THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, October 22, 2025
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:15 p.m. [ET] to examine and report on Canada’s housing crisis and the challenges currently facing Canadian home buyers, with a particular focus on government taxes, fees and levies.
Senator Clément Gignac (Chair) in the chair.
[Translation]
The Chair: Good afternoon, 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 listening to us online on 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 Loffreda: Tony Loffreda from Quebec.
Senator Ringuette: Pierrette Ringuette from New Brunswick.
[English]
Senator McBean: Senator Marnie McBean, Ontario.
Senator Yussuff: Hassan Yussuff, Ontario.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Wallin: Pamela Wallin, Saskatchewan.
[Translation]
The Chair: Senators, we continue today our special study on Canada’s housing crisis and the challenges currently facing Canadian home buyers, with a particular focus on government taxes, fees and levies.
I wish to welcome our witness to this committee who are both joining us via video conference: Jeremy Read, Chief Executive Officer, University of Winnipeg Community Renewal Corporation & UWCRC 2.0 Inc. and Derek Ballantyne, Chief Executive Officer and Managing Partner of New Market Funds, Boann Funds.
[English]
I extend to you both a warm welcome to our committee. Thank you for accepting to appear before us today.
As you are appearing before us via video conference, should any technical challenges arise, particularly in relation to interpretation, please let us know and we will temporarily suspend the meeting.
Mr. Read and Mr. Ballantyne, I understand that you have some opening remarks. You have the floor.
Jeremy Read, Chief Executive Officer, University of Winnipeg Community Renewal Corporation & UWCRC 2.0 Inc.: Before I begin, I would like to thank the Senate Standing Committe on Banking, Commerce and the Economy for this invitation. It is a privilege to have the opportunity to speak with you today. I hope that our input will be of some value to the matters that you are considering.
My name is Jeremy Read. I have a background serving as an adviser to successive University of Winnipeg presidents, as a civil servant in intergovernmental relations and as an adviser to a provincial premier and several provincial ministers.
For the last nine years, I have served in senior roles in two development entities. For seven of those years, I have served as their CEO. The first of these organizations, the University of Winnipeg Community Renewal Corporation, or UWCRC, was incorporated in 2005 with a values-driven mandate to address the University of Winnipeg’s infrastructure needs and contribute to the revitalization of the city’s downtown core. This infrastructure included some student housing and community housing projects.
In 2016, in response to requests to utilize the capacities of UWCRC by other local not-for-profit entities and Indigenous organizations, UWCRC spun out a sister community development organization, UWCRC 2.0.
UWCRC 2.0 is a non-profit developer and housing provider committed to advancing inclusive, community-driven development in Winnipeg’s urban core and elsewhere in the city and province. UWCRC 2.0 specializes in the creation of high-quality mixed-income and affordable rental housing that fosters inclusion, environmental sustainability and long-term affordability. We also specialize in community and social infrastructure development. Since our founding, UWCRC 2.0 has grown into Canada Mortgage and Housing Corporation’s, or CMHC’s, most active not-for-profit housing developer in Western Canada and holds CMHC’s Frequent Builder status. In less than a decade, UWCRC 2.0 will have delivered just under 800 units of multi-residential housing with 60% of those units being affordable. We have another just under 700 units in development for delivery in the next two to three years.
We partner with non-profits and Indigenous organizations who require additional development capacity to create new social housing, with a growing specialization in the delivery of gender-based violence beds and units for several of our clients.
We are recognized as leaders in sustainable development. We firmly believe that affordability and sustainability needn’t be mutually exclusive objectives. Two of our developments — the Solara Flats, a 21-storey, 214-unit building, and Market Lands South, a 95-unit multi-use building with 20,000 square feet of commercial space for cultural organizations — are the first residential high-rise and mid-rise zero-carbon buildings to be certified by the Canada Green Building Council, or CAGBC. Our commitment to sustainable development was recently honoured with the receipt of CAGBC’s national Green Building Visionary Award for 2025.
Our company has benefited from federal, provincial and municipal funding programs and financial incentives across various housing, cultural, sustainability and tax-based incentive and rebate programs. We can speak about what we think has worked or is working, what we believe can be enhanced and what we believe would benefit the not-for-profit, mixed-income, affordable housing sector. We also have experience in not-for-profit and for-profit partnerships and ownership arrangements and program-related impact investment vehicles, including from New Market Funds.
Today, we’d like to focus on a few funding and financing instruments that would be helpful for growing the capacity and asset base of the not-for-profit housing sector and, therefore, increase the gross number and overall percentage of available social and affordable housing units within the national housing market.
In addition to programs and financial tools that are currently available via CMHC under the current National Housing Strategy, with which we have broad experience, we would like to suggest to the committee that there are opportunities to introduce new financial instruments that would, first, create greater liquidity for non-profit housing organizations in the early and late stages of development and project delivery, primarily through short-term bridge financing backed by federal loan guarantees; and second, enlist otherwise unproductive private sector assets and capital to support the not-for-profit housing sector, perhaps by means of a combination of affordable-housing-related capital gains relief and/or investment tax credits that would enable what we might call “public-interest-property transfers” and that would additionally incentivize the private sector to inject equity into the non-profit sector either directly or indirectly.
The first instrument, that is a federal non-profit builder liquidity guarantee, could operate like Export Development Canada’s bank-risk-sharing Export Guarantee Program — same concept, different mission — and complement current CMHC financing tools by resolving timing risks through additional short-term bridge loans for projects whose funding eligibility has already been assessed.
The second set of instruments, namely the public-interest-property transfer and equity-enhancing public-interest tax incentives, would incentivize the private sector to transfer aging assets into the non-profit sector. The proposed tax incentives could, in our view, support three interrelated goals: First, they could free up private sector capital for investment or reinvestment in new housing supply. Second, they could accelerate growth in asset-based wealth in the non-profit housing sector and, thereby, increase its capacity to address affordable housing needs. Third, they could reduce the demand on the public sector as the sole source of equity provision required by not-for-profits to deliver and maintain affordable housing.
I would be happy to speak in greater detail about these instruments and the problems they are meant to address through further questions from the committee members in the time that remains for our discussion this afternoon.
The Chair: Thank you, Mr. Read. We will go now to Mr. Ballantyne for his five minutes of opening remarks. After that we will go to round-table questions.
[Translation]
Derek Ballantyne, Chief Executive Officer and Managing Partner of New Market Funds, Boann Funds: Good afternoon. Thank you for the invitation to speak to the committee today. I will make my remarks in English, but I am ready to answer your questions in French, if necessary.
[English]
I’m Derek Ballantyne, Managing Partner with New Market Funds and Chief Executive Officer of Boann Social Impact, both impact investment platforms. New Market Funds is particularly focused on housing. We are both developers of non-market housing and raise private capital for investment in the development and acquisition of existing rental housing for transfer into non-profit ownership.
We find ourselves at a really interesting time at the moment because the federal government has announced a number of measures which may well work to alleviate some of the challenges of affordability in this country, Build Canada Homes being the structural piece of that and obviously a commitment of capital dollars in support of Build Canada Homes’ activities. These are yet to be fully defined, and I think that’s where some of the challenges may exist for us.
There remain in front of us three critical issues for the country. First, without a doubt, we need to build more homes. We, by all measures, need to deliver somewhere around 500,000 homes a year, and, in my view, 10% of those homes at a minimum should be in the non-market category or at least targeted to low-income households, whether they’re delivered by the market or non-market sectors. Second, I think we need to make it easier to rent and own a home in this country, and obviously that relates to the cost of entry into the market and what kind of supply exists. Third, I would say we need to increase the access to housing for low-income households.
As a percentage of the total housing inventory, we have gone from a high in the late 1980s into the 1990s of 7% of all housing stock to what is in my estimate below 4%, although that number is difficult to confirm because we don’t keep good statistics on it. That means there is less access to affordable housing for Canadians at this point in time.
The measures around market housing and how to accelerate delivery of housing are reasonably well known and have been viewed by this committee and others — certainly, addressing issues around HST, issues around government development charges and other costs and barriers from the government approval side of things.
There is a lack of access to equity. In large markets, there is no problem around finding capital to build; it is simply the cost structure. But in secondary markets in this country, access to equity and access to capital in financing are a challenge, and that’s one of the challenges that this committee may want to think about and where it may have ability to bring suasion on those with capital to move and venture and take higher risks in those smaller markets.
On the affordable housing side, Jeremy has raised some of the issues around development that are definitely a set of tools that are required and necessary to accelerate the development of non-market housing. Predictable capital, access to capital through all phases of development and de-risking private capital that is willing to come and invest are critical parts of that equation.
To date, most private capital has come from individuals and philanthropic sources, and we have yet to unlock the larger sources of institutional capital, largely because of perceived risk or the inability to meet the return thresholds. Acting in ways which create some tax efficiency for that capital may well be able to direct it back towards affordable housing.
Finally, I would echo that the largest inventory of affordable housing that exists today is, in fact, in private ownership, and we are losing that at a very rapid rate as rents accelerate and as assets transfer. Finding mechanisms to support the transfer of assets from private ownership into non-market ownership is critical in terms of maintaining and building that inventory of affordable housing, which is the bedrock of access to housing for very-low-income households across the country. Be that on the tax incentive side, as Jeremy pointed out, or incentivizing and finding ways to incentivize increased philanthropic and individual contributions to that capital stack, both would be welcome measures that could be taken.
I look forward to your questions.
[Translation]
The Chair: Thank you, witnesses. We will now proceed to question period.
[English]
Senator Varone: Welcome, gentlemen. I read with great interest your annual report from 2023. Let me first begin by congratulating you. The manner in which you are building not-for-profit housing is rather ingenious, and it must take an awful lot of your time because of all the moving parts. It seems there are more moving parts here than building a Swiss watch.
Mr. Ballantyne, in your message from the CEO, it says that you’ve engaged 89 intermediaries that you met with at various stages of development and investment readiness, and you committed to eight properties to the tune of $33 million. Does that money get repatriated back or is that dead money for equity purposes of the building of the homes that it was targeting?
Mr. Ballantyne: Thanks for the question. No. The model we use is we raise capital and invest it on a patient basis. In rental housing and rental housing construction, time is everything. Being able to live through the first financing cycle and find affordable equity over that period of time makes all the difference to the economics of our projects, so our capital sits patiently.
We get some of the return on that capital in terms of earnings on that capital from operating revenue, but we take the risk on that operating revenue being there. We work with really great partners who know how to operate a building and can keep it in the positive territory. We exit the investments on refinancing, when equity has been built up in the project. There is the ability to take our financing out at that point in time, so our investors get a return on that capital, we get the capital back, and we get to redeploy it.
Senator Varone: What is that period?
Mr. Ballantyne: It varies between 7 and 10 years. In some cases, we think it may be longer. If rents don’t escalate at a modest rate over the life of that project or if there are some unforeseen costs, we may be in there for longer, but generally we exit in a 10-year time frame.
Senator Varone: So in order to grow what you’re doing, in your opening comments you were talking about unlocking investor money for that seed capital. Is that correct?
Mr. Ballantyne: That’s correct. Our capital comes from private investors. We are limited by the amount of capital we can raise. We have been successful and we’ve raised, across the platform, about $100 million to date, but the problem we face and the opportunity we have in front us is much larger than that, so obviously capital is the constraint we face right now.
Senator Varone: Can you elaborate on the for-profit ownership sector that, I think, the previous witness touched upon? What does that entail?
Mr. Ballantyne: In terms of what measures might be important to take at this point?
Senator Varone: Yes.
Mr. Ballantyne: I think it’s well documented that in certain large markets, private development is not moving forward, and it’s largely because of cost. There are many moving parts in a pro forma, but there are not many that have any elasticity. I think reductions in HST are a critical element in being able to make those projects work and create the front-end cash flow and really to create the ability to demonstrate a return on those projects so you can attract financing.
The second part, which is well documented, is there has been a very rapid escalation of development charges. I don’t contest the fact that municipalities and local governments need to finance infrastructure, but it has been largely — in some ways disproportionately — put on the backs of new development, and that’s an impact across all categories of housing being developed.
I think in some markets there is just a need to find ways to unlock equity. I think of somebody who came to me with a project in Kelowna for 40 units, and the math works. If somebody could come in and finance it and get a 12% return, which is a market-rate return, they cannot find the equity capital because in smaller, secondary markets, there is a perception of risk, and therefore they don’t get served in the same way as large metropolitan markets do. Is that a government backstop? Is that a way of incentivizing investment to flow in those directions? Those may be solutions we can look at.
Senator Yussuff: Let me thank both Mr. Read and Mr. Ballantyne for taking the time to be here and share your experience. Mr. Read, maybe I’ll start with you and ask you a very basic question: How do we unlock the equity in helping these developments to move a bit faster and maybe generate more equity for the work you’re trying to do and provide the kind of housing that is really much needed in the marketplace right now?
Mr. Read: I think maybe I’ll say this from the outset because I think it could help further discussion later and through today’s meeting. I think there are three different sectors with a collective interest in housing delivery, but maybe with three different sets of concerns or problems or challenges. In the private sector, I think there is a challenge in moving or creating some churn in assets related to capital gains. That means that in many properties, the equity gets stuck and it becomes unproductive in that classic Adam Smith sense. It accumulates, it sits there, but it doesn’t get put back into the economy and reinvested at a good rate for our overall economy and in creating new housing supply.
I think governments are pressured into providing either direct financing or grants, and then they increasingly feel the pressures, whether it’s on debt ceilings and the ability to borrow or, conversely, on the ability to generate the revenues to provide the kind of grant equity needed to provide non-market housing where the rents are lower and the debt-to-equity ratio — for a not-for-profit or non-market housing, there are greater equity requirements because we don’t have the annual revenues to service debt so we have to get the equity from somewhere. Governments have a hard time meeting that demand.
On the other side, non-profits have to get that equity from somewhere. Especially if you’re trying to scale up, or you’re new, like us as an organization — we’re not old, so we don’t have that built equity; we have the capacity to deliver, but we don’t necessarily have that equity base — you need to get it from somewhere.
How can you free up the private sector assets that are aging and may have — because they’ve had owners for a long period of time — either capital recapture, capital gains, taxation problems that disincentivize actual transfer to new owners, or they lead to kind of a “renoviction” type of cycle that’s not helpful in terms of generating new units and certainly new affordable units, so increasing supply.
The governments have the problem that their resources aren’t inexhaustible, so if we can unlock some of that equity in the private sector, have it reinvested back into the not-for-profit sector or have matching government funds that could relieve some of the burden — how do you incentivize that kind of transfer of equity to support non-profit housing?
And the non-market housing provider, we just need the equity. There is some measure that we can have it as interest-bearing, as we’ve done with New Market Funds in terms of capping off or coming up with initial equity to start projects. But we have debt-service coverage numbers and we can only charge so much rent on affordable housing, which means you need so much equity, and that has to come from various orders of government, tax rebates, rebates through efficiencies, efficiency programs and those kinds of things. But at the end of the day, it’s a number, and the math on that number doesn’t change. Where you collect up all that equity, I guess, becomes the challenge.
I think where there is a will, there is a way, and I think all three sectors see the challenge and want to meet the moment on it, but how is that done with dwindling — especially public sector — capacity and a not-for-profit sector that needs to scale up and gain an asset base now and for the long term so we get to the kind of numbers where we have more than 10% of non-market housing and return to a place where we have a sufficient affordable and deeply affordable housing as part of the national housing market?
I hope that answers the question.
Senator Loffreda: Thank you to both Mr. Ballantyne and Mr. Read for being with us today. I have a question for each if time permits. The first is for Mr. Read. You and a colleague published a paper last year on the UWCRC, describing it as a model “ . . . worthy of careful study, localized adaption, and rapid replication.” In the conclusion of that paper, you write:
There is an array of opportunities for engaged scholars to examine and interrogate this experience —
— of UWCRC —
— generate insights that strengthen or adapt to the model, and enable rapid replication to address the pressing needs for millions of new, affordable rental units across North America. . . .
I certainly agree that scholars have an important role to play in that process, but I’d like to ask, and maybe you can elaborate, how the federal government can contribute beyond providing funding. What other tools might the federal government have at its disposal to help support, scale or accelerate innovative housing projects like those being led by the UWCRC?
Mr. Read: One of the things I was trying to get at — and I don’t know if this is necessarily the vehicle, but I think it might be a kind of vehicle — is on the capital gains relief where a transfer occurs from the for-profit sector to the not-for-profit sector to provide a differential capital gains reduction, a benefit to the seller if they are selling in the non-market side of things. Eventually, we need to have a healthy enough non-profit sector that is wealthy and owns assets and is able to split its own equity in rapid succession and become a developer of its kind of housing stock. And if we are not to forever feed the same amount of public funding as grants into those, we need to have those organizations at a large enough scale to generate internal equity building that can be redeployed.
In our case, we were an anchor institution-led model. There is a model there that can be replicated, especially when we are talking about building units at scale, especially in early days and getting things kick-started to have a guarantor for various loans. If you need a $20-million loan, it’s nice to have a university who can give you a guarantee in your start-up phase.
Senator Loffreda: Your capital gains exemption, are you specifically targeting the non-market sector, or would you have a capital gains exemption across the board to unlock some of that capital that is sitting there and cannot go anywhere because of obvious tax reasons?
Mr. Read: As a non-profit, I don’t pay capital gains. In the for-profit sector, if I bought a building 20 years ago for $20 million and now it’s worth $70 million, and I have a $50-million gain, and there is a 50% tax on it and then a 50% corporate tax, I’m paying 25% on that $50 million. What we are saying is if that seller in the private sector wants to sell it into the non-profit sector so we can retain the rents in that older stock, resuscitate it, do it more cheaply than building new and allow the private sector player to then go reinvest whatever they get out of the sale, if we can reduce the tax burden to them versus just a sale to another private sector owner by giving some further discount on the capital gains side of things — so 25% versus 50% because they have sold it to the charitable non-profit sector — there is more money in the private sector developer real estate holder’s pocket to go reinvest, whether it is in real estate or something else. Lots of wealth in this country, I think, is a drag on our economy because it’s unproductive. We could put the asset in the not-for-profit’s hands.
The issue will still be, for the not-for-profit, that we need some sort of equity against the loan, and then there’s the question, “If we don’t have the government grants to assist us to do that acquisition, is there a way to incentivize the person we sold it to or another private sector pool through investment tax credits or some other means to put that equity back in?” There are lots of schemes, like social impact bonds, that put the burden of supplying a return to the investor, but, as a not-for-profit, I don’t need more debt. What I need is more zero-interest-bearing equity, whether that comes as grants or whatever. I wonder if there is a role for the government, through that tax incentivizing, to play an intermediary role where the not-for-profit sector gets the benefit of the equity, the public sector can give beneficial return to the investor consistent with something they would make in the money markets or reinvesting the money, and the private sector player has the benefit of moving the asset, starting to reinvest and having more money in their pocket to do so. Whatever the particular mechanism is, I think it needs to be that kind of cycle.
Senator Loffreda: Those are great ideas. Thank you.
Senator Ringuette: Thank you for providing us with your experience and how you do things. I have a series of very short questions in order to better understand. Your not-for-profit rental units, are they based on 30% of income?
Mr. Ballantyne: I can start. When we invest and develop housing, there is a portion that would be based on 30% of income, and the rest are at different levels of rent, all within affordability. We seek, on average, an affordability based on average median income in the area in which we are working. In our portfolio, that sits at about 65%. Our rents are affordable at the sixty-fifth percentile of the average area median income. They are broadly very affordable, with some deeply affordable.
Senator Ringuette: In comparison terms, what does it mean when you say 65%?
Mr. Ballantyne: Somebody earning 65% of the area median income. If the area median income were $60,000, the rent would be affordable to a household earning $45,000. If the area median income is $40,000, then the rents would be somewhere in the neighbourhood of an income of $25,000.
Some are lower, and some are higher. This is on average, so we keep some rents very low and some closer to the market level.
Senator Ringuette: In your experience right now, because of the 65% that you are seeking, how many of your renters can transition to being homeowners? I think that should be the ultimate goal of the low-rental units — not only supplying a roof but also helping these home units to move and transition to homeownership.
Mr. Ballantyne: We have been investing and developing housing for about 10 years. The experience we have as our organization is too short to see trends. In my experience in operating large social housing portfolios, generally there is 10% to 20% of tenants who will achieve incomes that allow them to transition into homeownership. Rental housing designed for low-income households is largely targeted to working families who are working in relatively low-wage or low-salary environments. Unless they have an opportunity to increase their income, homeownership remains one of those targets which is difficult to achieve.
Senator Ringuette: My other question is in regard to when you seek the equity you are looking for. The rule of thumb is when a private developer seeks a loan from a banking institution to build, 60% must be sold or rented before the loan is agreed upon. Do you have the same benchmark as these private entities when you seek equity to build?
Mr. Read: Let me answer your first question. We are in a mixed-income housing model. We have affordable, social, market and premium-market rents in many buildings. We do have a couple of assets that we own that are gender-based violence shelters, and so they are rent-geared-to-income, so social housing. We have some mixed-income builds. We are about to initiate a mixed-income build of 180 units that is mixed-income, but it is rent-geared-to-income and affordable housing at 69% of CMHC’s median market rent. In our builds where we have social housing through premium housing rents, the market affordable and social housing units, or rent-geared-to-income units, where they appear in the same building, all those units are designed the same way by design and intention. There is no stigma, and they are scattered through our buildings, so you don’t know whether you are in social, affordable or market housing. That is quite intentional in terms of reducing stigma around what kind of income you have and what kind of place you live in.
It also provides the opportunity away from the traditional social or affordable housing models that have been publicly run or run by non-profits that are just social or just affordable housing, because where you have a family whose income tests out, then they have to uproot their family. Sometimes that creates housing insecurity and they end up needing to get the rent-geared-to-income housing again, and now they are on a wait-list, and the family has been upset. They don’t have their community infrastructure around them.
In our buildings, if their income situation changes, we just change the rent structure, and they don’t have to move their unit. Their kids get to go to the same school, all those kinds of things, and they stay within the same building. We have had people who —
Senator Ringuette: I’m sorry, chair, but my question was about the equity rule of thumb of 60%.
The Chair: Maybe 30 seconds. We are running out of time.
Mr. Ballantyne: The equity requirement is really a calculation based on the economics of the project itself. Rent supports so much debt. After that, one has to find other sources of financing. In a private development, you can go to a limit of 65% debt; the rest is equity. The rents are then calibrated to give a return on that equity, so you keep the rents at a high enough level to get a return, whereas our rents are capped because we are trying to create affordable housing and, therefore, we cannot generate a return for that portion of equity or all of that equity. You can do some but not all.
Senator Wallin: I just want to take a look at some other options. I listened, as others have, with interest to your capital gains relief proposal. It might get a little more complicated if the same people reinvest in the project again. There is the idea of HST relief. A lot of the development charges are at a municipal level. You talked about de-risking private capital. What other measures do you propose or think might work to engage in that de-risking?
My second question — I’ll just put them both out there and you can comment if you will — is on the Multi-Unit Residential Building, or MURB, program. We have seen that before in this country. What lessons did you take from it the first time round?
Mr. Ballantyne: Maybe I can start on the de-risking, and I’ll let Mr. Read talk about the other items. I think, on de-risking, there is a very good and successful program currently available for purpose-built rental housing, which is the Apartment Construction Loan Program, or ACLP, run by CMHC. It offers long amortization periods, low costs — in other words, government rate or rated financing. So the financing is accessible, which takes a lot of pressure off the cost side on those projects.
One of the challenges with that program is the uncertainty as to whether it will stay in place and the quanta available for the size of projects. There are limiters and capacity challenges within that program. I think there has been a demonstration that government action around offering financing that is long-term and low-cost generates affordable housing and generates purpose-built housing.
In the past, we have seen government backstops on risk, particularly in smaller markets and less certain markets, would be a tool to accelerate capital flowing in those places. Foundations have been very vocal about wanting to unlock parts of their assets into affordable housing but cannot afford to take the full risk on it or want to be assured that if they don’t get the returns that are expected, they can count that towards some of their program expenditure and so on. There are measures of those kinds which I think government has the ability to act on and which would accelerate the flow of capital towards projects.
I think those kinds of measures in a macro sense would go a long way towards moving capital into affordable housing and into non-market affordable housing, in particular.
Senator Wallin: It’s kind of all dependent on federal government backstop; is that what you are saying?
Mr. Ballantyne: It is federal government backstop, but it’s not necessarily federal government expenditure. The history will tell us there is not a great deal of risk in this. It is simply that you need to get over a risk hurdle for other capital to come along.
Senator Wallin: And then a comment on the MURB process, please.
Mr. Read: I think Mr. Ballantyne is probably in a better position than me to comment on MURBs, which were before my time.
Mr. Ballantyne: I know my history around MURBs, and I am not an expert on tax and so on, but I think the MURB structure itself was not the problem. I think it was the way it was implemented and the lack of oversight around the investment frameworks that were used that caused many of the challenges that we saw on the ground. I think it is an idea worth revisiting in certain contexts with a different set of safeguards around it and a different set of oversight measures and tax measures associated with it. It was successful in attracting capital; it was just not well spent.
Senator Wallin: Correct. Thank you.
Senator McBean: I’ll start with Mr. Ballantyne. In your opening remarks, it may have been a bit of an off-the-cuff, unprepared comment, and I like to mine those because sometimes there is gold in there. You said something about the fact that we don’t keep good statistics. I believe it was on home inventory. What did you mean by, “We don’t keep proper statistics”?
Mr. Ballantyne: I should preface it by saying we are getting better. In the National Housing Strategy, there was an effort made to invest in proper statistics around the housing industry. It is a huge part of our GDP, and we know very little about it in detail. It is an interesting conundrum we are facing. When I say we don’t really know how many social housing units there are, it’s because we all estimate it to be somewhere around 600,000 to 650,000. But that’s a big margin of error. That is because there has never been a way to capture — or we don’t have a data set that captures — where housing affordability exists, what it looks like and so on.
There have been improvements by Statistics Canada to try to capture some of that information. I will say, from my perspective, we don’t have a great deal of insight into the picture and the landscape of the housing industry, particularly how it is changing in real time and how movement of rent is happening, and where affordability is being lost and so on, and where we are losing social housing units, for example. We don’t have a record of how that happens.
Senator McBean: Would that be a census-type question? Where would you want to record this data?
Mr. Ballantyne: I think there is a census-type question and also it is connected to business and tax filings and so on and being able to capture real data points around the housing industry.
Senator McBean: Thank you. Mr. Read, you mentioned that you have benefited from federal, provincial and municipal sources of funds. Are there any federal policies or funding tools that used to be really effective and helpful in supporting mixed-income and mixed-use housing developments like yours but have not kept up with either inflation or market changes?
Mr. Read: Differentially. The HST rebate that is on all multi-residential housing now, which I think is necessary for the sector and supply, used to be reserved for municipal designation for affordable housing units. We had a kind of advantage versus the general market in the non-profit housing delivery for affordable units or in our mixed-income housing there was a blend. With the cost escalation in construction labour, I understand why that needed to be applied more broadly to allow projects to be built. But the not-for-profit sector, which used to have a differential advantage in that regard in terms of bringing down costs, we have lost that differential advantage on the tax side.
Senator McBean: I want to drill down right there. Can I specifically ask you how you would change that now? How would you word it to update that now so it would be once again beneficial to the non-profit area?
Mr. Read: I don’t think I would change that one right now, because I think, for supply reasons, the for-profit sector needs it as well; the market side needs it as well. That’s where I’m trying to think about ways in which we can make it easier for the not-for-profit sector to acquire. A big hole in the National Housing Strategy has been the lack of an acquisition fund, the ability for non-profits to access dollars for acquisitions, not just a new building.
I think that’s being sorted right now, but then there is the question of, okay, if you’re going to acquire and you’re making the funds available — the government’s resources aren’t inexhaustible — is there a way to unlock the wealth in the for-profit sector in some way to transfer it or match what the government might do in terms of granting and providing equity through non-repayable sources? That’s where I think there might be differential things done on capital gains where if the transfer is to a charity or not-for-profit, you give a differential tax benefit to the vendor for having done that.
Senator McBean: Thank you.
Senator C. Deacon: Thank you to our witnesses. I live in a rural area in a province that, outside of one city, has got a lot of rural communities, and the housing crisis in many rural communities is even greater than it is in urban centres because there simply aren’t enough homes, affordable or not. I’m wondering about any approaches you have experience with that help to create affordable housing in rural communities, which is a very different challenge than I think both of you are working on, but hopefully you can offer some perspectives that could be useful to us.
Mr. Ballantyne: Through our development company, we have, in fact, worked with non-profits on the Sunshine Coast in British Columbia, in particular, and in rural Nova Scotia with partners there, and we are now working on a couple of projects in Newfoundland and have done one and are looking at a second acquisition in P.E.I. — all in relatively small markets.
I appreciate the comments that the affordability issues in rural and small communities are often overshadowed by the large metropolitan areas, but are equally real and important.
I think we have to recognize that the cost of delivery in those areas is higher. There are differentials in cost because of scale and access to materials and services, and I don’t think that’s always recognized in the way in which the approaches are taken and in which funding programs work.
I think, secondly, there are perhaps ways, when the federal government thinks about the way it delivers its programming and its funding — and I think Mr. Read was hinting at this — it may well want to think more about investing in aggregating entities that have a reach into small rural areas, but can create the efficiency and scale of operation that would allow them to take on multiple projects. We do work with a couple of partners that are working in that model, one, in particular, in Nova Scotia. The cooperative housing sector is organizing itself along those lines now to try and aggregate capacity, bring skills, bring all the tools necessary for development, but allow it to happen in small and dispersed ways. I think those are some ways of addressing those challenges you might think about.
Senator C. Deacon: Mr. Read?
Mr. Read: We are involved in doing some northern and rural projects, but they’ve been in transitional housing and gender-based violence housing.
So I can comment only that our model, in terms of developing the development capacity to assist organizations in rural communities where that development capacity may not be present in the not-for-profit sector, we come in and buttress that. So we’re working on a project in Flin Flon with the Indigenous friendship centre and with the gender-based violence group in Winkler, Manitoba. We came in as an organization to assist them with their development capacity and the ability to understand and negotiate the wild world that is accumulating capital and loans and everything else you need.
But we do understand that in many rural contexts rents are lower, land can be cheaper, materials can be higher, labour can be hard to come by, and the rents you have to service loans are lower, so you often have an increased equity requirement. So it is a challenge, but there is also a capacity challenge. We were at the Manitoba Non-Profit Housing Association conference where a national researcher was talking about there being more than 10,000 non-profit housing associations in Canada and only 20 to 25 having the capacity to develop a hundred or more units at a time. We need to “juice” the development capacity in the non-profit sector.
Senator C. Deacon: Chair, I think I have a minute or two left.
The Chair: Forty-five seconds.
Senator C. Deacon: There is investment capital available in rural communities. It generally is sent to Toronto, and people in Toronto decide what to do with it, but we don’t invest in our own communities because we don’t have the mechanisms, the tools. Are you aware of any investment tools, like equity tax credits or other tools — certainly, in business, we use equity tax credits in Nova Scotia — that could be helpful in raising capital to support these sorts of developments in rural communities?
Mr. Ballantyne: You pointed to the equity tax credit in Nova Scotia. The community investment tax credits have been successful tools as well. I think those all point to a tax credit system for moving capital into particular purpose and de-risking the investor by giving them a return on the front end through the tax credit and not demanding as high a return through the profile and therefore putting pressure on the project. So moving them away from pure community facility or community use into housing or doing a purpose-built program that would be federally sponsored, I think, is a good idea as well. It would certainly help attract capital into funds and into projects themselves.
Senator Dalphond: Thank you for these interesting presentations. My question is for you, Mr. Ballantyne. I’m looking at the annual report for 2023. I understand your fund is about $155 million.
Mr. Ballantyne: The Boann social capital fund is, yes.
Senator Dalphond: Is it fully committed?
Mr. Ballantyne: No. It’s about 65% committed at this point.
Senator Dalphond: When I look at the report of 2023, housing was a small portion of your investments. Has that increased over the years because, I guess, in 2022, housing was not necessarily in the crisis we have now?
Mr. Ballantyne: Our commitment to housing is increasing, so our overall envelope for housing is increasing. The opportunities for investment exist largely at the direct project level, and there are very few intermediary vehicles through which we can invest. That’s one of the challenges we face. So in the Boann social capital world, one of our objectives is to build capacity among intermediaries so we can use our capital to incentivize other capital to come alongside and multiply the effect of our capital. There are few vehicles in existence at this point across the country of that nature, so we are likely to see more direct investing or, in a sense, help create the intermediaries through which we then invest.
Senator Dalphond: What percentage of your investments would be related to affordable housing?
Mr. Ballantyne: Yes. This would be in the affordable housing category.
Senator Dalphond: What would be the percentage of your investment?
Mr. Ballantyne: The target for us is to get up to around 35% direct affordable housing. There may be indirect housing through other intermediaries that find the capital.
Senator Dalphond: And so far you are at half of that?
Mr. Ballantyne: So far we are at less than half of that.
Senator Dalphond: Okay. So this is still a challenge?
Mr. Ballantyne: We still have some way to go.
Senator Dalphond: And you report that your rate of return is ranging from 3% to 28%. Is it still the case after three years of operation or four years?
Mr. Ballantyne: I would say the 3% is the floor, and we’re fairly certain where the floor exists. The 28% is really a hypothetical number because we’ve invested in some early-stage social venture activities. If you had to ask me where we expect those to end up, I think it’s more likely they end up in the 11%-12% range. On average, our portfolio is targeted to return 4.5% to 5%. So a lot of what we will invest is what you might consider concessionary capital.
Senator Dalphond: Another target that is one of the goals you want to achieve is the equity on the boards and the management of these projects. Is that working so far, the social-equity dimension of the projects?
Mr. Ballantyne: I would say it works well in some instances, and there is a keen interest in understanding how that can happen. It depends a little bit. Obviously, like all businesses, they’re founder-led businesses, and founders are who they are, so it takes time to build teams and diversity around you, but increasingly we see that interest and we see that evolution in the marketplace.
Senator Dalphond: Thank you.
The Chair: Colleagues, we completed our first round. Before the second round, may I ask a question to Mr. Ballantyne?
Correct me if I am wrong, but I think you were acting as the Chair of the Board of Directors of CMHC for six years until last year. Do you believe that creating a new federal agency to fix the problems for Liberals is the right thing to do, since now you are more independent, since you’re no longer the chair? Any thoughts you want to share with us regarding that angle, considering that CMHC existed for decades, and they were much more active a few decades ago than now? Any thoughts on that?
Mr. Ballantyne: You can appreciate I have a loyalty to CMHC. I served the organization for a long time, and I appreciate it.
I don’t wish to comment on the wisdom of a government direction particularly. What I do think is important for the government and one of the challenges that CMHC has had and the federal government has had at all times is to have an all-government response to the challenges of housing. Housing is not just a CMHC problem. It’s not just an infrastructure problem.
The Finance Department has a lot of impact on what sort of outcomes there will be in housing, housing affordability and so forth. If Build Canada Homes is successful in creating the all-government approach to housing solutions, then it will have succeeded. If it hasn’t, then we will simply have created another institution which doesn’t add value back into the equation. Time will tell us whether it’s the right decision or not. I really think it’s based on what outcomes we achieve.
The Chair: Thank you. We’re moving on to the second round.
Senator Yussuff: Thank you for your insight, but I want to pursue this one particular question because, Mr. Read, you certainly elaborated on it.
The government using the tax tools that they have to transfer assets for not-for-profits and affordable housing is something that is quite innovative. Obviously, the right approach to it is going to be the success here, but there have been others advocating around other assets where we can have a worker ownership of companies.
Have you looked at that model and tried to make a comparison how that could be tweaked in a similar fashion, given what you’re advocating for?
Mr. Read: I haven’t, but I’m aware of it. It’s a similar incentive, similar concept, different mission.
Senator Yussuff: I’ll give my time to one of my colleagues.
Senator Varone: My question goes to the supply side of the problem of affordable housing. There are a lot of municipal mayors doing victory laps, saying that they have curtailed the amount of time it takes to bring on stream development projects that are on the affordable side. Would you agree with that statement, or are you in conflict with that type of statement being issued?
Mr. Ballantyne: It is certainly true in some municipalities. They have reduced the time projects take, and they have taken measures such as the right zoning for certain types of housing and so on, which I think are very positive measures.
But the fact remains there are still a significant number of regulatory obstacles. I think particularly when we get to thinking about changing technology around building and changing materiality of buildings and using wood frames for larger buildings and so on, we’re still seeing a significant number of regulatory hurdles that could be overcome more rapidly, in my opinion.
Senator Varone: The simple follow-up is, if there is some credence in that comment, is it doable on the private market side for development and increasing the supply?
Mr. Ballantyne: I think non-profits and private markets accept that they both face hurdles. On the market side, perhaps they have suffered greater hurdles in some instances. In other words, the road has been paved more easily for non-profits in certain municipalities.
If there is a lesson we learned in the pandemic, it is that regulation can be changed relatively quickly and relatively easily with the right amount of attention paid to it. I think there is still room for a large part of that.
Senator Varone: Thank you.
Senator Loffreda: I’m always happy to conclude. My question is to Mr. Ballantyne. Our committee’s interim report on housing affordability released in December 2023 included a recommendation that the federal government take a leadership role in establishing a permanent round table of stakeholders to help reduce regulatory and administrative barriers to building more affordable housing. In your view, is there still room for improvement when it comes to meaningful collaboration across governments and sectors? On the other hand, do you believe that the core solutions to the housing crisis are already well understood and that what we need now is action and implementation rather than another forum to revisit the same issues?
Mr. Ballantyne: If the forum were simply to revisit the same issues, it may not be all that useful, but a forum of that nature designed around how to overcome the barriers to implementation would be extremely useful.
We know in housing there is no single order of government that has all of the solutions and all of the tools, nor does anyone have the comprehensive picture of what happens in each part of the marketplace. It’s critically important that we have a better flow of information and better opportunity collectively to share that information. I think that recommendation still stands as a useful tool, not necessarily to boil the ocean again, but to figure out, now that we know what the solutions are, how we put them in the place. The devil will always be in the details, and surfacing those, understanding those and creating context for implementation is important.
Senator Loffreda: Thank you.
The Chair: I would like to thank both our witnesses. I know you have very busy agendas. Thank you for your flexibility to attend and thank you for your insights.
[Translation]
Honourable senators, we will continue our special study on the housing crisis. I would now like to welcome our second panel of witnesses.
[English]
Thank you for accepting the invitation to appear before us. I understand you have some opening remarks. You have five minutes to share them, which will be followed by questions. You have the floor.
Peter Norman, Vice President and Economic Strategist, Altus Group: Thank you, Mr. Chair, and thank you, members of the committee, for inviting me this afternoon.
My name is Peter Norman. I am Vice President and Economic Strategist at Altus Group Limited. Altus Group is a global consultancy specializing in data analytics and software in the property and development industry, headquartered right here in Canada.
In my capacity leading the economic strategy function, I have worked with private and public sector clients across Canada for decades on matters of housing economics, development feasibility, urban growth matters and housing policy.
It is an honour to be invited to share some remarks with this committee today.
I understand this committee is studying Canada’s housing crisis and challenges facing Canadian homebuyers. This afternoon, I intend to share with you some findings from my research over the years that will help focus a spotlight on government-induced fees on new housing in particular.
The first thing I want to focus on is inadequate and inconsistent performance on approval timelines. Earlier this year, my firm prepared a report on behalf of the Canadian Home Builders’ Association and the Building Industry and Land Development Association, looking at issues of how long it takes to approve new housing developments.
That study looked at the timeline that municipalities took to assess a development application, from the time they received a completed application until they rendered a decision. On average, this time was 11.6 months across the country, just under one year to assess a development application.
In our assessment, this is excessive. Obviously, time is money, and the shorter the timeline, the better if our goal is driving the underlying development costs down for housing. But more importantly, the study found massive differences by municipality ranging from 31 months in Hamilton and 25 months in Toronto — so both over two years to make an assessment — to as low as 2 months in places like Saskatoon and under 5 months in an array of municipalities across the country, including London, Calgary Charlottetown, Edmonton, Regina and Moncton.
So the obvious question is why some cities can deliver this critical service within reasonable timelines, and others cannot. That’s one topic of discussion.
The second thing I wanted to raise is elevated development charges, which are also inconsistent. That same study also looked at the issue of total municipal fees and found considerable variation across the country. The average level of municipal fees on a single-family home is $82,600, but this varies from almost $200,000 in Toronto to less than $10,000 in Moncton and Charlottetown. For high-rise development, these numbers vary from $134,000 to $2,000, for an average of $35,000, so a big variation. And we ask the same question: Why such variation?
The third topic I want to raise is regulatory burden. I know the committee has already heard about this in various ways, but this is a tougher one to denominate and might be akin to the straw that broke the camel’s back, in the sense that gradually, over the past decades, preponderance of additional regulatory requirements has added to the underlying cost of development — each might be small, but they add up. It might be, and probably is, that every new regulatory matter is backed by science and brings some marginal improvement to health and safety or energy efficiency or other goals in the public interest, but taken together, they are responsible for a considerable amount of cost uplift in the years that I’ve been watching this market over the last couple of decades.
I’m raising this as a category that needs to be addressed. This is a broad category that includes things like building code matters, land development standards and planning practices. In a recent study on comparing municipalities across the country, we looked at some of the challenges in terms of regulatory planning practices and also where there have been improvements recently.
The final thing I want to raise and discuss is municipal finance models. I know the committee has heard a lot already about the “growth pays for growth” planning philosophy that has taken hold over the past 30 years or so. But by contrast, in the postwar period, we supported a tremendous amount of housing development through municipal infrastructure that was financed by municipal debenture at low financing rates and paid for over time by a property tax base. Now a significant amount of those infrastructure costs is borne directly by the owners and renters of new dwellings and financed through mortgages.
The results have been excess cost of new housing and significantly lower property taxes — I would say in many cases too low. And it’s important to realize that when property taxes are too low, that also has an effect on housing prices, because in municipalities that have artificially low taxes it tends to push up the resale price of a house, and that ultimately affects new housing.
Mr. Chair and committee members, I am happy to answer any questions about these topics or anything else that I can be of assistance with to the committee this afternoon. Thank you very much.
The Chair: Thank you, Mr. Norman. I found that very interesting, all your statistics. We’ll have a lot of questions.
Senator Varone: Thank you, Mr. Norman, for appearing. I read your articles with great interest whenever you publish them. I will key in on one article that you wrote on July 2 of this year, titled “Weak Toronto new home sales threaten construction jobs in years ahead.”
I want to stop there for a minute and go back one week, when Stellantis came out with a statement that they’re going to move 3,000 automotive assembly jobs from Brampton to Illinois, and a bunch of red buttons were pushed all over Ottawa, culminating with the Prime Minister making a phone call to the CEO of Stellantis.
But you’ve outlined in this July 2 article an Armageddon-type downturn in the GTA private market housing sales: sales moving from $6.7 billion down to $1.9 billion, which is a 71.6% downturn. At risk are 87,500 jobs — 40,000 direct jobs, 30,000 indirect supplier jobs, 17,500 induced jobs. And then you go on later in the article, “If barriers to homeownership . . .” — and you use the word “barriers” — “ . . . aren’t addressed soon, the economic ripple effects will be severe and long-lasting.” And then you go on to say that one of the principal barriers is excessive government taxation.
Mr. Norman: Yes, sir.
Senator Varone: I want to make sure I got the article right. That was back in July. Have you seen it lessen, or are you seeing it materialize in terms of your assumptions from then to now?
Mr. Norman: That’s a good question, and thank you for raising that article and the research we put out earlier this year on that aspect of the impact of the current slowdown in housing.
Altus Group is the source of new housing sales data in Canada. There is no other source that does new housing sales data that’s comprehensive and looks at major markets.
In the Greater Toronto Area — which this report was written about, to give some context — new home sales this year are down about 50% or so from last year, both on the single-family side and on the apartment side, but even that downplays the slowdown because last year was down significantly as well, as was the year before. So sales are on track this year to be 90% lower than they were in 2022, to give a sense of how much of a collapse in the sales environment there has been.
Now, the work and the research that we brought forward in that paper was to say, “Well, what are the implications of that on construction and then ultimately in terms of the labour market implications on construction?” Of course, these things are not simple. It’s not to say that housing sales have gone down 90%, so we are going to lose 90% of the jobs. It doesn’t happen exactly like that because there are a lot of lags in the system, and houses, and apartments in particular, are under construction for several years. Even taking into account those lags, et cetera, we came up with the conclusions you accurately cited earlier about the magnitude of the jobs lost.
I will just say — it may also be obvious in what you had cited there, but I will just repeat it because it is important — that if a housing start does not happen, depending on how big the project is, the one to two direct jobs that housing unit might have created do not happen either. But for every job that you see on-site, every direct job also has implications down through the supply chain. So those would be those indirect and induced jobs that are talked about in the report and that you cited in that piece.
So it’s a very important sector. It has always been an important job generator, and now, with the slowdown in sales, our real risk is problems with the labour market.
Finally, to your question about whether things have changed since July, no. Sales have not turned up, certainly, and, in fact, we have seen more loss of inventory, effectively — existing projects that have stalled or been cancelled. In fact, there are fewer new homes even for sale at this point in time, nonetheless selling.
Senator Varone: Thank you.
Senator Fridhandler: Mr. Norman, you are obviously a housing numbers man. We hear from many witnesses a focus on the ability of the not-for-profit sector to deliver affordable housing, social housing and the like, yet I also hear from developers that that sector is quite inefficient and that the for-profit sector can actually deliver the same product more efficiently, more quickly — the model is a little bit broken. Can you comment on that?
Mr. Norman: Yes. I must say I don’t know if I’m going to be able to provide you a lot of empirical evidence around that. I think the sentiment you have expressed is something I would probably agree with. But also, I mean, at least for the vast majority of the last couple of decades, we have not had a very robust non-market housing sector. A lot of the capacity we have built up has been with providers of market-based housing. It may also simply be the fact that at this stage, as the non-market housing sector might be picking up, there is an opportunity for some of these, whether they be building efficiencies or efficiencies around acquisition of capital or others — they might be on a learning curve of that nature.
Senator Fridhandler: Thank you. A follow-up question: You have highlighted to us the time-is-money lag getting through the regulatory municipal processes.
Mr. Norman: Yes, sir.
Senator Fridhandler: My recollection, as part of the federal government’s recent announcement on housing, is that they were going to produce a number of Eaton-like plans that you could buy and that hopefully these are pre-approved by municipalities. I don’t know the status of that. I would like to hear your thoughts, assuming it is going to go forward, on the likelihood that this will break the logjam a little bit.
Mr. Norman: I’m not overly optimistic that it will help, but it might be in the right direction. I think the timelines that municipalities take in order to approve a development application are not so much related to architectural matters. It is not their engineers. I mean, it is to some extent, but it is not about their engineers having to assess the architectural merits of that plan. It is a wide array of matters that the municipality has identified they need to look at, both in terms of the land development side of it and in terms of the zoning side of it. There is massing and architecture and other matters, and all of that just adds up.
I will just say, and this goes to the regulatory burden to some extent as well, that one of the things that we were finding in that municipal benchmarking study — and, again, there is a lot of variation from one city to another — is sometimes just the preponderance of studies that a proponent needs to undertake before they make their application. Those can be everything from economic studies to shadow studies to engineering studies to water geology studies, and they can go on to a list of 30 or more studies in some municipalities. The municipality then also needs to digest and peer-review all of those studies or at least read them and ingest that information. That’s where a lot of that time starts to build up.
If somebody were making an application and they were doing a high-rise building that came from that template, that might possibly address some of the architectural matters that the municipality has to review, but I would doubt that it would address the wide array of things municipalities are assessing.
Senator Fridhandler: Just to follow up, when you talk about the obvious collapse in the Toronto market — and considering my belief in the absence of mobility of people in Canada, which I think is self-imposed, not restricted in any which way, yet anecdotally, I hear in Calgary that people move from Vancouver because they can afford a backyard and they are willing to take the hit on jobs — do you see in your review of stats some mobility to more affordable centres in terms of the declines or shift in numbers?
Mr. Norman: Senator, there has always been migration towards affordability in Canada, sometimes interprovincial, which is the nature of what you are talking about right now, and in many cases what we might call intraprovincial, which is people leaving a big city but going to an area just outside of it for affordability reasons.
Primarily, people move for employment purposes. There has to be a kind of a coincidence of the ability to move one’s job, sometimes within the same company, or to move jobs fairly seamlessly in order to support such an affordability move. That’s probably why it is not one of the widespread market makers, but it is certainly something we see.
I will also just say, because you prefaced this question by referring to my GTA remarks at the beginning about the collapse, that on the new housing side, across the country — and we are monitoring about 10 markets across the country with our database — just about every market across the country has seen similar declines in new home sales. Even those markets that have fairly robust resale markets right now are seeing that new home sales have not kept pace. It is a national phenomenon right now that is affecting the building and development industry.
Senator Fridhandler: Thank you.
Senator Loffreda: Thank you, Mr. Norman, for being here. I read your article last month on commercial real estate and the potential for converting vacant office space into residential housing. This is something I have been raising for the past five years, particularly in relation to the federal government’s own real estate portfolio. I recognize that not all office spaces are easily or cost-effectively converted. Still, you make a compelling case for a more flexible regulatory environment to help accelerate conversions and breathe new life into obsolete buildings, whether for housing or other community issues. These kinds of projects could unlock significant new investment and make better use of underutilized assets, as you know.
Could you take a moment to expand on your thinking around this opportunity? More specifically, what role do you see for the federal government in enabling or supporting more of these conversions and redevelopment projects? Are they still viable? I hear there is a lot of difficulty in doing so.
Mr. Norman: Thank you, senator. There are a couple of different elements to this that would be worth addressing. Maybe I’ll start with that final one and move backwards.
Where there is an identified functionally obsolete office building, there is an opportunity to use that piece of real estate for a higher and better use. That’s what we have identified. In some cases, that will be a conversion, the way you are asking about, so it will be taking that building and turning it into housing or some other use or mix of uses. In other cases, it will simply be redeveloping that site, which in many cases is the more cost-effective approach to bringing new housing on that. It might be a site that is very good. It might be a site that is transit-oriented, which is important for housing. It may be an opportunity to bring new housing into existing neighbourhoods as well, which is also something people are looking for.
But with that office building there, if it is functionally obsolete just because it’s an old building and that’s not what modern tenants are looking for, or because it’s not quite in the kinds of districts that companies want to be located in now, then it sits empty and so should be converted.
What we are finding is there is a patchwork of regulatory environment across the country in terms of allowing those conversions or redevelopments. Many municipalities are reluctant to allow those conversions to go forward at least with a simple application — the res of rights. In many cases, like the City of Toronto, there is a lot of hostility to removing office space from the stock because even though that city and others recognize there is a surplus of office space right now, they worry that in 10 years’ time or something they will need that space for economic development purposes.
But that’s not the way in the commercial real estate sector. An owner of an office building cannot sit and wait for 10 years, even if there was a need for that building at that time. So we think there needs to be a better regulatory environment around making quick decisions on redeveloping properties when that is what the owner wants to do.
I don’t know, senator, to be frank, if I have a well-developed policy solution at the federal level for this, because this is very much around municipalities and trying to enable them to make better decisions around these kinds of conversions of land use. But what I do know is that it is very critical right now when we have the confluence of two very parallel crises — one being that we have 100 million square feet of functionally obsolete office space in this country, and the other being that we have this housing crisis that in part relates to a shortage of housing.
Senator Loffreda: Thank you.
Senator C. Deacon: Thank you for being with us, Mr. Norman. I want to ask about something Jon Love said to us a week ago and certainly said to us back when we did our other study about a year and a half ago: that basically the development charges in major cities can increase the cost of a condo or other residence by up to 50%. And secondly, the time and money that it costs to get through the approvals process — I’m struck by the fact that it seems that our municipalities are regulating in series rather than in parallel. All the different analyses that they have to do are done one after the other in a sequential way rather than in parallel. When I look at the regulatory burden, they are devolving all of it to the investor.
How do you respond to the development charges and how the federal government could put pressure? Because he said it would amount to about 1% of total property tax revenues in Toronto if those charges were eliminated. So it is not a devastating number in terms of increasing the burden on other homeowners; that’s number one. Number two is about the sequential way to deal with regulations for approvals.
Mr. Norman: Senator, those are good questions. What I will say, first of all, is that perhaps no amount of money is inconsequential, and infrastructure investment does take some substantial investment in order to properly provide for the infrastructure we need to support our urban growth. But that doesn’t mean that we shouldn’t look very critically on who is paying for it and how. That’s what I would like to keep the focus on.
To some extent, when those who are paying for infrastructure are also the ones who are making the decisions about it, you can also get more effective decisions being made both in terms of what needs to be put in, where, and simply in terms of the bidding on it, simply deciding on the cost or the standards that are in it.
One of the issues that we have evolved towards in jurisdictions like Ontario, where development charges have now been in place for quite a number of years, is that they tend to go up over time. I think you have heard evidence already about that from all sorts of different directions. They tend to go up over time. One of the reasons why they tend to go up over time is because those who are making the decisions about what standard of infrastructure to put in and even going out to tender and deciding who is going to do it are not that responsible for the money because the money is coming from the developer. They can just ask for as much as they want. I’m being facetious — it takes a five-year cycle and they need to set it out — but it is still not their money. So that’s one of the ways it comes in.
I said in my principal remarks — and it is important — that I think it would be more effective if we went back to something that was akin to the municipality taking responsibility for financing that growth-related infrastructure and then ultimately paying that off after the fact through the property tax base. I would contest that’s the way we built most of this country through that type of model, and I think it probably works. I don’t know if it is going to be exactly 1% of the city’s budget or a little more or a little less. It all depends on where in the cycle you are. Nonetheless, it is something that would bring better accountability into the process and might actually drive down those infrastructure costs because of the accountability that goes into it.
So that is part of your question, senator. The second thing that I will say is the sequencing is very important. I said in my principal remarks that in some areas, like in Toronto and Hamilton and elsewhere, it takes more than two years to approve a development application. That, sir, is only the development application. In order to be at a stage where you can submit a development application, you may have already gone through a significant amount of back and forth with the city on other issues.
For instance, I just answered some questions about office conversions. That may be a whole process that you go through with the city just to get to the stage where they are comfortable receiving an application that has a change of use involved in the site.
I will say that I have been working with some clients on that matter going back two or three years where they still don’t have consensus with the city to the extent that they feel comfortable submitting an application. Because you don’t want to submit an application if you think it is going to be declined. You want to have a consensus before going in. That’s a two- or three-year process just to get to the stage where you submit it. Then there is a two- or three-year stage. And then after the approval, of course, there are other stages to do with getting the building permits in place and shoring permits and this and that and other things that obviously add time to the process as well.
Senator Martin: You talked about the importance of building in accountability to perhaps rein in these total municipal fees. When you talked about the huge variations, you said, “Why.” Can you expand a little further on the average of 200 K in Toronto to 10 K in Moncton? What a range!
Mr. Norman: Senator, it is a good question. I don’t know if I have all of the answers. What we have found is that this is the range. What I will say is that Ontario was kind of a pioneer, at least chronologically, early on in the development charge process, with provincial development charge legislation that provides a road map and so on. As a result, most of the development infrastructure-related charges now are part of the development charges. So of course, that would be the total.
As we get into other jurisdictions, there may be development charges in place — or things that look like development charges — but there may be other forms of municipal fees that are not as menu-like, to put it in those kinds of terms. They may be negotiated. There might be other ways that the developer is taking on some of the cost of off-site infrastructure, even if it is not in the form of a fee. That might explain some of that.
It might actually be a model that helps to work and bring accountability into the system, but, nonetheless, it is not the same high fee as you see in some jurisdictions like in Ontario.
Senator Martin: Yes, and speaking of fees, I’m just thinking about how they get ultimately passed down to the buyer. For households trying to budget a down payment and a mortgage, price clarity really matters. Consumers cannot manage what they cannot see, and most buyers never get a clear breakdown of the taxes, fees and levies that are baked into the final price.
For the sake of buyer transparency that’s important for the buyer, would you support a standardized disclosure on new home contracts that itemizes per-unit government charges?
Mr. Norman: Senator, I will say that I’m a full supporter of transparency in taxes, and I think that is part of what you are getting at. If you use the analogy of the introduction of the GST, initially, one of the real reasons why we went with that tax as opposed to the old manufacturers’ sales tax, et cetera, is that they were embedded in products, and consumers didn’t really know what taxes they were paying. With the GST, they were then able to, at least, see the tax. They might not have agreed with it, but they were at least able to see it.
In the case of new housing, of course, a lot of these fees just get embedded into the cost. There is no transparency to the consumer about how much of the cost of that house has to do with fees, other than if the consumer is able to read some of these studies that we have talked about or heard about in the news, but then it is only very generalized.
Disclosure might be one way to go about doing that. That may be an issue that would assist the matter. Let me just say that I think the first and best alternative would be to remove a lot of those infrastructure charges and handle them through the municipality. I have already stated that. If they have to stay in place, like the development charge, then levying that directly on the consumer at the end brings that transparency to the process. If you are able to sell a house to a consumer for $700,000 or something as opposed to $1 million, and then that consumer gets hit with a $300,000 fee — just to make numbers up — then that might be the same result in the end, and it is not a good result. It does not bring any affordability, but that would certainly bring a lot more political pressure to the size of that taxation.
Senator Martin: It’d be like, “What’s happening?” Consumers would be — well, we are outraged, but to see it, maybe it would make everyone more accountable.
Thank you so much.
The Chair: Thank you, senator. A very interesting discussion, no doubt about that.
Senator Ringuette: Senator Martin asked my primary question, so it allows me to go to my secondary question.
Looking specifically at Toronto and the average development charge of $200,000 per single family unit and the fact that it takes about 31 months to get an approval for the development, which is probably more than half the life of a current market assessment for the units, have you done a deep dive into the $200,000 average in Toronto? Does it relate to the 31 months? Do these costs also include all the bureaucracy that looks into any kind of approval project?
Mr. Norman: That’s a good question, senator, and it provides me an opportunity to expand a little bit on the terms that we analyzed in that particular study.
The municipal fees and charges that we were collecting and denominating in that study included an array of municipal fees. Development charges were certainly among them, but they also included all of the planning fees, which can be quite substantial. You have to submit planning fees. In Ontario, municipalities are allowed to calibrate their planning fees to be mirroring their underlying costs. That’s what they are meant to do. Of course, in a department that takes many, many months or has a lot more staff hours involved in doing an application, they would obviously get themselves into a situation where planning fees might be rising as well, potentially.
Other components of that almost $200,000 number in our study included things like density bonusing, or section 37, when it was a thing, other types of fees that can be charged to the development in order to get those approvals done. It goes beyond just development charges, but it does include the array of fees, although it does not include fees that may be chargeable for building permits and inspections and so on and so forth during the actual construction phase, just during the planning phase.
Senator Ringuette: Thank you so much.
Senator McBean: Thank you, Mr. Norman. I love your — I’ll go with — swagger off the top when you referred to the Altus Group as the source of new housing data. I love that kind of ownership.
I asked the previous witness, actually, about data, but I’m going to start off with this: Where do you get your data from, for you to be the source? Where does it come from?
Mr. Norman: For the new home sales data, we have a data collection team. They are alerted to or understand or get to know when a new sales centre opens, and then they keep in contact with that centre, and they mark down every month how many sales there were. It is literally that kind of process.
Now, I will say that when we started this process in the mid-1990s, maybe 30 years ago, the data people were literally driving around to the sales centres and looking at the stickers on them. Now it is mostly a cooperative venture with the actual developers; they will provide a feed of data over time.
It is a variety of experience, and that is what it is. It is a detailed data collection exercise in those markets.
Senator McBean: Thank you. Do you think that there is enough data being collected on other kinds of housing? This is new housing starts, and we heard from the last witness that there is just terrible data being collected. We don’t have good statistics on the home inventory.
Do you think the federal government should be doing a better job of not leaving it to the Altus Group to do it? I don’t want to mow your lawn here or anything like that.
Mr. Norman: That part is fine. Senator, thank you for the question.
There has always been a bit of a paucity of data in the housing sector in Canada. That has always been one of our challenges, those of us who are faced with having to analyze it and to help our clients make business decisions. If you have a paucity of data, then that makes the work harder, and/or it makes the results have a wider band of error. That has always been a bit of stress.
I would say that there are areas of the housing sector that have quite good and consistent data over time. I think that CMHC does and has done a great job of their housing starts and completions survey over time, and for most parts of the country, that coverage is quite good, and those data are very consistent over time, which is nice.
But areas that we don’t know much about include how big houses are. We haven’t had a lot of good data over time about the value of houses or the value of houses cross-tabulated by other aspects of it, such as the type of dwelling, et cetera. However, these data points, as I think one of your previous witnesses pointed out, are starting to emerge from the new housing statistics module within StatCan and to varying degrees of reliability. I think they will only get better over time.
One of the challenges we have, even with those data as they’re starting to come out, is that they don’t have a long history to them. They’re starting to come out, and we’re starting to understand the snapshot of today or the last couple of years that these data have been provided, but we can’t correlate that back to other market cycles, for example, which is the kind of work with data that we would typically do as economists. It will take time before those data become more and more useful to us.
Senator McBean: This one’s a little different: The cost of property tax is based on the total cost of a house with the development fees included, and as we’ve been discussing, there is quite a bit of variability in development fees across the country. Do you think that property tax should be based on the actual cost of the house minus all the development fees?
Mr. Norman: Property tax is a little bit more complicated than that, senator. Within a municipality, a municipality’s first job in setting taxes in any given year is to do a budget and to figure out what their need for revenue is. Once they have that need for revenue, then they go to their tax base and figure out what the value of their tax base is, and they divide one by the other, and that’s where you get your tax rate.
The extent of somebody’s tax rate is really just a value of what the municipality thinks they need to raise in any given year, and that obviously has to do with what their priority projects might be. If there is that process, then taxes go up when municipalities have more spending needs for one reason or another, or they go down when they have less.
One of the main roles of this type of value distortion that you’re referring to — I know you didn’t use that word — is that it may change the relative value of one house versus another. If you have a new house on a street and you’ve got some existing homes on the street, that new house may have a bunch of these taxes and fees embedded in it, and its valuation might be higher than the resale houses of same size and quality or whatever else, so they may face higher taxes as a result of that, but it’s only relative to other properties.
Senator Dalphond: Thank you for being with us, Mr. Norman. The latest numbers from real estate sales in September indicate that the number of sales in the Toronto area has increased and not decreased for the first time. Does that affect your perspective on what you described in your June paper about construction jobs? I assume that when there are more house sales, even if they’re not new houses — they might be already-built houses — it comes with a lot renovations normally.
Mr. Norman: That’s a good point, senator.
Resale housing also has an important economic impact, and one of the things that I do is produce a report for the Canadian Real Estate Association every two years. I have been doing so since the 1990s. It’s a report I have done many times, and it looks at that very issue of the array of services that come with a resale home and what that means in terms of jobs. You’re right. Renovation is one of those components, but so are the lawyers and the real estate agents that generate economic activity, as well as the landscaping that might be done, et cetera. It is true that every resale home has a positive economic impact, and as they go up, that goes up, and as it goes down, it goes down.
Resales in September tipped up a little bit in Toronto, and, to that extent, that’s good news, I suppose. However, I will say that in general right now in Canada — and I’ve mentioned that new home sales are weak in just about every market across the country — resale markets are actually pretty good and balanced in general across the country. We actually are doing relatively well on resale markets. We’re probably going to have sales around the same level as last year, which is more or less around 500,000 sales.
To me, that’s a promising issue as it relates to what we’re talking about at this committee because what we don’t have right now in Canada is a collapse in housing demand. That’s not what we have. This is not 1990. That’s another era that I remember very well. This is not 1990, when housing demand collapsed.
In fact, resale markets are doing pretty well, but it’s the new housing sector that hasn’t been able to properly reprice or recalibrate its units to where the demand is right now. A lot of that has to do with those fees and other costs that are embedded in them at this point.
Senator Dalphond: In your paper, you referred to the prospect of a substantial loss of jobs. I’m told that, at least in the Quebec and Montreal area, many workers are temporary workers, so these jobs will be lost but they might not be lost by standard construction workers. They might be lost by temporary workers.
Mr. Norman: I’m not sure if I can speak to the composition of the construction labour force in various markets and what that means, but I will say that the residency status of the worker is not the most important thing when we’re talking about economic impact.
If a job is created in a market and a warm body is plying their trade in order to do that job, then that person is earning money, and they’re spending it in their community, and they’re playing an important economic role in that activity. If that person loses their job, then they’re no longer spending that money, at least not to the same degree, in their community and creating the economic impact from that. If that person was a temporary worker and leaves the country, then that may have other impacts in terms of population decline, et cetera. If they lose their job and stay in the country, that has other impacts on how we support that person. It’s disruptive regardless.
Senator Dalphond: I don’t know if you heard the previous panel, but there was a suggestion to make it interesting for the for-profit corporations to transfer old assets to non-profits that would be looking after them and trying to preserve affordable prices for housing. Would that generate interest for you, and would that stimulate more construction of new buildings because the developers would be selling, getting the tax advantage and reinvesting the money to build more houses, new houses, or would they just take the money and run away?
Mr. Norman: I don’t know if I have a strong opinion, or, at least, I may not have empirical evidence to stand on that.
Our issue right now is not a lack of capital to invest in new housing. I think there is a fair amount of capital looking to make those investments. It’s that the feasibility of the individual developments is challenged right now for the array of reasons that we’ve talked about.
To have a mechanism by which a housing asset owner in the for-profit sector is able to alleviate capital out of that asset by selling it to someone else, that would have one contributory effect to their next stage, I suppose, but it’s not lack of capital right now. It’s more the feasibility of bringing those new projects forward, which is our key barrier to new construction at this stage.
The Chair: Before going to the second round, I have a question for the economist from another economist, and I’ll shift the topic a little bit.
Since you analyze many cities across Canada, I’m just curious about the impact of Airbnb or the fact that there are foreigners who are very active. This summer, I was in Vancouver. When I went for walks, I saw a lot of buildings in residential areas without lights on in the evening. The guy explained to me it’s all the foreigners who own these kinds of condos.
Has Altus Group done any surveys? In some countries, I know it’s very expensive for foreigners to — there’s an annual taxation for some condos they own. I know that the federal government is thinking about these kinds of things. Do you have an analysis that you can suggest to us?
Mr. Norman: Yes, sir. Thank you for that question. I’m going to divide my answer differently for the foreign investment and for the Airbnb component.
On foreign investment, I’m not convinced that foreign investors were problematic to our housing supply-and-demand equation, for lack of a better word, over the course of the last number of years and certainly leading up to the point where we had some jurisdictions, including the federal government, banning or restricting foreign investment. Fundamentally, I think foreign investment in housing is a positive supply factor. In general, it incentivizes developments going forward. In many cases, foreign investment, in fact, is providing rental housing, ultimately, whether that’s through a condo project or a true rental asset.
Your question refers to what we call “dark units” or units that are built but not lived in. My understanding is that those numbers are quite small; they’re quite insignificant in the end. CMHC has done a few studies on this over the years. I don’t have those numbers in front of me at the moment, but it’s a small percentage of units — the foreign ownership of units is very small, particularly “dark” ones. So I don’t see that it’s much a negative thing. I think foreign investment has always been a positive factor.
On the short-term rental aspect of things, that was certainly a large, rising component of our housing need, for lack of a better phrase, over the course of about 15 years, until recently. We have a variety of needs for housing in our communities. Some of it is the main housing we’ve been talking about, which is housing for principal residences for permanent residents, but we also have a need for housing for a variety of other purposes, such as students, aging residents and so forth.
I would argue that short-term rentals, to some extent, are just an additional housing need that we have in the community. The problem is that as municipalities go through their planning exercises as to how much housing we need — and even going back 10 or 15 years ago, if a municipality was going through their planning exercise — they wouldn’t have and they don’t take into account some of those additional types of needs, whether they be student housing, often, or certainly short-term rentals. I think they play a role in our communities. They’re important, and they play a role in all sorts of ways, but if they’ve had a deleterious effect on the supply-and-demand aspect, it’s because we didn’t plan for them properly to begin with.
The Chair: Colleagues, I realize that we have started running out of time. For the five minutes left, I propose that the senators ask their questions, and after that I will let our witness answer the questions.
Senator Loffreda: I have a quick question: Are there any quick wins on building costs? Cost estimation has become very unpredictable, from what developers tell us. Are there any quick wins there? Are there any quick wins from what we learned, historically, from the 1980s and the housing crisis we had then, where there was a lack of capital and many incentives? This time, it’s very different, but I’m certain there are many lessons we can apply to the situation today.
Senator Varone: My question relates to the development charge regime in Ontario. Not everything is wrapped up in that $200,000 charge. I’d like you to delineate what is not included — the low-rise developments the builders pay for, the water infrastructure, sewer infrastructure, sanitation and storm infrastructure are not part of the development charge, because that is downstream. So the individual subdivision work that gets all dedicated back to the municipality is a cost of the home. I’d like to see if you could put together a pro forma for the committee of all the charges, not just the development charges, as relates to infrastructure to put a housing unit on a piece of land.
The Chair: Mr. Norman, three minutes, please.
Mr. Norman: For the first senator, I don’t have a strong answer for you. Construction costs tend to be market-driven, and in softer markets right now, like in southern Ontario, we think the construction costs have already gone down about 25%. That is just because there is slack in that system; the trades become hungrier, as we say, and things like that.
Obviously, building products are also a big factor in construction costs, and the prices of building products have market effects and tariff effects, as well, which is another element that has been introduced right now. So I don’t know if there are big wins that way.
In the broader or longer-term picture for construction, when you talk about how to bring costs down, it’s usually one of two things that get looked at. One is ways to radically improve the productivity of construction, and it is a sector whose productivity has notoriously not improved significantly over the decades, so that would certainly be a good area for research organizations and the federal government level to continue looking at. Then, we have heard a lot about prefabricated housing, and I believe there are more opportunities to bring that forward as well. That would help to drive some of the construction costs down.
On the second question, it’s a good one, as well. Yes, in particular, with a low-rise development, where you’re developing out a 100-acre plot and you’re bringing however many houses there are to that thing, the developer is responsible for all of the infrastructure that is within the plot. Development charges will handle infrastructure that is outside of the plot, for the most part. There are a few exceptions, but that’s more or less the way it works. The costs for bringing the infrastructure on-site have to do with the municipality’s standards, and they have to do with a variety of development standards that get put into place.
I mentioned in my principal remarks that this is part of the regulatory burden piece. How big is the stormwater pond? How big are the parks? How wide are the streets? How much lighting do you need on the sidewalks? Those might all be a part of that bucket I mentioned earlier where every single answer to those questions is supported by science. It might be that you need a pond so big to hit a certain kind of storm, and it might be you need so much lighting for health and safety reasons, but when you put it all together, and you put the way those standards have increased over time, it represents an increased cost burden to that low-rise development for sure.
The Chair: Thank you, Mr. Norman. We found your testimony very informative, so we will factor that in our report. Thank you for your availability and flexibility to be a witness at this time of the day.
Colleagues, our next meeting will be tomorrow at 10:30.
(The committee adjourned.)