation that’s very challenging for building homes. We don’t have a lot of idle labour because the unemployment rate is so low. Interest rates have come up, so it’s expensive for builders who have to borrow money to build, and material costs are high. There are just all these problems that make it very difficult right now. We have to find a way to do more with the existing labour force and capital that we have to improve productivity in the construction sector. We do know that, compared to other sectors of the economy, productivity in construction is relatively low. It wasn’t always that way, but in the last 10 years or so, it’s been one of the laggards in terms of productivity. I don’t have all the answers, but I identify it because I think it’s important we take on this challenge and try to find ways to do things better and be more productive. I’m sorry to say I don’t have an answer. It’s very difficult to unpack. If I did have the answers, I would probably try to build the homes. Those are very challenging questions, and I’m sorry to say I don’t have a silver bullet to improve the productivity in that sector.
Senator Martin: But you must see innovative solutions that are being used effectively. Is that something you can then bring to the table to bring the partners together to see how it can be applied?
Mr. Levecque: That’s a great question.
As part of the National Housing Strategy, we have something called the Innovation Fund. That fund is really intended to incorporate resources and operating efficiencies that are replicable and scalable in terms of financing operating models and construction technologies.
There are a number of examples that we’ve already funded. In terms of financing, there’s something called the Housing Investment Corporation, which is intended to issue debt in the private market to support affordable housing. That’s an example of a different approach to financing affordable housing. There’s a project related to constructing modular housing, looking at techniques to speed up housing construction through modular techniques. Then there’s a breakthrough building model in terms of energy efficiency in the Whistler Housing Authority Legacy Passive House project, where passive housing was tested to see if it could be constructed at or less than traditional building code techniques. Those are some examples of how we’re funding innovative approaches to housing in Canada, to help address the question that you asked.
Senator Martin: With regard to the vulnerable population, what interventions are needed from your point of view as a federal agency?
Mr. Dugan: I’m not sure if I mentioned this in my opening remarks, but when you look at the public housing stock in Canada, it’s very low as a share of the total housing stock. I think it’s 4% of the housing stock. It’s very low compared to all other advanced economies. We need to get that up from 4% to something like 6, 7 or 8%. It needs to be higher. There’s been under-investment for years. Not only has market housing been under-built, but social housing has been under-built as well. That needs to be rectified. I talked in my opening remarks about longer wait times and that kind of thing. It’s a difficult situation right now. To serve those people, we need to build more of it. It’s as simple as that. I don’t know if there are any programs that we can speak to on that front, but it’s definitely a problem.
Mr. Levecque: There are a couple of programs. I mentioned earlier the Federal Community Housing Initiative. That’s intended to support social housing units in order to avoid those units paying more than 30% of their household income. There’s also the Canada Housing Benefit, which is a $4 billion fund administered by the provinces. Once again, that supports about 300,000 low-income households. That’s administered by the provinces in order for the provinces to be able to appropriately direct that funding to low-income households in that particular jurisdiction.
The Chair: We have just a few minutes left for a quick lightning round. The same rules apply, so no long introductions.
Senator Loffreda: Rather than leave you with a blank sheet of paper on expanding your mandate, Jon Love made some constructive proposals, which I’ll go through in 30 seconds and have you give a quick answer, yes or no.
Capital.
While equity is relatively available, debt is more scarce, uncertain and expensive. Let’s expand the mandate of Canada Mortgage and Housing Corporation — or CMHC — to extend Government of Canada guaranteed insurance to accelerate new supply of purpose-built rental projects.
For example, “one form, 30 days.” Get chartered banks involved.
For these loans, the developer — the borrower — funds the 10% of equity requirement first. The CMHC guaranteed financing funds the balance of the approved project costs, with the interest rate fixed at the first loan draw at the Government of Canada bond rate.
He goes on. Quickly, in 10 seconds, he says:
… change the financing amortization to a 20-year term with a 50-year amortization, all while having typical bank-style credit protections: completion guarantees, equity top-ups, et cetera.
The Chair: Let’s let them respond. Go ahead.
Senator Loffreda: I don’t want to put that on the record for you.
Mr. Dugan: Right. It’s a long list. Maybe to answer more appropriately, we should look at the list and get back to you. Some of those issues are more regulated by the Department of Finance. For things like increasing the amount of mortgage insurance in force, we have certain limits and we can’t unilaterally do that ourselves. Some of those suggestions are the purview of the Department of Finance. That was a whirlwind. I didn’t get it all down. I think maybe the best way is to look at that list and get back to you with a yes or no.
Senator Loffreda: You can go back to the minutes and respond accordingly.
The Chair: It’s testimony from yesterday in this committee. It was very clear. It was laid out in point form. We’re under a real time pressure. If it’s possible, if we could have your response within the week, that would be great. We don’t need a report on each but just a yes or a no.
Senator Loffreda: Thank you.
Senator Galvez: We have new stressors in the housing sector. You know that speculation has been there, but now we have inflation, climate change and lack of labour. In general, what I found out today is that it is late for the housing sector and for your organization, to start with the ESG movement — environmental, social and governance. I think you have to accelerate. In Europe, we see how speculation is controlled. When you buy a house, it clearly says the energy efficiency, water, insurance issues, extreme weather events. Are you moving into the area of ESG corporate sustainability?
Ms. Staresina: In the commercial area, we are most definitely looking at some frameworks that can get into that. As you know, we participate in the international markets with some of our securitization programs, so we are most definitely looking at that.
We also have programs in the commercial sector, such as our Mortgage Loan Insurance Select, which is for developers who are building apartment-style housing. There are some trade-offs. They can get a longer amortization, a higher loan to value, if they do climate, accessibility or affordability. We will give them some breaks on those things. Those are some of the areas.
In the National Housing Strategy, I’m sure Neil will tell you that there are many of those components in all of those programs.
Mr. Levecque: I have listed those programs previously.
The Chair: You have answered that. Thank you.
Senator Yussuff: Very quickly, there are a multitude of challenges, and I don’t want to get the list. If there were three things you could identify from what you’re seeing, and given the crisis we’re in, could you list them? You’ve talked a bit about the labour shortage being one of the biggest impediments to building housing stock faster and about the partnership to accelerate the construction of housing. The other one is approval. The municipalities control a large part of what happened in the approval process. You know what the experience has been, so maybe you can identify three or four things whereby, if we fix these things, we might get to the end much quicker, but if we don’t fix them, we’re never going to get there.
Mr. Dugan: I can start with one. There was a recent survey put out by StatsCan that identified a relationship between housing affordability and local municipal regulatory burdens. There was a clear correlation that housing supply responds much more slowly where there’s a lot of regulatory burden at the local level, and these are markets that tend to be less affordable. That’s a key thing to deal with. The Housing Accelerator Fund is meant to do some of that, and I think it just needs to be recognized. In a sense, all the other things that we talk about that come after — things like improving productivity — for builders to improve their productivity and think about that, they have to have confidence that they’re going to invest that time and effort to know that they can actually then build. If there’s a constraint downstream from all of this, it can block much of the investment that’s needed to try to get things moving. I’d say my number one thing is local regulatory burden.
Senator Gignac: Last year, only one third of the outstanding residential mortgages extended by banks were insured by CMHC; a decade ago it was 60%. Can you explain why you’re declining in market share?
Secondly, do you have an intention to go with the Liberal platform promise of 2015 to reduce your fees on mortgage insurance by 25%?
Ms. Staresina: I will say that in terms of market share, we have two other competitors, and we want to make sure we have a stable and healthy housing system. In terms of the mortgage market itself, only 20% is insured. We have a sandbox to play in where you can only put less than 20% if it’s under $1 million. That reduces, just by share, what housing costs now. That makes a difference.
Senator Gignac: It’s the Finance Minister who has to make the call to increase the ceiling, so that’s part of the explanation. In terms of your fees, are you competitive, or is that part of the reason for your declining market share and going ahead with the Liberal promise of 2015 to reduce your fees by 25%?
Ms. Staresina: Our fees are for sure part of the competitive piece of that. We make sure we take the fees to have the capital so, in case of a downturn, we are well capitalized. We make sure those fees cover that, and CMHC is well capitalized. We stress test for all sorts of things. We’re always willing to look at our fees and make sure that they are doing what they are intended to do, but it is to make sure that we have the capital that we need.
Senator Gignac: You wouldn’t be concerned if you had more capital from the government. Okay, I understand. Thank you.
[Translation]
Senator Bellemare: Are you considering the temporary immigrant workers who come to Canada? Is there any concern for them, and if there is, what is the concern?
Mr. Dugan: We have a lot of temporary residents coming in to counter the labour shortage.
Senator Bellemare: I’m talking about housing for students and for those who come here on fixed-term contracts and need to find housing.
Mr. Dugan: We’re concerned for everyone. When we talk about a shortage of supply, it applies to the total demand for households in Canada and the number of homes there are to house them — the total population is included in the 3.5 million homes that need to be built by 2030.
Senator Bellemare: Temporary workers are included in that.
Mr. Dugan: Yes.
[English]
Senator Massicotte: Supply and demand has never failed. It always comes down to that issue. If you look at the issue, you’ve got some demand, but that has changed a lot in the last year. A year ago, many of you would say rental housing was okay and that there was a balance to it. But then the interest rate popped up by three or four percentage points, and when you consider something like 80% or 85% of your costs is interest, you’re going up against a wall and some pretty tough issues, but you might as well take the opportunity to improve where you can. With that level of interest rate, it’s going to be tough to see an improvement. I saw a report a couple days ago where they analyzed the feasibility of a rental product from a year to a year and a half ago, and it’s changed significantly. Good luck, but it’s not an easy one.
Mr. Dugan: It’s very challenging but it has to be done. When we looked at rent increases last year in our Rental Market Survey, we always had this measure of average rent, but it masked a lot of the dynamics in the rental market. Now we look at average rent in units where the tenant stays in place, and these tenants are often protected by rent control or longer-term leases. We compare that to rent increases in units where the tenant changed hands, so rents are reset to market rates. In Toronto, in particular, there’s a gap. If the unit turned over and there was a new tenant, rent increases were 29% versus about 2.3% in units where there was no change in the tenant. That speaks to the lack of supply. When there’s that much of a gap between what the market will bear and what people who are protected are paying, there’s a supply shortage.
Yes, good luck. It’s a difficult challenge. High interest rates make it challenging to build, but we have to do it because affordability, especially for low-income Canadians in rental markets, is deteriorating now rather quickly as well.
The Chair: Could I just have you comment on the place where we started in part because of the testimony we heard yesterday, that we really do need to change our mindset and that not every young Canadian is going to go grow up and have the house, the picket fence and the yard? We’re going to have to change the psychology. Density is going to have to be our answer, especially in urban areas, because there is no more land to go to. What is your role and how can you take on those issues? We have other issues like education and why we need more plumbers and fewer BAs and that kind of thing, but could you comment just on the specific issue of housing and what your role would be in making that part of the national conversation?
Mr. Dugan: That’s certainly something from a research and analysis perspective that we’ve really been trying to do. You’re absolutely right. When you look at places like Toronto and Vancouver, we estimate that 80% of the cost of a new unit is the land that the unit sits on, whereas in a place like Montreal, it’s closer to 30%. When land accounts for that much of the price, the only solution is density. You have to get more people per cubic foot, not per square foot, to bring down the cost of that very expensive land and make it more affordable.
In places like Toronto and Vancouver, they’re converging on conditions in other large international cities. When you look at places like Manhattan, 100 years ago, there was farmland on Manhattan. Today, it’s either very expensive condos or people rent. If they want to own, they have to live outside of the city and commute. Maybe Toronto and Vancouver are heading in that direction. They’re growing, they’re large cities, there are land supply constraints, and maybe we have to start getting people used to the idea that living in such an expensive urban centre means more renting, and we have to accept that.
We have to also stop treating rental as a second-best option. It’s not a second-best option; it’s a perfectly legitimate way to house yourself. I think we have to promote that. We try to in our research and analysis, but that’s a message that has to get across, absolutely.
The Chair: I’d like to thank you all very much. Bob Dugan, Chief Economist; Carla Staresina, Vice President, Commercial Products; and Neil Levecque, Vice President, Housing Operations, all from CMHC. We appreciate your contribution today.
Senators, on our second panel, we have the pleasure of welcoming Randall Bartlett, Senior Director, Canadian Economics, Desjardins Group. Thank you for joining us as we continue our study and look at the housing issues. I know that you have opening remarks. The floor is yours.
Randall Bartlett, Senior Director, Canadian Economics, Desjardins Group: Thank you, chair and members of the committee, for your invitation to speak today on the issue of housing affordability in Canada.
Housing in Canada is in crisis. As the situation has become more serious, all levels of government have been forced to recognize that something must be done urgently.
While sharply higher supply is widely recognized as the path forward, there is little agreement on how to make that happen. Home construction today is below the pace seen during the 1970s, when the baby boomers came of age, despite our current population being larger and growing more quickly.
The housing crisis is not only that the number of homes being built is insufficient. The type of housing is also inadequate. Detached homes are getting larger, while condominiums and apartments are getting smaller and, at the same time, more expensive by the square foot. Semi-detached row houses and low-rise apartments, the so-called missing middle, are essentially a rounding error in Canada’s housing stock.
All levels of government bear some responsibility for the current crisis. The good news is that each can take steps to increase the supply of housing in Canada.
We recently published a report outlining over 20 measures that have been introduced internationally to increase the supply of housing and relieve affordability pressures. However, the most important takeaway from this analysis is that there is no silver bullet that will solve Canada’s housing crisis; instead, it is a combination of different policies introduced by all levels of government in a coordinated fashion that will help to increase home building. We must have all hands on deck and pulling in the same direction.
At the federal level, providing transfers to provinces and municipalities to incent home building is key. The long-delayed Housing Accelerator Fund is a good start. It’s showing early signs of progress, as some municipalities look to be modifying their housing-related decisions to qualify for federal funds.
In this context, the federal government must listen to other levels of government to improve the targeting of transfers and minimize the frictions that are preventing more homes from being built. Additionally, as a recommendation in our recent housing supply report, we applaud the federal government for foregoing the GST/HST on purpose-built rental construction and hope that there is alignment with the provinces and territories for its implementation. We continue to look at them to follow up with some additional incentives.
This is complemented by the federal Rental Construction Financing Initiative, as was just discussed, which provides low‑cost loans for the construction and commercialization of rental apartments. Unfortunately, RCFI does not apply to rental housing targeted toward some of Canada’s most vulnerable residents, including seniors and students.
The Government of Canada must also ensure population growth advances at a pace which is sustainable and doesn’t further erode housing affordability. Canada needs immigrants to sustain and even accelerate economic growth and to offset the fiscal burden of an aging population. It is a difficult balance to strike. Prioritizing immigrants with skilled trades training and recognizing those skills would further help address elevated job vacancies and offset a rapidly aging workforce in the construction sector.
At the provincial level, giving municipalities the freedom to introduce measures that will support an acceleration of residential investment in their communities would help considerably. Reducing development charges on some types of housing may have a positive impact, particularly as it relates to density, but municipalities shouldn’t be left holding the bag for lost revenues.
The boon in short-term rentals must also be addressed, with the Government of Quebec’s recent introduction of provincial licensing requirements providing a template for the rest of the country. British Columbia looks to be following suit with its own measures, and other provinces may not be far behind.
Finally, working with post-secondary institutions to add more high-density, purpose-built student accommodation should free up space in the off-campus rental market for lower-income tenants as well.
Looking at municipalities, many communities are already making great strides in certain areas, but more needs to be done to reduce barriers to home building. Ending exclusionary zoning and moving to by-right approvals should be a priority to support increased density. A focus on sharply higher density along public transit corridors is paramount. Encouraging retail-to-residential redevelopment on existing greyfield sites, such as underused shopping centres, could also add many more units in relatively short order.
While it may sound trite, sharing best practices from across the country and around the world will go a long way to illustrating what has worked in other places to increase the supply of housing as well.
Industry also has a role to play. Construction sector productivity has been lagging behind the general economy for about 20 years. From prefabricated homes to pre-approved plans made available by municipalities, there is a lot that can be done to improve construction sector productivity. Construction costs from interest rates to inputs have risen considerably in the last few years in particular. Governments can use policy to offset this through lower taxes, subsidies and/or low-interest loans.
Failing to address Canada’s affordability crisis is to fail the current generation of prospective homeowners, hopeful new and future new parents, and optimistic entrepreneurs. As we’ve documented in a recent series of reports on the economic circumstances of youth in Canada, young Canadians are leaving our most expensive provinces at an unprecedented pace in a desperate search for affordable shelter. They are also delaying moving out of their parents’ homes, starting long-term relationships, getting married and having children, as well as having fewer children than they desire in no insignificant part due to the affordability crisis.
In closing, Canada’s housing affordability crisis is bad, but it is not insurmountable. Canadians need less conversation and more action from all levels of government. The country needed to get shovels in the ground years ago, not someday in the future. Jurisdictional finger pointing should be replaced with taking responsibility and taking action. Today’s youth, newcomers to Canada, low-income households and all Canadians can’t and won’t wait.
Thank you. I look forward to your questions.
The Chair: Thank you, Mr. Bartlett.
You know that we spoke with Mr. Jon Love yesterday from KingSett Capital. He was talking about using every available space. You have been talking about underused malls and that kind of thing. He was talking about every laneway, every basement and every Airbnb that people can lay their hands on. Is that the missing middle that you are talking about, or is that just solving an existing problem?
Mr. Bartlett: The missing middle specifically is defined by the CMHC as semi-detached houses, row houses and low-rise apartment buildings. We’ve seen cities, such as Toronto, that have introduced laneway housing and allowed fourplexes as a way to increase density. It is about not focusing on small condominiums or large detached homes but rather providing that missing middle of housing that can support younger Canadians, new Canadians and lower-income Canadians.
The Chair: Thank you for that clarification.
We begin our questioning with our deputy chair, Senator Loffreda.
Senator Loffreda: Thank you, Mr. Bartlett, for being here today.
I like the saying that in the absence of offering solutions, it is just a complaining session. I am very happy with your recent report where you suggested 20 measures which can be introduced to appease this crisis. Can you further elaborate on the top two or three suggestions you would have, and how can they be easily or practically implemented? There is no rolling back here. Is rental the sole solution going forward? I like the idea of less conversation, more action, so let’s get to the action.
Mr. Bartlett: Well, for each level of government, there are key solutions that they can introduce that are relatively low‑hanging fruit to support greater home building in Canada, both in terms of rental and market housing.
At the federal level, the federal government largely taxes and transfers, and by providing incentives through measures like the Housing Accelerator Fund, that could be expanded, made less bureaucratic and simpler to incent municipalities to provide the conditions by which more homes can get built. The incentives in that regard are showing to be relatively effective, and they can go even further in that regard.
When it comes to the provinces, the focus should be on trades certifications, given the surge in population growth that we’re seeing in Canada, and working with the federal government to ensure we’re bringing in the people with the right skills, but, at the provincial level, that those skills are recognized quickly and we can get boots on the ground and hammers to work very quickly. That is where the provincial governments can do a lot of heavy lifting.
At the municipal level, it is all about bringing down barriers to building, whether that is by scrapping exclusionary zoning, moving toward more by-right zoning or shifting the structure of development charges away from greater density and supporting lower-density building and turning that on its head. We see in some of our larger cities that we penalize density. Flipping that on its head ensures that we can build more and increase density of our major cities in Canada.
[Translation]
Senator Bellemare: I was looking at one of your publications called “Quel est le nombre idéal de nouveaux arrivants au Canada?” In one of your tables, you show that, based on the immigration rate, the faster the pace of immigration gets, the faster property prices will grow.
This is quite a serious study. Choices have to be made in the short and medium term, and we know that solutions to the crisis will take time.
In the very short term, what’s the ideal immigration rate if we want to keep prices from rising too fast and restore our housing inventory in order to strike a balance?
[English]
Mr. Bartlett: Thank you for the question.
You will notice in the paper that I didn’t actually reach a conclusion on the right number of newcomers to welcome to Canada. That was intentional, as I leave it up to policy-makers to make those tough decisions. What I tried to do is to frame the parameters around which those decisions should be made.
As the Canadian population ages, we do need to see more young Canadians entering the labour market in order to fill the jobs that are being made vacant in order to continue to accelerate growth in Canada’s economy going forward and offset the fiscal burden of aging on, particularly, provincial governments. We do need to see continued increase in the population and immigration to offset that.
At the current pace of home building, by rapidly increasing the pace of population growth in Canada, as we’re seeing right now, it puts upward pressure on the price of housing, and all types of housing across the housing spectrum. That is because demand is rising much more rapidly than supply can respond to it. At the end of the day, what we will see is that builders will respond to the price signal and start to build, but ultimately, we still need to manage that population flow against the fact that we just can’t build housing fast enough to satisfy it. That is causing affordability to rapidly erode.
I would look at what we’re doing in terms of the immigration system in Canada. We have increased our immigration targets, but not all that much relative to the increase in the non‑permanent residents that we’ve seen coming into Canada, largely through the International Mobility Program, which doesn’t require labour market assessments and that sort of thing like the traditional Temporary Foreign Worker Program does. We should be looking at the types of workers coming into Canada and whether they can meet the needs of the housing market in order to be able to build more, but also the broader, long-term needs of the Canadian economy.
[Translation]
Senator Bellemare: For everyone’s benefit, in your table 12, what did you assume between the highest and lowest projections? If you don’t have the information, could you please send it to us?
[English]
Mr. Bartlett: I would be happy to share that with you at a future date. Our hypotheses were the way we look at bringing immigration, both permanent residents and non-permanent residents, into our forecast, to look at the age structure of immigration historically and through the point system established by the federal government, and look at what the contribution of those different age groups by male and female are to the labour market in Canada. When we look at where new immigrants are disproportionately coming in and age distribution, it is generally between the ages of 25 and 40. Those are the ages at which the level of employment, as a share of the population, by far tends to be the highest.
[Translation]
Senator Bellemare: If ever you have any minor clarifications to make, could you send them to us in writing? We would appreciate it.
[English]
Mr. Bartlett: Yes.
Senator Gignac: Welcome, Mr. Bartlett. Before asking too many questions, I’d like to congratulate Desjardins Group for what you have done on the housing research, available in both languages, by the way, on your website. I think it is very informative.
Back to your global study with the 20 ideas, one of the ideas was to consider repurposing existing assets. Could you elaborate on that? You have interesting thoughts, and we know that students, like older people who stay in homes for the elderly, are maybe sharing kitchens, bathrooms or other centralized areas rather than an apartment. Could you elaborate on that?
Mr. Bartlett: Thank you for the question.
We tried to get a sense, by working with our real estate team at Desjardins, of what the possible conversion could be from existing office to residential. It only works out to about 10 to 20% of existing office buildings could be converted to residential in Canada. Part of that is a reflection of municipal building codes, so there is some flexibility around that, but it still remains relatively low. A big part of that is the requirement to have, of course, individual bathrooms for apartments and kitchens and that sort of thing. Office buildings generally aren’t designed to accommodate that and instead tend to be very centralized.
Where the opportunity lies is in converting that space to more congregate styles of living where you would have those central resources, such as kitchens, bathrooms and that sort of thing, whether that is student accommodation, of which there is an enormous dearth in Canada and an enormous need for additional student housing, or for housing for seniors. As Canadians are aging, they are staying in their homes longer than they had in previous generations, but at some point, we will need that additional congregate living for additional support for people transitioning through different stages of their lives. It lends the opportunity to be able to do that as a great deal of office space in major centres continues to remain unfilled even today.
Senator Gignac: You have a precise figure on the purpose-built student accommodation in the U.K. compared to Canada. I think in Canada it is 12% compared to 30% in the U.K. Could you elaborate on that?
Mr. Bartlett: Yes, the figure is much lower in Canada as a consequence of a couple of things, I would argue, one of which is that we have less opportunity for post-secondary institutions generally to be able to borrow for investment purposes than in the U.K., as an example. As a result, it is more difficult for them to bring on private sector partners than it is in the U.K., such as institutional investors and that long-term patient capital that provides that opportunity for investment in things like student residences. We see that Canadian pension funds, for example, are investing in some of these student residences abroad, but we do not see as much of it in Canada. There is certainly an opportunity for provincial governments to provide that flexibility to garner that financing and pull in that private sector investment.
Senator Gignac: Next week we will hear from Tiff Macklem, the Governor of the Bank of Canada, and Peter Routledge of OSFI. Your team has mentioned that mortgage debt is a time bomb. This is what it was. It’s a very special title. When talk about mortgages, variable rate and fixed payment, a lot of them have now reached a trigger rate and a lot of young people are in big trouble with that. Do you recommend to OSFI to no longer offer first-time buyers variable rate mortgages? A lot of people haven’t got the equity to face the payment shock they will see coming.
Mr. Bartlett: I don’t necessarily think that it is my place as an economist to provide recommendations to regulators on what we think the best policy design is for Canadians and for financial institutions, but we have looked into what we think the impact is going to be on the Canadian economy as a result of many of these mortgages coming up for renewal in 2025 and 2026. We think that the consequences of it will cap the potential rebound that we could see in the Canadian economy from rate cuts by the Bank of Canada. Even as rates come back down, households will be renewing those mortgages at much higher rates and at much higher levels of principle than when they took out mortgages. It will certainly dampen any recovery that we will see in the medium term as households reduce consumption in order to stay in their homes. We think it will have material impacts on the Canadian economy, but I think it is probably best left to the regulators to make those decisions.
The Chair: Can I follow up on that?
We hear the phrase “full employment recession” and a lot of people betting on that. Still, to your point, in the last several years, we have seen rate hikes go up 8 or 10 times. When people do go to refinance mortgages, we are going to have that problem. Canadians, on the other hand, are very dutiful about paying their mortgages. We have one of the best rates internationally on that as well. If two out of three mortgages are in trouble, what is the statistic out there that troubles you most?
Mr. Bartlett: Yes. The statistic that does trouble us most is the bill that is going to be piling up for Canadians going forward in terms of their mortgage costs.
If we look back at the 1990s, what we saw as interest rates rose dramatically coming out of a housing boom, most Canadians stayed in their homes. We did not see a sharp spike in listings, per se, but we did see a dramatic increase in the savings rate and a dramatic drop in consumption among Canadians. That weak consumption, as Canadians continued to make sure that they maintained their mortgages and made their monthly mortgage payments, led to a very prolonged economic downturn in Canada. We think that very much is the downside risk. It is not our baseline scenario, but it does pose a downside risk to our outlook. We put out a note on that about a year ago, detailing what that scenario could look like, and I would be happy to share that with the committee.
The Chair: Please do. That would be helpful. We are seeing that weaker consumption. They are choosing to pay their mortgage and buy fewer groceries, all of those things.
Mr. Bartlett: Absolutely.
Senator Marshall: I was also going to ask you a question on the ticking time bomb paper because it was interesting, but after hearing you speak, I have a different question. There are so many suggestions as to what government can do to improve the housing situation. I am thinking about the housing minister. How do you come up with a plan to address all of these suggestions and then operationalize your plan? Do you bring 20 people into the room and say, “You go deal with the provinces, you deal with the municipalities, you deal with immigration, and you do the skills”? The magnitude of it is so big, so multifaceted. Have you got any suggestions as to how you would attack this in a comprehensive manner?
Mr. Bartlett: Thank you for the question.
The first step is to understand what is possible for the federal housing minister to do. The federal government mostly, as I mentioned, taxes and transfers. A lot of the constraints that exist on homebuilding don’t necessarily exist at the federal level or as a result of federal policy.
Senator Marshall: But a lot do.
Mr. Bartlett: Absolutely, absolutely.
The first thing that the federal government can do is provide those sticks and carrots in order to incentivize municipalities and provinces to bring down barriers to home building. The Housing Accelerator Fund, as I mentioned, is good. It is essentially a door subsidy which is the opposite of the medieval window tax. If you’re building houses, you are getting subsidies to do that. That helps encourage municipalities to bring down barriers that will continue to lead to the greatest housing development. That is a good approach.
Other things that have been suggested are linking, even more so than has been done in the past, infrastructure funding to residential development around major public transit corridors. Obviously, that primarily focuses on the major centres in Canada, but, at the same time, it is something that would dramatically increase density along those corridors and public transit use ultimately, which is a broader public mandate of the federal government. There are those opportunities available to the federal government.
Finally, when it comes to CMHC and also to other federally administered programs, it is reducing bureaucratic barriers that prevent folks getting access to those programs, whether it is developers or governments, and doing anything that they can do to help identify those barriers. That takes a lot of communication with stakeholders and a lot of work just to continue working endlessly to continue to increase the efficiency of those programs.
Senator Marshall: How can you operationalize? You just went through a big list of 12 items. How do you operationalize it so that you are attacking it all practically at the same time and you have a comprehensive plan? How are you going to operationalize your plan? I almost feel sorry for the housing minister.
I look at it simplistically and say, “Okay, you look after the provinces, you look after municipalities, you look after immigration and skills, and you look after CMHC.” Is it like that? Is there another way to operationalize it, or am I looking at it too simplistically?
Mr. Bartlett: No, I do not think that you are. It is a huge problem. It is among the most pressing problems that Canadians are facing today. It is exacerbated by high inflation, but certainly affordability is being eroded generally. The erosion of housing affordability accelerated during the pandemic, and it is not getting any better. Certainly, it requires everyone around the cabinet table to be all-hands-on-deck to help make this happen, including the ministers of interprovincial affairs and immigration and others, to ensure that there is cohesion between all elements of the housing crisis and support around the table to ensure that relief is being provided and support provided to the housing minister and Canadians as a result.
Senator Marshall: Thank you. “Cohesion” is the word.
[Translation]
Senator Miville-Dechêne: Welcome, Mr. Bartlett. I found your comments on youth at the end of your presentation very interesting — they were quite pessimistic.
Young people are fleeing the richer provinces and they are having fewer or no children because they don’t have a house. The statistics showing that young people are postponing having children because they can’t purchase a home — are there numbers on that?
I know that people are waiting until they are older to have children, but all kinds of factors can play into that. Can we be sure that not being able to purchase a home is a real factor?
[English]
Mr. Bartlett: Thank you for the question.
What we do have information on is related to affordability primarily. In survey after survey, young Canadians are saying that affordability is a big part of the reason that they are choosing to stay with their parents longer, to delay those next stages of life, a consequence of the inability for them to sustainably afford the sort of lifestyle that they would like to have as they start forming families and forming those long-term relationships and really embarking on those next stages of life that so many other generations have enjoyed.
Senator Miville-Dechêne: So it is through polls that you are getting that information?
Mr. Bartlett: Yes, it is through polls that we’re seeing that information. Not just one. There have been several in the last few years that have highlighted this. We are also seeing it just generally when it comes to age of marriage, age of childbirth and that sort of thing.
Senator Miville-Dechêne: Yes. But there are many factors that can explain why we have children later.
Mr. Bartlett: Absolutely there are many factors that can explain, that but certainly young people are saying in polls that affordability is one of the top reasons.
[Translation]
Senator Miville-Dechêne: I’m interested in office buildings being converted into housing units, communal housing and student housing. Many downtown Montreal towers are vacant. Is it financially viable to convert those office buildings into housing?
These buildings in Montreal’s downtown core cost a fortune. Purchasing them would already involve a massive investment; the windows don’t open, they would need to be put in or changed. That would require quite an investment.
I’ve always wondered if those office buildings could be recycled. Do you think it’s really possible, taking affordability into account?
[English]
Mr. Bartlett: Thank you again for the question.
Well, we have a bit of a case study in Canada of this, which is Calgary post oil boom. When oil prices fell sharply in 2014-15, there was an enormous supply of office space that came on the market. A lot of it went unused because of the fact that oil companies were cutting employment so dramatically as a result of lower prices. We saw that a lot of it remained vacant for a long period of time until the City of Calgary took an initiative to subsidize the conversion of those spaces. Now we see that we have had about a third able to convert, or that have been converted, but, again, it took multiple steps to get there, which was significant changes to zoning around those office spaces to relax some of the requirements that previously existed for condominiums and apartments to allow that conversion to happen. Even then, again, it’s still only about a third that has been converted, so it is a challenge. The designs don’t always lend themselves to make those conversions to individual apartments or condos. Really, the focus on the other two thirds around potential congregate living for things like student housing will go a long way to potentially moving the needle on providing greater residential occupation in some of those buildings.
The Chair: It’s not just design; it’s whether the rules allow.
Mr. Bartlett: Right.
Senator Petten: We just talked about youth. Do you have any suggestions around dealing specifically with our aging population? That seems to be a big concern. I represent the province of Newfoundland and Labrador where we’re dealing with an aging problem. I wonder, from your perspective, do you have any suggestions around that?
Mr. Bartlett: Well, to leverage the previous question, part of it would be looking at some of the spaces that we do have available now and whether or not we can start converting some of that to senior living. A lot of these buildings have elevators and other resources that allow them to potentially serve that need that is going unmet. I think that’s potentially a good starting point. The focus of a lot of provincial governments is very much allowing folks to age at home.
Senator Petten: Aging in place.
Mr. Bartlett: Age in place. I think that’s incredibly important when it comes to dignity in aging. It also helps to minimize health care costs. I think that’s obviously a big driver, given the higher levels of debt coming out of the pandemic and impending fiscal burdens going forward. The focus is on ultimately making sure that aging Canadians are able to live the lifestyle they want and are supported to do that. At the same time, we’re thinking about how best to leverage the stock that we have to continue to allow them to age with dignity.
[Translation]
Senator Galvez: I’d really like to thank our witnesses.
In Quebec, 80% of the population lives along the St. Lawrence River. I think that’s true for the rest of Canada as well, that everyone lives or wants to live near lakes, rivers and waterways.
I see that Desjardins has committed to net zero by 2040. I commend the initiative, thank you very much. However, in your recommendation tables, no recommendation considers, for example, that increasing densification, as several people have suggested, would turn our great city into a Manhattan. We know that Manhattan has problems due to climate change: flooding, heat domes, and energy inefficiency as well.
So I’m giving you the opportunity today to tell us if our insurance systems should change when it comes to zoning. Should building codes reflect climate change realities? That needs to be considered in the densification plans.
[English]
Mr. Bartlett: Thank you for the question. I couldn’t agree more.
When it comes to the question of insurance and residential insurance, I’d be happy to follow up and refer the question to my colleagues at Desjardins Insurance. They would be best placed to answer that.
When it comes to building codes, really, increasing density. At this point in time, Toronto, for instance, is less dense than Montreal, which is less dense than Vancouver, which is less dense than New York or Chicago. We have a real opportunity to introduce building that is going to be more energy efficient and that will better accommodate mitigating climate change relative to what we’ve done in the past. We need more housing, and we know that by increasing density, we can reduce the emissions per capita relative to people living in suburban areas and doing long commutes into the city, with larger square foot residences and that sort of thing. By focusing on making building codes more efficient and making sure people are closer to public transit, that we have neighbourhoods that are walkable and people are able to live a lot of their lives within relatively close distance of their homes, all of that will go a long way to help mitigate climate change, and continuing to build our cities further and further will ultimately end up potentially exacerbating the impact on climate change.
Senator Galvez: Yesterday we heard that municipalities are lagging on providing permits for construction. My question was about services because municipalities need to provide electricity, water and, as you said, transport. That creates a burden. The answer was, no, they’re going to get taxes back. Taxes come in time, and what you need is capital up front in order to increase capacity for water or waste water. Where will this money come from?
Mr. Bartlett: There’s a lot of research that shows that the net revenues that come from denser parts of cities are generated more quickly and are much larger than in less dense parts of cities and to provide those services over the long run relative to property taxes is generally a net loss for most cities. Focusing on increasing that density and taking advantage of existing transit corridors and existing infrastructure and building out that infrastructure further will go a long way — and the evidence is pretty clear — to actually supporting long-term revenues for our cities in Canada.
Senator Galvez: Thank you.
Senator Martin: Thank you for your testimony this afternoon. I think you’ve touched on some of the key areas of concern for me, which are the most vulnerable populations and the housing issues surrounding that.
You talked about working with universities with more high‑density, purpose-built housing. I’m from the metro Vancouver region. When my daughter went to UBC and was looking for affordable housing, she eventually ended up in a house with a whole bunch of people, paying $1,200 for a room and shared bath. It was incredible six or seven years ago, and it’s gotten worse since.
You also mentioned private sector investments. I’m curious about the role that private sector investments play in addressing housing affordability. How can public-private partnerships be leveraged in this regard? Would you talk more about that?
Mr. Bartlett: Thank you very much for the question.
When it comes to building additional housing stock, I think, as mentioned by the previous witnesses, most of the housing stock in Canada is privately owned, and private investors bring a lot of that stock to the market, including purpose-built rentals. The private sector is going to be a big part of the solution in building all types of housing.
When it comes to student housing in particular, part of the reason we seem to have a dearth of student housing in Canada versus other places like the U.K. is the fact that we don’t leverage private sector investment to the same extent that other G7 and advanced economies do. There is a real opportunity to be able to do that, and part of that process can be through public‑private partnerships. To your point, we’ve seen it can be effective in building things like hospitals and subsequently managing the operations. There’s no reason something that should be much simpler to both build and operate, such as student housing, can’t have a bigger role for the private sector to play in bringing capital to market.
I do think the math needs to change somewhat between building condos and purpose-built rentals generally. We’ve seen that with foregoing the GST and HST on purpose-built rentals, the federal portion, anyway. I think that’s a good start to help level the playing field between purpose-built rentals and condos, and certainly providing ultimately greater profitability as it takes longer to recover that initial investment and get back to profitability on purpose-built rentals. By levelling that playing field, we’re going to attract more private dollars into that.
Student housing really seems to be low-hanging fruit to move in that direction. We encourage provincial governments to come to the table, be a partner with universities and reduce constraints on attracting that financing.
Senator Martin: Right. And you mentioned that we are sort of falling behind other advanced economies. They are doing it. What is it that’s holding us back from going forward with these important public-private partnerships? It’s a levelling of the playing field, as you said, but are there other things that other economies are doing that we should be looking at?
Mr. Bartlett: Part of it is the flexibility for post-secondary institutions to borrow. I can speak particularly to the province of Ontario, as we’ve done more research on it, but there are significant constraints on borrowing for post-secondary institutions relative to other jurisdictions. That, in and of itself, shouldn’t necessarily mean it’s open season for post-secondary institutions borrowing to an unlimited extent, but certainly, with provincial government oversight, there is a real opportunity there for not just them to borrow to make these investments but then to also provide that seed investment that will help to attract the private sector to participate in those investments as well.
Senator Martin: Thank you.
Senator Loffreda: You mentioned that higher rates will dampen our economy, and the headline in the Wall Street Journal this morning was that the U.S. economy grew at a 4.9% rate this summer, powered by fast-spending Americans. Yes, the consumer is the motor of every economy, and Canada’s household debt is the highest in the G7, but the U.S., although improving, also has debt concerns. Are there any learnings or best practices we can implement or policies we can bring north to avoid dampening our economy?
Mr. Bartlett: Thank you for the question.
U.S. households are in a very different position than Canadian households are in right now. As you mentioned, Canadian households are much more leveraged than U.S. households. During the global financial crisis, we didn’t have the deleveraging here that happened in the U.S. We also have significant population growth here that they don’t have in the U.S., which is boosting home prices and ultimately increases the leverage that Canadians are taking on. In the U.S., they also have 30-year mortgages that have been taken out at ultra-low rates during the pandemic, and we are subject to very different circumstances here as a consequence.
Senator Loffreda: Could that be a solution?
Mr. Bartlett: I don’t know that that’s necessarily a solution, and I don’t want to opine on it because I haven’t looked into the potential downsides that come from that as well. It does seem that it would provide, certainly, stable and predictable payments for households over the long run. Where it might provide potential fragility would be in the banking sector in the U.S. We certainly saw, when it came to regional banks earlier this year, that there were some banks that went under in the U.S., and as banks lend for long periods at a lower rate and then, ultimately, are paying higher interest on deposits, I think it becomes something that could provide some potential fragilities in the financial system in the U.S. That would be something that we would need to do more research on and get back to you as to whether that would be something we should pursue in Canada.
Senator Loffreda: It would be interesting to know that. Thank you.
The Chair: We might as well get a comment on mortgage deductibility while we are at it. What do you think?
Mr. Bartlett: We did address this in our paper on housing supply solutions. There really has been no material evidence that mortgage deductibility increases the supply of housing across jurisdictions. If anything, it actually provides a further tailwind to higher home prices. It is probably something that I think, looking at implications in the U.S., may be best avoided.
The Chair: Thank you for that direct answer.
Mr. Bartlett, you’ve been most helpful today as we look at this study. We appreciate your very pointed answers in most situations. Randall Bartlett is the Senior Director, Canadian Economics, Desjardins Group. I know you have promised to send along a couple of documents, so we’ll just coordinate that with our clerk. Thank you from the entire committee.
(The committee adjourned.)