THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, October 2, 2025
The Standing Senate Committee on Banking, Commerce and the Economy met this day at 10:30 a.m. [ET] to examine and report on matters relating to banking, commerce and the economy in general; and in camera to consider a draft agenda (future business).
Senator Clément Gignac (Chair) in the chair.
[Translation]
The Chair: Honourable senators, my name is Clément Gignac. I am a senator from Quebec and chair of the Standing Senate Committee on Banking, Commerce and the Economy.
I would like to welcome everyone with us today, as well as those watching online at sencanada.ca.
Before proceeding any further, I would kindly ask my fellow committee members to introduce themselves.
[English]
Senator Varone: Senator Toni Varone, Ontario.
[Translation]
Senator Dalphond: Pierre Dalphond, Quebec.
Senator Henkel: Danièle Henkel, Quebec.
[English]
Senator Loffreda: Tony Loffreda from Montreal, Quebec. Welcome once again. We’re going to start charging you rent. We saw each other last night. Welcome.
[Translation]
Senator Ringuette: Pierrette Ringuette, New Brunswick, a province neighbouring that of my colleagues from Quebec.
[English]
Senator Yussuff: Hassan Yussuff, Toronto.
Senator McBean: Marnie McBean, Ontario.
Senator Wallin: Pamela Wallin, province of Saskatchewan.
Senator Martin: Good morning. Yonah Martin, British Columbia.
[Translation]
The Chair: Honourable senators, we continue today our study on Canada’s housing crisis. I wish to welcome our guests from the Office of the Parliamentary Budget Officer, Jason Jacques, Louis Perrault and Caroline Nicol. Thank you for accepting our invitation. The timing is good, because only a few minutes ago you released the report House Price Assessment. After your opening remarks, we will proceed to the question and answer session. The floor is yours. Thank you.
Jason Jacques, Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Thank you.
Honourable senators, thank you for the invitation to appear before you today. We are pleased to be here to support your study of the housing situation in Canada in the context of the current barriers in the private sector.
[English]
In accordance with the Parliamentary Budget Officer’s, or PBO’s, legislative mandate to provide impartial, independent analysis to help parliamentarians fulfill their constitutional role, which consists of holding the government accountable, my office has and will continue to prepare reports and analyses on the state of housing and Canada’s housing market.
In the last month, our office has published two reports on this subject: Household Formation and the Housing Stock: Estimating the Housing Gap in 2035 as well as an update of our House Price Assessment report, which was published earlier today. These reports present analysis on Canada’s housing supply and on housing affordability across the country.
In the interest of providing the most detailed information to this committee, I have my colleagues Caroline Nicol and Louis Perrault with me today. They are the experts who led the analysis that underpins these reports.
While I am, of course, prepared to answer any and all of your questions, I believe the committee’s work will benefit from the opportunity to hear from them. With your permission, I have asked my colleagues to respond directly to your questions.
[Translation]
Our office remains committed to our core mandate: providing independent and non-partisan analysis of the nation’s finances and the Canadian economy.
Thank you for your time. We’ll be happy to answer your questions.
The Chair: Thank you, Mr. Jacques.
[English]
Senator Varone: Thank you for being here. I have two questions, completely unrelated. One is on your new report, and one is on a previously published report. Concerning Bill C-4, Part 2, the 5% HST rebate for first-time buyers, you previously estimated that would affect roughly 13,000 housing starts per year, but you also extended it to say that if it were extended to the whole of the market in the private market, it would relate to 60,000 to 65,000 homes per year. And then if it were also extended to the non-purpose-built rentals, you are talking increasing that to 130,000 or 135,000 starts per year. The cost of this was $400 million versus extending it to the whole of the market at roughly $1.6 billion to $2 billion; I’m not sure what the number was.
But if you don’t do it, and given the crisis we are in today, have you calculated the cost to the federal government of not doing it, meaning it is the reverse? That would include people who will be laid off, no longer employed; those income taxes that will remain uncollected, the income taxes from builders that you cannot collect because the industry is in crisis and has collapsed. I am wondering if you had any analysis as to that delta of cost.
Mr. Jacques: Thank you for the question. The short answer is no. The longer answer, which won’t be a lot longer because I know we are pressed for time, is that the mandate of the Parliamentary Budget Office — interim or permanent — is to estimate the cost of the government’s proposals or proposals being considered by Parliament, not to specifically look at cost avoidance or policy trade-offs. The questions you raise are certainly valid, and, for better or worse, they are outside of our mandate.
Senator Varone: Whose mandate would it be in?
Mr. Jacques: I think it obviously would squarely fit within the mandate of the federal public service. I would say that if the committee were interested in having us prepare a more detailed analysis and a more detailed microanalysis of the sector — as you are aware, we do calculations on an average annual basis across the country, but there are effectively 16 individual housing markets — that is certainly something we could take under consideration.
The reason we are not doing the work is the feedback I have had while working in the Parliamentary Budget Office for the past 17 years, which is that parliamentarians don’t want a rogue Parliamentary Budget Officer proactively undertaking policy analysis around pet projects.
That said, if there is a request from a committee and from all senators for us to actually undertake more complex work, it is something we would definitely be open to doing and willing to do.
Senator Varone: The second question relates to your recently released report, this morning at 9:30. You talk about mortgage debt service ratios, or DSRs, and the gap narrowing in terms of DSRs and the value of homes in certain market areas. But my concern is that in real time in the marketplace, as prices fall, they fall by a greater percentage than the ability of each homeowner to pay down their mortgage. At time of renewal, it is not the debt service ratio that is taken into account by the banks; it is the debt-to-equity ratio. In many cases, they have fallen below the thresholds of banks’ ability to lend to them. So their mortgages go from conventional to high-ratio mortgages.
The reality is that Canada Mortgage and Housing Corporation, or CMHC, is not there on renewal to help them keep their home, never mind buy a new home. That’s what I pulled out of this report today.
My question is about CMHC and their ability to help Canadians keep the homes they are in, especially in the circumstances where the price of the home that they bought three years ago has now dropped, but their mortgage has not dropped in keeping. And if they were buying in the first place, a high‑ratio mortgage, that is available to them, but now today it is not. So what is the role of CMHC in this process, in allowing Canadians to stay in the shelter they have?
Mr. Jacques: It’s a good point, and it’s a valid question. The mandate of CMHC — we are a very boring accounting and economics budget office. We are not a policy office. It is definitely a concern. I would say it is something we take into account as part of our economic modelling. As you point out, and a point we have made in the past, the mainstay of the Canadian economy are Canadian families, who need to live somewhere, and they live in houses. Usually, the most important investment asset for most people across the country is the home that they hopefully own at least a good part of. It is certainly something that we take into account in terms of homeownership — how much money is being paid out on a mortgage, so the debt service ratio, and mortgage delinquency rates. It is something we certainly take into account.
In terms of the policy intervention, it is a valid question but one that we are not in a good place to answer.
Senator Wallin: Welcome. I have two questions, two different topics. What are the issues — and I’ll list a couple, but you may have others — unexpected increases in immigration, migration, red tape at provincial and municipal levels, uncertainty in the federal economic picture? Can you rank what it is that has been the biggest roadblock or roadblocks to housing building, to housing starts, to the housing situation?
Caroline Nicol, Advisor-Analyst, Office of the Parliamentary Budget Officer: I don’t know if I can rank them in that way, but I think in our housing supply gap report, one thing we have highlighted in the last couple of years that created the worsening in the housing market is this imbalance between supply and demand. Since 2022, there was high demographic growth coming only from immigration, and we did see supply increase and go above its historical trend to try to meet demand, but it was not sufficient. It created a situation where demographic demand for housing was much higher than supply, putting a lot of pressures on prices in one sense. I think underlying that is also the capacity of supply to meet demand is — we don’t necessarily go into the reason why supply was not able to keep up. Obviously, there is a time element where there is a lag in housing supply. They are long-term projects; it takes many years to get a project from a permit to a housing start and a completion. There is a different timing issue there for sure.
But one thing we can mention is that in our outlook when we look at that balance between housing demand and supply, due to the reduction in the immigration target — just mechanically, because there are fewer people demanding housing — we see in the medium term an improvement of demographic pressure on the housing supply.
Senator Wallin: We took testimony on this and did a report in December of 2023. We had two very compelling witnesses who talked about the red tape issue at the municipal and provincial levels, which is sometimes so contradictory that building going on across the same street has a different set of rules. We suggested and asked that the federal government use its persuasive powers to try to convince people. Do you see any movement on that front, of people understanding how crucial the red tape issue is?
Ms. Nicol: I’ll go a little broader before going directly to your question. In our modelling, in our work, one of the biggest challenges is trying to have a systematic and precise picture of how policies influence the housing supply. It has really been a challenge. It was on our wish list when we did the work to approach that question, and the issue we are facing — and it is something we discussed with other organizations that do similar work — is the heterogeneity across the country of those policies. There is no clear data that we can use to sort of model the impact on the national level of constraints at the policy level on the housing supply.
But when we do our work, we do see that there are other factors beyond macroeconomic variables like house prices, wages and demographic demand that are playing into the equation. It does suggest that those policies have a role there.
Senator Wallin: I will quickly ask for some advice for all of us as we look at Mark Carney’s new math when it comes to the budget and separating out the categories about how we should read that budget. What should we be looking at in terms of combining the numbers so that we can get a more accurate picture? When you divide up debt and deficit spending, et cetera, and different categories, spending and investment, are there any helpful hints you can give us for assessing that budget when we see it?
Mr. Jacques: Thank you for the question. I can speak to what we are planning on doing. The first point I would make is the government has promised that they are not going to take anything away. So the traditional financial metrics that everyone has come to know and love, like the traditional deficit measures, the debt-to-GDP — I know and love them — those are still going to be there, and certainly we are going to be paying attention to those.
I have been doing a lot of reading on evenings and weekends on other jurisdictions, in particular the United Kingdom, around their operating capital budgets. It is something they have had in place since the mid-1990s in terms of what goes into the two separate categories, why it goes into the two separate categories, and then how it is combined back together.
In addition to the U.K., I have also been spending a lot of time looking at provincial governments because virtually every provincial government has an operating budget and a capital budget. What goes into the capital bucket will differ from province to province, but it is something that already exists. Those are things I’m certainly looking at. I think there is a good possibility it could be additive.
Something I mentioned last night is the government has already indicated they are going down this path. This is how they are making decisions internally around resource allocation. I think it is a good transparency boost if the way that they make decisions internally they actually present to the public, notwithstanding the additional complexity.
Senator McBean: Thank you. Federal spending on housing affordability has increased, yet the number of households in core housing need is projected to rise rather than fall. Which policy levers, such as non-market housing, tax expenditures or affordability measures in existing housing, would be most effective in reversing this trend?
Mr. Jacques: That is a very good question. I hate to say it because it is not particularly useful for you: Policy advice is well outside of the mandate of the Parliamentary Budget Officer. But it is a very good question. I think it is a better question potentially put to the Auditor General of Canada, who focuses more on ex post evaluation and comparison of federal programming and the advocacy around it.
Senator McBean: I’ll park that and ask it again when we have different people in front of us.
Senator Varone was trying to get the cost of what it would be if there is no HST rebate. I’m wondering what the cost to the federal government would be if there were an HST rebate. He cited the example of either 13,000 housing starts or if it grows to 60,000 to 65,000 housing starts or, if it were more inclusive of the co-ops as a whole, to 135,000 housing starts. Have you costed out that policy example?
Mr. Jacques: To the best of my knowledge, we have nothing public on our website right now with respect to those costings, but we can take it back to the office. If it is the will or the interest of the committee, we can furnish those numbers to the committee.
We are happy to do the work. That’s why we exist. You are the clients. You are undertaking a study. If you need accountants to run through numbers to furnish them to you so you can make better policy decisions, we are very happy to do that.
Senator McBean: Thank you. I would appreciate that.
Senator Yussuff: Thank you for being here. We will be nice to you so you may want to come back a second time. Thank you for your report also. The timeliness of it is important in the work we are doing.
The good news is in certain jurisdictions the affordability issue seems to have tapered off in some places but not throughout the country. It varies, and different elements are impacting regions across the country and what have you.
When Canadians are talking about the housing crisis, there are renters and homeowners, and there is a bigger question of affordability and how you even get into the housing market. Interest rates have had a tremendous impact on this question right across the board but also on those who have mortgages and those who want to get into the market. Of course, wages are a critical part. The metrics we are seeing on wages, wages have not risen tremendously. They are trying to keep up with inflation.
In your evaluation of what you have been able to look at just within this microcosm of this particular period, is there anything you can point to that would give a clearer sense why the trends have improved in certain jurisdictions and not in others?
Louis Perrault, Director of Policy, Office of the Parliamentary Budget Officer: I think you are right; if you look nationally, affordability looks better in that sense, and that hides this heterogeneity between the different markets. The measures we use — either the debt service ratio or the actual affordable house — the metrics we use are largely driven by interest rates as well. It is not the only one but this one has a huge impact because this goes to the ability of households to pay. In this case, if you look at the graphs themselves, you can see that because interest rates were raised, the affordability gap seems to increase, and when it starts lowering, it goes back down.
That picture is similar in most cities we have looked at. The difference will be that in some areas the prices of the housing markets cooled. Some went down and some stayed stable. If you look at, let’s say, Calgary and Montreal, they seemed to keep increasing. Mostly, the most exuberant markets seem to have had a decrease in their gap. That seems to be driven by the fact that prices have gone down and interest rates have lowered as well.
In these cases, the debt service ratios are still very high. So affordability is still an issue for Vancouver, Toronto, these large markets. But it is a mix of both the interest rates and the fact that prices have moved a bit differently across census metropolitan areas, or CMAs.
Senator Yussuff: Everybody has been focused on how we deal with some of the measures that government uses to tax the housing sector — GST, HST, fees in municipal jurisdictions, to a large extent land transfer tax at the provincial level. All these things are combined and you can put a percentage on them and say, “This is the total cost that’s involved from the government levies and taxes.”
In looking at this, and given the crisis that we are in, can you contextualize this in a way that will give policy-makers a clear sense in that if you are going to do something, where would be the best place to do something that would be the most effective in trying to move the needle in bringing affordability much closer to people’s challenge to get into the market in the first place?
Mr. Jacques: Thank you for the question. The short answer to the question, and again from the vantage point of the Parliamentary Budget Office, is that there are some data gaps. To the point you made with respect to the overall aggregate cost for developers to actually go in and build housing or create additional housing supply across the country, certainly the developers know what those costs are. I’m certain they have detailed spreadsheets they are using on a regular basis before they decide whether to go ahead with the investment or not. It would be nice to have some sort of an official dataset or tracking for the Government of Canada that is available to us that we can then incorporate to answer those questions.
I would also go back to the data gap that my colleague Caroline Nicol mentioned, which is having some sort of a consistent estimate of the red tape or the compliance burden on housing developers across the country so we can have a consistent measurement and hopefully identify within this specific jurisdiction — pick the city of your choice — that they are doing really well, and the burden is actually lower in comparison to others. That will lead you immediately to: Why is it lower? Is it working? Could you actually implement some new policies?
In the same way that the Government of Canada has best practice guidelines with respect to regulation and other practices across the Government of Canada, it could potentially be useful to have something similar. Because, as everyone knows, there is a considerable amount of money flowing from the federal government through tax incentives, through transfers out across the country to stimulate the housing supply.
Senator Loffreda: Mr. Jacques, nice to see you again. Your office released an updated report this morning on house price assessment, as we all know and are discussing. I was particularly struck by this section on debt service ratios and household financial vulnerability. We already know Canada has one of the highest levels of household debt in the world, actually; it’s something I have raised concerns about before. Your report shows that while mortgage debt service ratios have declined somewhat at the national level, households in cities like Toronto, Vancouver and Victoria remain stretched well beyond normal borrowing capacity. You did say from the start that your office provides impartial and independent analysis. I’m interested in knowing how concerned we should be from your point of view. Are Canadians taking on unsustainable levels of debt just to afford home ownership, according to your analysis? How financially vulnerable does this leave us as a country?
Mr. Perrault: I think the goal of this report was to highlight how things have gone concerning recent developments in house prices and changes in interest rates. I think if you look at CMHC’s measures now, some of the most exuberant markets to look at, whether it’s Toronto or Vancouver or Ontario, with 2019 being a date or a period of time to benchmark against, as for their affordability metric, which is similar in our case to the debt service ratio, as you can see, for Vancouver and Toronto they are still high, higher than in 2019. It is improving because I think Vancouver, if you look at the DSR with the loan-to-value ratio at 67%, it went up to 43%; now it went down to roughly 33% or 34%. So there is improvement, but it is considerably high.
I would argue it is probably concerning. At least, it is not something for most CMAs. For the periods we were looking at for 2012-14, that seemed more stable through time, and this seems to be very high.
Senator Loffreda: In looking at the periods, one of the highlights in your report is that the house prices at the national level remain well below their peak in early 2022; that’s your highlight there. The gap between the average house price and what an average household can afford has narrowed, like you said, in Toronto and Hamilton, but there is a deterioration in housing price affordability in Calgary and Quebec and my hometown of Montreal.
What are the implications of this shift to homeowners who bought at or near the peak period? I say that because the consumer is always the vehicle or motor of every economy. In your independent analysis and based on historical knowledge we have — because we have seen that before, in the 1980s — would that risk a recession going forward? To what extent are they now at risk of negative equity or financial strain when it comes to renewal, particularly if the market continues to soften? Is there any hope for affordability in Canada ever becoming a reality, especially if the market continues to soften? How far are we from that?
Mr. Jacques: I’ll touch on that. With respect to the national housing market, last week we released our five-year economic and fiscal outlook. On a national basis, we do have the housing market continuing to be a positive source of growth in the Canadian economy, but attenuating, both growth and prices, across the economy over the coming years.
Consumer spending still continues to be relatively strong, so the consumers are still holding up. So that’s what we see at an overall macro level. That said, to your point, there are distinct markets across the entire country. So, in terms of our macroeconomic outlook, it’s for Canada. But people don’t really live in Canada; they live in homes that are located in cities across the country. And those home prices and the dynamics around them are very much locally based.
Louis, do you have anything else you want to add?
Mr. Perrault: It just highlights the point that there are 16 different markets in Canada. It’s like having this Canadian picture is interesting, but it hides quite a bit of heterogeneity across the country.
Senator Martin: Good morning to all of you. My colleagues have asked similar or related questions to the ones that I have, but I wanted to relate what we heard yesterday and your report today on the house prices.
I’m from British Columbia, and you identified Toronto, Vancouver and Victoria as being the most financially vulnerable. It concerns me that Vancouver is not on the list of the six federal sites that were selected for Build Canada Homes, even though Vancouver gets mentioned at every turn as being one of the least affordable and also financially vulnerable.
So I wanted to ask about Vancouver and B.C. specifically because both Vancouver and Victoria have been identified in your report today. Would you expand a little bit more about those concerns and how we can address these concerns?
Mr. Jacques: In terms of the second part of your question, again the mandate of our office is to crunch numbers and work with an abacus and a calculator and, occasionally, a whiteboard marker. We don’t offer policy advice regarding what the government should or should not be doing.
For the three jurisdictions, the three cities that you’ve identified, and especially more narrowly in the lower mainland of B.C., in the case of Vancouver and Victoria, you see a situation where affordability has improved a little bit since 2022, but they still remain unaffordable at this point.
Certainly, when you look at the gaps between the lines, when you look at affordability going back over a longer period of time, they end up being very expensive cities overall. When you look at something like that, regardless of the economic conditions and the overall provincial approaches and interventions that are happening in those two cities to support additional supply or support people to buy their first home, if you still see these numbers, then potentially there’s something more that could be done. Again, we’re not policy experts, so I’ll leave it at that.
Senator Martin: I was hoping for you to say that, given these regional disparities, the federal housing policy effort should be targeted toward these very vulnerable markets, that this is what we should be doing, but I respect the role you play as an office.
I will turn to another item. Your August 2025 housing gap analysis projects Canada needs 3.2 million net new units by 2035, significantly lower than CMHC’s 5.3 million estimate. Your analysis suggests the government’s reduced immigration targets could decrease the housing gap by 534,000 units by 2030. However, you’ve noted significant risk in these projections due to uncertainties about temporary resident departures.
My question is, could you elaborate on this? And have there been any developments in the past few months that have either confirmed or alleviated your concerns?
Ms. Nicol: We raised that question because the entry into the country is a little more certain. We give somebody a visa or permanent residency, and they come into the country. When the government was setting a target to say, “We want the proportion of the population of temporary residents to be 5% by this date,” they control who comes into the country and when and the quantity of that.
However, when we are talking about outflow, there’s a bit less certainty around that. I will give you an example. When a person has a student visa, in certain cases, if they meet the criteria, they have the possibility to get a postgraduate visa, so this would extend their stay in the country. And we’re talking about human decisions, people planning their lives, and that’s harder to project.
So we highlighted the fact that when the government set those immigration targets, there was a risk that they wouldn’t meet those timelines, those objectives, because the behaviours of the individuals might be different than what they are expecting. There is a risk that people opt to get a postgraduate visa at a higher rate than historically, for example.
Senator Martin: Thank you.
Senator Ringuette: Thank you for being here. I have a few questions. First, you state on page 4 of your report issued this morning, “The house price affordability gap is defined as the percentage difference between actual house prices and affordable prices.”
In regard to affordable prices, what is your benchmark? Is that the 30% that has been in place since the Second World War?
Mr. Perrault: No. You could call it a theoretical construction.
Senator Ringuette: Okay. So what is it?
Mr. Perrault: It’s taking the debt service ratio at a period we thought was very good — it’s a good benchmark — in 2012 to 2014. We add to this the debt, the monthly payment you would need to achieve it. Then you put it in, and out comes a price that we would consider affordable, based on the years 2012 to 2014. And it’s using the income at this particular time we’re looking at. It gives us a price we consider to be affordable.
Then we look at the price that is actually in that market and do the difference between the two. Then we say, well, there’s a gap between.
Senator Ringuette: Is that the standard in the economist field, or is that your standard in your office?
Mr. Perrault: This is the third report we’ve published using this methodology. It’s a methodology that we have taken from the International Monetary Fund, from a 2019 report.
Senator Ringuette: Second, again on page 4 of your report, Figure 2 is puzzling because when you look at the spread between the Bank of Canada rate and the five-year mortgage rate from our banking institutions, there is a flux there. In 2016, it was about 2.5; in 2019, 2; in 2021, 2.5. And in 2024, it went as low as 1.5. I’m trying to understand this kind of trend.
When the Bank of Canada increases its overnight rate, the spread with the financial institutions for mortgages lowers. Does that speak to an issue of competition? Does it speak to the CMHC mortgage insurance program? I’m trying to understand the spread. A normal banking institution would have a consistent spread between the Bank of Canada rate and its mortgage lending rate, but here it varies, and I find it bizarre. I’m looking to see if you have an answer for that.
Mr. Perrault: We didn’t specifically look at explaining the gap between the two. The change in the gap definitely explains some of the movement when we look at the affordability gap in our report. Competition might be one explanation, but there could be different explanations. It could be the risk. Is there more risk? For banks and from their point of lending, their expectations on prices going up or down would affect the risk premium for them. There could also be their own expectations of where the interest rates will go in the future. There are many factors that could explain that. I wouldn’t say competition is the main driver. That would be outside my expertise.
Senator Ringuette: Essentially, you have not done a deep dive into trying to explain. To look at the future of mortgages regarding affordability challenges, from my perspective, it is quite important for consumers to understand what they will be facing.
Mr. Perrault: For this report, interest rates are a major driver for the metrics we use. The one in our report, we used the estimated Bank of Canada rate that they measure, the effective rate, the one that is actually being used. We took care to use that one to have the proper profile, we think, for our metrics.
Senator Ringuette: Thank you.
[Translation]
Senator Henkel: Thank you for being here this morning.
I have two questions. My first question concerns the lack of household formation. Your analysis shows that in 2021, approximately 631,000 households could not be formed due to a lack of accessible housing, and that number could grow to 714,000 households by 2035. In practical terms, what economic and social effects do you anticipate these households not forming will have, particularly for young adults, labour mobility and economic growth?
Ms. Nicol: We believe it’s important to include this aspect when calculating the total demand for housing in Canada. We can look at historical trends. The metric we use is essentially household size. What we found is that in some jurisdictions, particularly in Ontario and British Columbia, household size was growing for certain age groups, particularly young adults. This could imply that young adults were staying with their parents longer and had more roommates than they would have liked. In our opinion, there are clearly some obstacles keeping certain individuals from forming their own household.
When the country plans for future housing supply, it’s important not only to look at demographics based on historical periods to determine how many families will be formed and how many of them will need housing, but also to ensure that a sufficient number of homes are available so that this trend can be reversed and everyone who wants to form a household, move out of their parents’ home and have no roommates can do so. In the planning stage, it’s important to take this into account and ensure that total demand is considered.
Senator Henkel: Thank you. However, I’d like to know if you have assessed the economic and social effects of these households not being formed. My question was more about that.
Ms. Nicol: We haven’t necessarily studied the economic impact of that. It’s certainly true that more households would result in a multiplier effect, because each household would need a refrigerator, for example. Therefore, there would be added consumer demand. Our study really focused on the impact it’s having on housing demand. However, it’s certainly true that there could be additional consumer demand if the households were to be formed. There’s no doubt about it.
Senator Henkel: In your 2035 housing supply projections, did you consider the contribution of alternative models, such as housing cooperatives? If so, what quantitative role can they play in narrowing the presumed gap of 3.2 million housing units identified?
Ms. Nicol: We didn’t necessarily go into that level of detail. We tried to come up with a basic assumption where the risk is balanced. We take a slightly more macroeconomic approach where we really look at the fundamental market forces, and we try to come up with a kind of curve where the risk is balanced. We don’t necessarily look at the details. We conclude in our report that additional housing supply is needed to meet demand. We don’t necessarily mention how to get there. However, anything that increases the supply of housing units would certainly be a good thing for this market.
Senator Henkel: In your construction projections and assessment of the housing supply gap, do you distinguish between different types of housing, cooperative housing, social housing, and private housing, for example? You don’t do that?
Ms. Nicol: No. One thing we’ve found is that it’s easy to get bogged down in the complexities. When we did the first version in 2024, there was no basic figure of sorts in the Canadian economy. If we look at the number of families that will be started in Canada and the number of housing units, be it condos, single-family homes, or co-ops, is supply ever going to meet demand? No one had ever looked into this. We wanted to bring it to the forefront. We really wanted a very basic approach. The report says that when we talk about 3.2 million units, it’s essential that those units be spread appropriately across all regions. Earlier, we talked about the needs in various regions, that those homes have to be in the right place and meet people’s needs, including the number of bedrooms, price, quality, and so on. The figure of 3.2 million units is only the beginning of the answer. We will have to ensure that the units we build fully meet people’s needs so that the issue can be resolved.
Senator Dalphond: In Figure 1, you used an indicator that National Bank and Teranet don’t use. You used the MLS indicator instead. Is that the asking price or the actual purchase price?
Mr. Perrault: Actually, it’s a construct as well, like an index that uses a statistical regression method to get an idea of what a representative house looks like in each city. It differs from Teranet’s metric, which is based on another statistical method that only looks at repeat sales. It’s a slightly different metric, and it’s the one we used in our two other reports. It also seems to capture what’s happening in Toronto as well.
Senator Dalphond: Does MLS use the asking price or the purchase price? I’ve noticed that, more and more, the purchase price is lower than the asking price.
Mr. Perrault: That’s an excellent question. I don’t want to speculate as to what price they used in their regression. I can look into it and get back to you with the answer.
Senator Dalphond: Because it varies from neighbourhood to neighbourhood in a city. I live in a neighbourhood where prices are still going up, while in adjacent neighbourhoods, they are falling. When you scratch the surface a little, I notice that when people put their house up for sale, they don’t ask the lowest price. They try to list at the highest possible price, and the broker helps them. For some time now, I’ve noticed that many sales have been closing below the asking price. The gap could be a little narrower in terms of what’s available versus what people are able to buy, because if they pay $50,000 less, I imagine that reduces—
Mr. Perrault: I get the impression that this would probably be the sale price, but I will check before I go and put forward a falsehood.
Senator Dalphond: In your study in August on house availability and construction, you estimated that in 2025, there would be a sharp drop in the number of housing starts, that this would continue into 2026 and that the number would drop even further. Did you use that premise again for the calculations here, or is that neither here nor there?
Ms. Nicol: Are we talking about Figure 1 or Figure 2?
Senator Dalphond: The one from August is Figure 1.
Ms. Nicol: It’s household formation, Figure 1. What we’re showing here is the demographic aspect. There was an influx of immigrants until 2024 when the new immigration targets were implemented. That caused a much bigger drop in household formation. However, I can answer your question about housing supply. What we’re seeing right now is we still have sustained regional housing starts. Things are difficult in Toronto in particular. The situation is slightly better for the rest of the country. For the next decade, we predict that once this excessive demographic demand has been met, housing starts and completions will return to more historical trends.
Senator Dalphond: That’s Figure 2 from August?
Ms. Nicol: Yes.
Senator Dalphond: Therefore, that means that all the programs we’re putting in place to spur construction are being taken into account despite the drop in housing starts?
Ms. Nicol: In terms of the policies included in these projections, this goes back to the 2024 Fall Economic Statement, especially Budget 2024, which brought in a lot of housing measures. We released this to provide a baseline projection, knowing that a lot of housing measures are coming. It gives us something that can be added to later.
The driving force behind this decline and rebound is demographics. The factor we identify as the driver of housing supply is the population to housing stock ratio. When there’s excess demand, supply will meet that demand. Once this phenomenon weakens, we return to historical trends.
Senator Dalphond: Is there some kind of correlation between housing starts and population growth?
Ms. Nicol: Yes.
Senator Dalphond: Aren’t the measures in the new Building Canada Act and all the tax incentives, tax cuts, and so on, really considered to have an impact that will distort the normal curve if immigration or the population declines? Will housing starts decline? Will we be able to measure that later, but not right now?
Ms. Nicol: Yes, that’s not taken into account here because we wanted to make a baseline projection to which we can add these metrics later if necessary.
We conclude in our report that over the next decade, housing supply under the status quo will not be sufficient, particularly because fewer individuals will form households. That type of demand is not currently being observed but could crop up once more housing is available. That’s for sure.
Senator Dalphond: If the programs are effective, would that mean that there will be more housing starts than the premise? Would that mean the gap might narrow?
Ms. Nicol: That would be the goal.
Senator Dalphond: All right, thank you.
The Chair: That concludes the first round, but I have a question, and we have at least six senators for the second round of questions. Might you be available for another 20 minutes? Thank you for your flexibility.
I’d like you to clarify the numbers for me, because a lot of numbers have been going around. CMHC is saying 3.5 million units must be built over the next decade. That would require almost 500,000 housing starts per year, when we have never exceeded 275,000 in Canada, to achieve a level of affordability. In your comments, you mention August. When you refer to the CMHC study, you add the following:
… reaching CMHC’s targeted levels of affordability would require significant overbuilding of new housing units such that there would be abnormally high levels of unoccupied housing units and/or households with second homes.
CMHC is being given $5.3 million for an affordability target. You say that there is a shortfall of 3.2 million units and that, basically, we should have 290,000 housing starts per year, which is much more achievable than 500,000 housing starts. Can you untangle this for us and shed some light on it?
The first time I heard about 500,000 housing starts per year from CMHC, I thought we would never get there. But when we talk about 290,000, that seems much more reasonable to me, especially given your statement that achieving CMHC affordability levels will require significant overbuilding, but will then lead to unoccupied housing.
Please enlighten us.
Ms. Nicol: Their approach is a little different from ours. They have an affordability target for house prices and they use supply. What level of supply would we need to achieve that price? That largely explains why they arrive at a higher figure. However, we look at demographic demand and the lack of household formation. Here is the supply and therefore the imbalance.
I think the point we make in our report is that when we apply their figures to our framework by comparing supply and demand, we see that if we wish to attain those prices we would create a housing supply situation with a very high vacancy rate. We address this issue in our report: Does Canada Mortgage and Housing Corporation take it into account in its figures? Is that what is wanted, in a way?
The Chair: Thank you for your answer. You say that, given the demand that comes with immigration and everything else, we need about 290,000 housing starts per year in the coming years, while CMHC tells us that if we want prices affordable again, we will go from a housing shortage to overcapacity. This will trigger a boom-bust cycle in the real estate sector. That’s my understanding. Thank you for your insight.
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Senator Varone: I am not an economist. For that I will defer to our esteemed chairman, but I will take a stab at economic theory in terms of supply and demand as it relates to housing.
In housing, you have land and construction costs. They’re both dynamic and subject themselves to supply-demand theory — more supply, less cost, more competition. Then you have government charges. It’s a layer on top of that, and whether it be the HST, the land transfer tax, development charges, they’re static. They don’t move with the market. They’re just there.
I’m curious in terms of the 16 markets you’ve identified across Canada that you monitor where sales have improved relative to the static government charges or where there are no government charges. In the hot markets, where there is supply and there is demand, it’s not making a market, and the complaint there is the static nature of the government charges are preventing the market from happening.
Is it something that you will study or can look at in terms of the 16 markets that you are identifying — the largesse of the government taxation in those markets?
Mr. Jacques: It’s something that we haven’t specifically looked at in terms of the federal and, potentially, provincial tax burdens on development charges across the 16 different markets. Again, with a motion from the committee, we obviously would be happy to look into it for you.
Senator Varone: Thank you.
Senator Wallin: I’m going to go back to my earlier question briefly. I think last night your words were that you liken federal spending to reckless driving on a narrow road and hopefully trying to avert a car crash.
Just back to that point of the new way of assessing numbers, where Prime Minister Carney has said he will have an operating budget, which he will balance in three years, and a capital budget, which will have small deficits, when you look at that with your abacus in hand, the spending is continuing, as you’ve talked about, and then there is also the potential loss of tax revenue on a lot of fronts, including GST and all of those things. Do you think there is any realistic chance of balancing an operating budget in three years in the current circumstances?
Mr. Jacques: I seem to recall what I said last night with respect to the driving analogy, which was that the challenge for the federal government is that in the current environment, they need to put their foot on the brake and the gas at the same time and hold on to the steering wheel and make sure that they’re able to maintain control of the car.
I would say, over the past 30 years, it is exceptionally challenging and potentially the most challenging fiscal situation for any government, because in the past when they have faced a challenging fiscal environment, they’ve only had to do one of two things, either the brake or the gas. In the 1990s, it was to bring it back to balance, so cut, effectively, or push off the responsibilities to the provinces through reductions to transfers.
If you take the example of 2008, it was a situation of how much money needed to be spent and what sectors were going to be left outside of the standard federal government interventions.
Now the federal government and all of you are faced with a situation where you need to do both at the same time: both reduce spending in some areas and expand spending in other areas, and do it very quickly. It makes it exceptionally challenging.
In terms of the ability of the federal government to balance the operating budget, yes, they obviously have the capacity to do so. I go back to a quote from Mr. Chrétien with respect to his experience in the 1990s that it’s not a question whether one is able to do it; it is a question of — I think he used the word volonté — willingness.
Again, there are significant trade-offs, which is why those decisions are made in the House and in the Senate.
Senator Wallin: In terms of the lost tax revenue, how much does that concern you in terms of that balancing?
Mr. Jacques: The policy initiatives that the government implemented over the past six months or so — I’m thinking, in particular, of the reduction in the basic personal income tax rate, the first rate, from 15% down to 14% and the elimination of the digital services tax — it definitely makes it more challenging for the government because it’s a loss of revenue of around $7 billion to $8 billion a year. But again, I’m the person who works the abacus. I’m not the person who provides policy advice, and it’s a complex economy.
Senator Wallin: Thank you.
Senator Yussuff: Just in regard to your report and our challenges in terms of looking at the crisis as we see it in the housing sector, there are some difficult things that we can’t really provide answers to because the metrics are not constant. They are very different in jurisdictions.
If we were to ask you as a committee to provide some analysis to give us a constant metric so at least we’re starting from some place — we’re not comparing our apples to oranges; we’re comparing oranges to oranges — I think it would be easier to see a horizon where you can actually use policy tools to get to that place. Because, to be fair, we’re trying to mix so many things up, and every jurisdiction has their own set of rules, and to be fair to the consumers and policy objectives, I don’t know how we’re going to get there. If we were to ask you that, what I heard you say earlier is that you are prepared if the committee made a decision to do so and you would look at those things for us.
The last thing I would like to ask that may be of some benefit to the committee because we’re looking at some recommendations we could make in our study, on the federal side, given the variety of issues we’re faced with, are there one or two things you think the federal government can do that would have a profound impact on the affordability question?
This is the real challenge we face in the country. People are working very hard. They want to get a roof over their head, and the metrics that they’re dealing with keep moving, and in hot markets like Toronto, it’s really hard. In other markets, it may be a bit easier because they’re not dealing with the same challenges. We have other problems in Toronto. We don’t have places to build. We have limited space, so we can only go up in the context of creating more space for the population.
Is there one policy tool, given the federal government’s jurisdiction, that you would recommend that would be of value given your study that is so timely right now?
Mr. Jacques: Again, for us, the mandate of the office is not to provide policy advice. I won’t provide policy advice, but I will point to two of the major economic determinants that we point out in our reports with respect to the affordability around housing, and you certainly see it in the figures.
First is the influence of interest rates, so the availability of mortgages and the five-year mortgage rate. The variability around that has a significant influence with respect to housing affordability and people being able to have access to their first home.
The second factor, of course, is wages. Strong wages and strong wage growth across the population mean that people have more money in their pockets, and the share of their income that they can devote to a mortgage payment ends up being a bit higher.
Senator Yussuff: Thank you.
Senator Loffreda: When it comes to housing affordability, it is our main goal, and it is major concern across the country, as you know, and this is why we’re studying it. I’ll keep my focus on that concern.
I’m glad you clarified the numbers based on our chair’s question with respect to the CMHC and your numbers because, just to clarify, in your August report Household Formation and the Housing Stock, you estimate that closing Canada’s housing gap by 2035 would require 3.2 million net new units, or roughly 290,000 completions per year over the next decade. That would mean surpassing the record high of 276,000 units completed in 2024 for 11 consecutive years.
Beyond overcoming the supply side barriers — we can discuss those for a very long time — how confident are you that this level of construction would actually translate into improved affordability, and what hypotheses have you made that risk being shattered or not met over that period?
Ms. Nicol: In terms of affordability, there are a couple of things we mentioned that are important in the report. Getting those 3.2 million units built would not necessarily solve the affordability issue. It’s not necessarily the lens we look through. What it would do is take away the effect of excess demand on prices, which has been a main factor and a big issue for affordability. It would definitely be an improvement.
As to whether building those units would be enough to fix the affordability issue, we have to look at a broader thing. As I said before, we have to first make sure those units are in the right market and are the right type to meet demand, but also other factors like income and interest rates also come into play when it comes to housing prices.
Senator Loffreda: But when you did put out the analysis, what hypotheses have you made on the income and on the interest rates going forward?
Ms. Nicol: It was based on an updated economic baseline of our economic projections. It would resemble closely the economic and fiscal outlook we published last week. It may be a bit more positive because we didn’t have all the impacts of the trade situation in there, but it is a very baseline assumption regarding those factors. Using our new projection in there would probably give a worse picture of the housing gap because we do have a negative revision on income, for example.
An economic risk in there or supply cost increases would be threats to the outlook we’re giving that would make it worse.
Our baseline outlook is lower than the 290,000 units that we say would be sufficient to fill the housing gap. Beyond our baseline and our status quo that we’re presenting, there are supplemental efforts that are necessary to close that gap. It’s very much towards increasing the supply where we have to go to fix the housing gap.
Senator McBean: I’m going to try and stick with an accounting task versus a policy question.
Considering that builders aren’t building if people aren’t buying — I’m pulling from an article that Mike Moffatt wrote in The Hub, and it’s considering the new GST housing rebate. He posited that in 2024 over $6 billion was collected in GST for new home construction, with rebates of about $300 million for a rate of about under 5%.
When the Mulroney government designed the GST, they recognized that it could cause harm to housing affordability, and they designed the rebate system to ensure that the HST/GST system didn’t pose a barrier to affordable housing in Canada, but the limits for homes at $350,000 and $450,000 for where the rebates would fall into for the 36% haven’t shifted. So can I put it to your office — and maybe you can instruct us on how this has to happen because I heard you say something like we have to create a motion — can you calculate the difference that HST rebates would come to if you calculated the rebate based on current housing prices instead of housing prices at $350,000 to $450,000? Could you also come up with it if you were to consider using, instead of a national housing price average, the housing price average for each of the 16 regions that you’re looking at?
Mr. Jacques: The short answer is yes, although I don’t know of the 16 regions how we do it, off the top of my head.
Senator McBean: Do you have an average housing cost for each of the regions? The average housing cost in the Toronto region is different than Winnipeg.
Mr. Jacques: My only hesitation, without being familiar with the numbers, as anyone who has dealt with this — less so accountants but definitely economists — is we can definitely generate numbers for you, but I want to make sure they’re useful numbers. If there is a motion from the committee, we could definitely look at that.
Again, I’ll compliment on your excellent research because I also have the tax expenditures report for the Government of Canada, and that specific page for the rebate for new housing was implemented as a policy objective to ensure the new GST didn’t pose a barrier to affordability of new homes. We could definitely look at that, as well as, again, taking into account the new measure that is currently being put into place, the new GST rebate.
Senator McBean: If you have the information there, what was the original per cent of rebate?
Mr. Jacques: The original per cent of the rebate, the cap ended up being quite a bit lower. So it was effectively 100%. You ended up getting a full rebate or the full benefit at $350,000, and then it ended up being phased out up to $450,000. To your point, it wasn’t indexed. When it was implemented, if you were buying a home in the early 1990s, $350,000 did go a long way, certainly more than it goes now. It’s the perniciousness of inflation. Fast-forward 30 years, and that $350,000 rebate isn’t worth as much as it used to be.
Senator McBean: Thank you very much.
Mr. Jacques: You’re welcome.
Senator Ringuette: I’ll want to be as quick as possible. Currently, your mortgage is between 20 and 25 years. There are fewer at 30 years, very few, but when you look at the fact that a 25-year-old in the labour market wants to start to establish a household, and their retirement age is 65 — it could go higher — we’re looking at 40 years that a household must pay for a roof over their heads.
How would a 40-year mortgage affect the affordability factor in this scenario? How would that scenario also affect the issue of household debt versus household equity? Can you analyze this scenario?
Mr. Jacques: We certainly can, with a motion from the committee. With a longer amortization period, obviously, you will be able to borrow more. You will have better cash flow. You will be taking on more debt and so paying more interest over your lifetime.
Senator Ringuette: But you are building equity.
Mr. Jacques: You’re definitely building equity. In terms of the demand and supply side, a major challenge, which we highlight in our report, is the supply side. If someone is able to amortize their mortgage over a longer period of time, say a 40‑year amortization rate or longer, that will stimulate the demand side. Potentially, it won’t solve the problem of not enough homes on the market and not enough supply at this point.
The other consideration, going back to the report that we published this morning, is we calculate things on a national basis. There are 16 different major markets across the country, and so having a national policy implemented on a national basis might not necessarily be the best fit for all the local markets, especially some of the local idiosyncrasies around development charges or permitting or what have you in specific cities.
We can definitely look at the numbers. Something that struck me on housing is it is very much a local story. Again, we can generate numbers for you, but I don’t know to what extent national numbers will help in terms of solving the national housing crisis, which is very much, again, an aggregation of local issues and local challenges.
Senator Ringuette: We are looking at long-term affordability for homeowners. That’s the premise, really.
Mr. Perrault: In our report, we make the assumption that it’s a 25-year mortgage. That’s how we generate the monthly payment. Mechanically, if you were going to use 40 years, then you would definitely see the price a household could afford would go up.
Also, it would change the debt service ratio. It would go down. That’s true, but it ignores the equity part. It ignores the future impact of Canadians’ having even more debt. But if you just look at the metrics in this report, yeah, it would look better.
Senator Ringuette: If you consider that one has to pay for a roof, either you pay and build up equity or you pay and build equity for a third party. That’s the scenario.
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The Chair: Thank you to the interim Parliamentary Budget Officer for joining us this morning.
Last night, you appeared before the Standing Senate Committee on National Finance. Thank you. Your testimony has been duly noted and will be taken into consideration. It was very informative and much appreciated.
Honourable colleagues, before we suspend this meeting to move to our in camera portion, I wish to take a short moment to extend our sincere gratitude to all supporting staff who allow us to conduct these meetings: our clerk, our Library of Parliament analysts, our interpreters, our support staff, our TV crew operators and anyone involved in producing our minutes. Thank you.
With this said, we will now suspend the meeting and proceed with the in camera portion.
(The committee continued in camera.)