THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, October 30, 2025
The Standing Senate Committee on Banking, Commerce and the Economy met this day with videoconference at 10:30 a.m. [ET] to examine and report on matters relating to banking, commerce and the economy generally, and 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: Honourable senators, my name is Clément Gignac, and I am a senator from Quebec and chair of the Standing Senate Committee on Banking, Commerce and the Economy. I would like to begin by acknowledging that the land on which we gather is on the traditional, ancestral and unceded territory of the Anishinaabe Algonquin Nation.
I wish to everyone a warm welcome, for those in presence 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: Toni Varone, Ontario.
[Translation]
Senator Dalphond: Pierre J. Dalphond from the De Lorimier division of Quebec.
[English]
Senator Fridhandler: Daryl Fridhandler, Alberta.
[Translation]
Senator Henkel: Danièle Henkel from the Alma region of Quebec.
[English]
Senator Yussuff: Senator Yussuff, Ontario.
[Translation]
Senator Ringuette: Pierrette Ringuette from New Brunswick.
[English]
Senator Pupatello: Senator Pupatello, Ontario.
Senator McBean: Marnie McBean, Ontario.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Wallin: Pamela Wallin, Saskatchewan.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Martin: Good morning. Yonah Martin, British Columbia.
[Translation]
The Chair: Thank you, colleagues. We begin our meeting today in accordance with our general order of reference on matters relating to banking, commerce and the economy generally. I wish to welcome Peter Routledge, Superintendent at the Office of the Superintendent of Financial Institutions. Mr. Routledge, I understand that you have prepared opening remarks. Please go ahead.
[English]
Peter Routledge, Superintendent, Office of the Superintendent of Financial Institutions: Chair and honourable senators, thank you for the opportunity to appear before you today.
As Canada navigates through a period of pronounced uncertainty, I would like to assure this committee that Canada’s federally regulated financial institutions have built enduring resilience into the financial system.
We see this resilience as a strategic advantage for Canada, one that can be leveraged to contribute to economic growth. For example, currently, Canada’s six largest banks, which we call “systemically important banks,” have core capital ratios that average 13.7%. This compares to a well-capitalized minimum of 11.5%. It is quite a buffer. This outcome leaves Canada’s banking system with substantial buffers to absorb unexpected losses and substantial opportunities to contribute to the country’s growth.
We estimate that banks could make nearly $1 trillion in loans or other extensions of credit and remain above our current capital minimums. This is a material figure to Canada’s $3-trillion economy. I do not imply that Canada’s banks should go on an aggressive lending spree, but I do mean to suggest that our financial system has the resilience to contribute more to our country’s adjustment to a very different geopolitical environment.
The Office of the Superintendent of Financial Institutions, or OSFI, stands ready to consider whether further regulatory adjustments can be made without compromising financial system resilience.
[Translation]
Furthermore, at the OSFI, we have adopted the smart oversight approach, which is a series of deliberate and proactive measures aimed at increasing transparency, ensuring predictability and reducing any unnecessary burden on entities regulated by the Office of the Superintendent of Financial Institutions.
This approach is part of a principles-based approach, and it also allows us to ensure that regulatory oversight and the scope of oversight activities are adequate and appropriate for the current risk environment.
[English]
Over the past 18 months, we launched the most comprehensive review of regulatory content in OSFI’s history, and this will result in rescinding or eliminating more than 300 pages of documents in English, or 600 pages in both languages. More importantly, we have embedded the habit of asking what regulations we can ease or remove just as frequently and with just as much vigour as asking what regulations we can add.
I want to stress, however, that smart oversight does not mean less supervision or action to address key risks. We have continued to take early action on risks with prudential consequences, focusing on issues like foreign interference, money laundering, cybersecurity, governance and third-party dependencies.
As we look for opportunities to ease regulatory burden, we are resolute in maintaining appropriate supervisory intensity. Our new supervisory framework includes risk ratings or grades for a wider, more comprehensive array of resilience factors, which include business risk, risk governance, financial resilience and operational resilience. These ratings provide boards of directors with clearer insights into their institutions’ risk disciplines.
We are committed to ensuring that Canada’s financial system remains a source of strength in an intensifying risk environment.
I thank you and look forward to your questions.
[Translation]
The Chair: Thank you, Mr. Routledge. Colleagues, this morning, I propose that you each have a maximum of four minutes to give everyone a chance. I’m counting on your usual cooperation. I’ll begin with our deputy chair, Senator Varone.
[English]
Senator Varone: Thank you, Mr. Routledge, for coming. I always enjoy when you are here and the clarity of your answers to our questions.
My question relates to the mortgage stress test. It was introduced prudently a few years ago to counter the effects of an overheated market economy in new-home housing. It worked. It cooled the market down. It did its job, but the market now is on life support, and I’m intrigued by the comment regarding creating regulations and then removing them. Are you considering the removal of the mortgage stress test, given the market climate today?
Mr. Routledge: I will take a step back in answering that, and I’ll talk about where we were a couple of years ago. We had very, very low interest rates and a very significant increase in home-buying activity, which drove up prices to a great degree across the country. That was fuelled by very low interest rates and, I would argue, very aggressive mortgage products.
We asked ourselves, “Why didn’t the stress test prevent that buildup?” The answer was that although it is a useful tool for lowering the incidence of default, it is not as useful in lowering a buildup of risk concentration driven by cheap leverage and rising home prices. We looked across the pond to our friends in the United Kingdom, who, in 2014, issued a stress test and also put in place an alternate or backup control called a “loan-to-income flow limit.” That ratio was targeted at individual banks, not Canadians.
It turns out that they dropped their stress test because that loan-to-income portfolio test did a better job of removing risk concentrations. We have now implemented this loan-to-income test, and it is in place, working today. We think it’ll prevent that buildup of highly leveraged borrowers to the degree we saw in 2021 and 2022. So we have protected it.
That gives us the option to think about whether that flow limit is enough and would therefore serve as a replacement for the mortgage stress test, or whether it should be a complement. The reasons for making it a replacement would be that it does what the stress test does in terms of protecting the system and Canadians would rather not have to be subject to the stress test.
Here is the reason to keep the mortgage stress test: It lowers defaults. Fewer people default on their homes because they are subject to a stress test. Even if we were to remove prescribing it, banks would likely still continue to apply a stress test to their customers when they underwrite them. We are going to consult on this early in 2026, and we are going to ask the industry whether they think that the Superintendent should continue to prescribe a stress test or whether they should do it on their own.
Senator Varone: I have a follow-up about the underwriting of banks. If I bought my home three years ago for $1 million, put my $250,000 down, I have a $750,000 mortgage, I got approved. Three years later, I’m at $700,000 in terms of my loan, but my house has decreased in value; I’m offside. The banks give us their published rates to renew. There is no issue. I don’t have to recalibrate or go through the stress test again, but those rates aren’t competitive to the rates that they are offering — how would I say — the competition. I’m stuck to their published rates and no discounts.
The Chair: Thank you, senator. We have to move along.
Senator Marshall: Thank you for being here today. Just to continue with that line of questioning, for the banks — I’m really thinking about the six big banks now — I noticed this last summer that a lot of the banks were decreasing their allowance for doubtful accounts. Now they are starting to increase them again. But I found it very surprising, given the climate, with the tariffs, and, of course, Canadian residents are highly indebted. So when you oversee and supervise the banks, do you actually look at the allowance for doubtful accounts? Do you look at that in detail, or do you just look at your ratios? How much detail? Do you talk to the auditors? I’m just trying to get a handle on what type of work you do on the allowance.
Mr. Routledge: Yes, we do look at it. Let me explain how we go about it.
We have supervisory teams assigned to each financial institution. We have a variety of central teams that look at different issues, one of which would be provisioning or allowances for loan losses at the banks. We gather data and we compare. The first thing we do is make sure that the allowances look good in relation to accounting rules. We have an accounting team that sometimes helps with that. Then we compare it across institutions and see if there are any weak institutions that aren’t putting up, in our view, enough allowance against their loan loss risk. And then if we think that’s the case, we start a conversation. Usually, we don’t have problems. There is a multi-month effort for us to understand the models that are driving the allowances and for the bank to understand where our concerns are, and in the vast majority of situations, we get to some appropriate conclusion.
If we had a recalcitrant institution, we have other supervisory mechanisms, including intervention, to solve that problem.
Senator Marshall: So when you are looking at the allowance for doubtful accounts, is there some sort of discussion between the three parties, like yourself, the bank and the auditors? Are there ever times when there is a disagreement, and who would prevail?
Mr. Routledge: There are two ways we engage with auditors. The first, directly on a specific institution, is we may go see the external auditors and express our concerns and then try and understand where their views are. Secondarily, we will engage with the audit industry as a group, and if we have concerns, we can express concerns about auditing practices across the sector.
Senator Marshall: Thank you very much.
Senator Fridhandler: Thank you, Mr. Routledge. As Superintendent of Financial Institutions — I would like to add “federal financial institutions” in there because my question is about your understanding of the per cent of the mortgage, whether it’s residential or commercial, that is under your watch versus the balance, and particularly players like credit unions. I think I have recently learned that it is far more significant than I thought that isn’t with the banks. Can you tell us anything about the numbers? And then how do you coordinate and work with those other institutions in this marketplace?
Mr. Routledge: I can get the exact numbers, and my team can respond with precision, but federal financial institutions have about 75% to 80%, I believe, of installed, underwritten mortgages outstanding right now. Credit unions would make up the bulk of the rest, and some credit unions are regulated by us. There are three of them. Most of them are regulated by provincial authorities.
We engage with our provincial colleagues and peers just to ensure we are largely following the same fundamental standards and principles, and we do.
Senator Fridhandler: On another point, in the mortgage system, when the tests are being done by the various institutions, I’ve also more recently learned that there is a significant concern about applicants’ fraud in terms of fake payroll data and other fake materials supporting eligibility for mortgages. Can you tell us how you drill into that?
Mr. Routledge: We set up standards and principles through a regulatory document we call Guideline B-20, which sets out residential mortgage underwriting principles and standards. We expect federal institutions to adhere to that. Our provincial peers often or usually adopt the same principles. That would include making sure you are addressing and minimizing the risk that you are approving a mortgage on the basis of fraudulent documentation.
Maybe behind your question might be the suggestion by some in the industry that there would be a clearer path for underwriting financial institutions to validate income through tax statements. That’s for the CRA to sort through. That’s their jurisdiction, not OSFI’s. But to the extent you had clearer, more reliable verification of income, the lower the prevalence of fraud would be.
Senator Fridhandler: Is it pervasive or minor?
Mr. Routledge: Depending on the institution, the red flag goes up when detected fraud rises above 1% in an underwriting or origination portfolio in a given period. When it’s 3%, alarms are sounding and you have to do something. Now, most institutions are well below those figures as they measure them. It gives you a sense of where the institutions’ risk response turns on. The issue is that it’s detected. Fraud by its very nature tries to conceal itself. There are cases at institutions where we have seen higher incidences of potential fraud, and in that case, at least with a federal institution, they receive fairly invasive supervision.
Senator C. Deacon: It’s really nice to see you again, Superintendent Routledge. Thank you.
There is increased reporting in the media of financial consumer fraud. So this is where bank customers are finding themselves defrauded of significant sums of money, some just in the context of their life, but some in the context of all of our lives. The banks continually respond by saying they have got robust fraud-prevention systems, strong fraud protection, leading-edge technology and analytical tools, yet we are not seeing this decline.
In the context of the Integrity and Security Guideline, which I think this is foundational to, has there been any change since we last spoke to you about this where the banks need to start reporting more robustly on this issue to you? I know the Integrity and Security Guideline is really you dealing with senior executives; that’s your role in that regard. This is a growing concern to Canadians, and most are not having their — there is no proven complicity or negligence — situation settled.
Mr. Routledge: I would answer that clearly the Integrity and Security Guideline give us a broad ability to get at that issue through reputation risk management. The Integrity and Security Guideline includes expectations that boards of directors and senior managers will manage their reputation, and fraud will damage an institution’s reputation. However, it is not like Guideline B-20, which is a set of principles around mortgage underwriting.
One thing we’ll need to consider is whether anti-fraud regulatory guidelines guidance is required. In theory, one could argue — and I’m not agreeing with the argument, just explaining the argument — that it’s a consumer issue, and that belongs with the Financial Consumer Agency of Canada, or FCAC, which is the consumer protection agency for financial services. There is truth to that, and they do work on that. But to the extent it becomes, as you mention, an institutional risk, OSFI wouldn’t be able to ignore it.
Now, judging from media reports, there may be some developments. There have been media reports about a financial crimes agency being established here in Canada, and that would be good news. We would want to work with that new agency to figure out how we would plug in with them. But at the end of the day, as your question posits, if it is an institutional risk that could undermine confidence in the institution, then we may need more regulatory principles.
Senator C. Deacon: It is a malicious external threat that is growing and is becoming more and more sophisticated. It is something our banks have to respond to from a systemic standpoint, I suspect. I’m glad to hear you say it looks as if it might be moving in that direction, because I think people rely on OSFI to provide systemic protections.
Mr. Routledge: Yes. I am agreeing with the sentiment to the extent that bad actors are attacking our institutions, who are otherwise innocent bystanders in this. But just because you are an innocent bystander doesn’t mean you can’t put up your defences to it.
Whether you need OSFI to articulate that through regulatory guidelines, or the FCAC to articulate it through guidelines, or the financial crimes agency, we’d have to sort through that, but I would agree with your premise that something needs to be done.
Senator C. Deacon: It is like modern-day bank robbery.
Mr. Routledge: It is.
Senator C. Deacon: Thank you, Superintendent.
Senator Loffreda: Welcome. It is always nice to see you. My question is on mortgage renewals and payment shock.
Many homeowners are now facing significant payment shocks at renewal despite decreasing interest rates as of late. What is OSFI seeing in terms of delinquency trends or early warning indicators? Has there been an increase in households’ extending amortizations beyond 30 years to remain solvent, and how sustainable is this practice from a prudential perspective?
I have been reading, and given that your own reports indicate that roughly one third of outstanding mortgages at federally regulated institutions now have effective amortization exceeding 30 years, do you see that as a temporary risk management response or as a long-term structural vulnerability within our financial system? Are you concerned?
Mr. Routledge: Yes. That’s the easy part. The harder part of that question is to unpack it. That 30% figure, what is driving those extensions of amortizations? That’s not it entirely, but the vast majority of that is driven by contractual mortgage terms. It is not a customer going back to a branch and saying, “Extend my mortgage and lower my payments so I can stay in my house.”
There is a product that was very popular in 2021 and 2022 called a variable-rate mortgage with a fixed payment. Customers set their five-year fixed payment at the very low rates then, sometimes below 2%. Think about that. That’s lower than inflation. That’s kind of a negative real interest rate. That payment was fixed for the full five years, but it was a variable rate. When the rates started to move back up, those mortgages negatively amortized. That’s what drove extension and contractual amortization.
The risk there is when customers go back to renew and the contractual amortization period, say it’s 40 years — they have to return to their original schedule, and that means it’ll be at a higher interest rate, and it’ll be for a much shorter amortization. So there is a real risk that there is a payment shock for individual Canadians.
Now, two years ago, that problem we estimated was around 250,000 households. Today, because banks and customers have worried about this, and they have gone to their banks to try and solve this problem early, that problem is probably at about 150,000. So it is manageable for the system. It is difficult for the 150,000 households, and that does worry us.
Senator Loffreda: So you are concerned, but we are properly mitigating that risk.
Mr. Routledge: From a bank capital perspective, it is not a threat. It could be a stress to earnings. It is very unlikely to be a stress to capital. From our perspective, the system will be resilient to that problem. It is not going to make any of those folks in those 150,000 households feel better.
Senator Loffreda: Thank you.
Senator Wallin: I will carry on with that. I realize you are saying that it may not be a threat to the stability of the banks, but this great renewal wave in the midst of a housing crisis is garnering a lot of attention. Sixty per cent, I think, is the number of the renewals that are coming up in 2025, and 81% say they can’t afford a hike.
Would you foresee — if these numbers are anywhere near true, like 150,000 households — that you would have to suggest or impose guidelines or rules to say something like, “Let’s try and keep the defaults to a minimum in the midst of this housing crisis”?
Mr. Routledge: That’s a tough question to answer, honestly, but I still will. No, we wouldn’t. Our job is to make sure banks’ accounting statements are accurate, that they fully reflect economic loss, and that would mean adjudicating problem loans in a way that would lead to higher delinquencies. While banks will do a lot to forbear and to prevent that awful outcome, which is a default and a foreclosure — they do take significant actions to avoid that — at the end of the day, if the borrower can’t service the mortgage, then you need to foreclose and move forward for the health of the bank’s financial state.
Senator Wallin: A similar question in terms of what we’re seeing more broadly in terms of capital fleeing this country at a time when it is needed: If we don’t radically change policies and priorities, then would you consider forcing pension funds or other financial institutions to take more risk to put capital into the Canadian system?
Mr. Routledge: First, on pension funds, our regulatory oversight of 20% of the pension fund market we oversee is not the same as banks. We just ensure that they are managing their solvency well. We don’t direct on investments or risk taking.
For the banks, a traditional regulator might say, “Don’t take risks. Minimize your risk.” That’s immature. The appropriate thing to do is to take risk within the context of return. I have talked about what adjustments we might make to our capital regime. Our capital regime is based on the last 30 years of historical data. I would dare to say that the last 30 years may not be perfectly attuned to what the next 30 years are going to be like. We ought to start having a forward-looking view on capital. To the extent that we can adjust our capital to make it easier for banks to price and take risks for good potential returns, we are open to doing that.
I will give you an example because it is esoteric. We went out and asked, “How can we help?” The life insurance industry came back to us and said, “If you lowered the capital you charge for domestic infrastructure, we would invest more in domestic infrastructure.” So we looked at the problem, and it turned out that if we gave them lower capital requirements for domestic infrastructure, their overall capital ratios wouldn’t move at all. Because we have lowered those risk weightings, they are much more interested in that asset class. I think there is a whole host of opportunities, and we need the help of industry to do that.
Senator Wallin: That’s very interesting. Thank you.
Senator Ringuette: First, let me congratulate you on the success of your smart review process. Maybe you could share it with all the different government entities. It would be welcome, at least from my perspective.
I have two questions in our current, and probably for the foreseeable future, geopolitical economic context: Tying in to the data situation, Canadian data on our finances has value. It needs to be secured, and it also needs to be sovereign.
Mr. Routledge: Sovereign?
Senator Ringuette: Yes, because much of our financial data resides in the U.S. right now. We cannot control, oversee, supervise — you name it — that data.
Has there been any discussion between OSFI and the Canadian banks to find a means to repatriate that financial data?
Mr. Routledge: The honest answer to that question is no. In our regulatory responsibilities, we just want to make sure the banks have access to their data and that if there is an attack on those data infrastructure sites, banks can recover quickly and continue to provide services to customers. We in our regulatory framework do not introduce the issue of data sovereignty.
Now, to the extent, working with the government and the industry, that folks would like us to do that, we’re open to adjusting it. But the honest answer to your question is no; we have not put data sovereignty considerations into our regulatory framework — rightly or wrongly. The world changed on us over the last 12 months, I fully acknowledge, but the straight answer is no, we don’t.
Senator Ringuette: How should we move that agenda forward?
Mr. Routledge: Believe it or not, it should not be driven by OSFI. It should be driven by the government. To the extent government policy-makers determine that we may need to incorporate that within our financial system regulatory framework, they should then come to OSFI for our best advice on how to do that, and whether it’s prudentially safe and how to do that in a prudentially safe way. That’s the conversation we should have. It should not start with OSFI. We’re not at all a national security regulator. We’re not at all a foreign-policy-making entity. We should be taking leadership from those entities and then responding.
Senator Ringuette: At the outset, you said that our banks have access to $1 trillion to potentially invest. Does that include their current investment in operations in foreign countries?
Mr. Routledge: That figure is an overall figure for the total capitalization of a bank on a consolidated basis, which would include both domestic and foreign. They could increase their lending in the United States to meet that gap, or they could increase it in Canada to meet that gap. Our point is just that there is abundant surplus capital in the system that could be employed. They could also use that capital to buy back their common shareholders’ shares. They could use it to make a foreign or domestic acquisition, or they could use it to lend more in the United States or to lend more in Canada. That is an aggregate figure.
[Translation]
Senator Dalphond: Welcome, Mr. Routledge. Continuing on the subject of the electronic aspect of banking, what guidelines do you issue, for example, to protect the Interac system or the ATM access system? We’ve seen that airports are vulnerable and that airline reservation systems are vulnerable. Have you imposed guidelines in this regard? Do you conduct follow-ups and tests to see whether they are able to withstand organized attacks from outside?
Mr. Routledge: Thank you. I will answer in English because the answer is very technical.
[English]
We have two primary regulatory guidelines that apply to the risk of being attacked by an outsider in an electronic way. The first is what we call our Technology and Cyber Risk Management Guideline. It establishes a fairly detailed array of expectations and principles for cyber risk management defences.
Secondly, we have a guideline related to third-party risk, which is meant to provide, again, guidelines, expectations and principles for how banks plug in to third parties. The notion is we expect fairly rigorous management of those operational risks.
The metaphor I like to use with our federally regulated financial institutions is this: Your institution isn’t operating in a benign environment anymore. It’s operating in a hostile environment, in a theatre of conflict in cyberspace. You could be a target. In fact, you are a target. So you’d better build up your defences, and here are our expectations for building those defences.
Thus far, the attacks that institutions have experienced — and they have experienced a lot — have largely not damaged the operations of these institutions.
Senator Dalphond: Do they have to report on attacks to you?
Mr. Routledge: Yes. We actually have a standardized report. I’m drawing a blank on the actual acronym for it. I could get it to you. But it’s a standardized incident reporting form for all cyberattacks. It is standardized internationally across —
[Technical difficulties]
Senator Dalphond: Thank you for these answers. If I look at the reporting, is it increasing, decreasing or stable?
Mr. Routledge: It’s increasing. The attacks are going up. The incidents go up, so the reporting is going up.
Senator Dalphond: Are you adjusting your guidelines to make it tougher or to increase the protections?
Mr. Routledge: Our industry tells us that they are pretty tough to begin with. They are. If you read Guideline B-13, we articulate, for example, expectations for patch management when software is upgraded. For a bank regulator to articulate that is fairly invasive. When we were putting it together, I asked the question, “Why are we being that specific?” The answer is that if they mess up patch management, there could be an open door for a cyber hacker to get in and install ransomware. Okay, that would be damaging to the institution’s financial health, so we’ll articulate that.
I think our guidelines are fairly specific and invasive. They have been in place for about two years, so in the next couple of years, we’ll do a review.
[Translation]
Senator Henkel: Welcome to our witnesses. We have a benchmark that mirrors the U.S. and the U.K. In France, for example, there is a process called the Livret A, which was created in 1818 and allows citizens to save money while financing the construction of social housing. The funds collected are guaranteed and centralized by a public institution that grants long-term loans to housing organizations.
Would OSFI welcome, under the supervision or in coordination and cooperation with the Bank of Canada, the creation of a regulated savings product geared toward affordable housing?
[English]
Mr. Routledge: Just so I understand the question — because the translation isn’t working — could there be a government entity to guarantee loans for housing construction? Is that the question?
Senator Henkel: Not really. It’s a system that exists in France.
[Translation]
Taxpayers can invest, meaning that the money stays in the community, and the taxpayer contributes to the wealth of that community through a booklet savings account with a ceiling. It is guaranteed by the government and banks.
[English]
Mr. Routledge: In theory, that could happen today, now in Canada. There would be capital required to back those guarantees, but I don’t think the capital requirements would prevent that from occurring. You would need the banks to put together that product. If the government were to become involved as they are with the Canada Mortgage and Housing Corporation, or CMHC, and assume some of the credit risk associated with that, that product could gain traction.
[Translation]
Senator Henkel: Developers of community and rental housing are struggling to secure long-term financing. Loans are often too short-term or too volatile, which hinders projects with social or ecological objectives. However, these investments offer moderate but stable rates of return, which is obviously different from conventional mortgage lending. Could OSFI consider a separate prudential regime for long-term loans for public interest projects, such as affordable housing, co-ops and community infrastructure?
[English]
Mr. Routledge: We wouldn’t develop a capital regime just for that, but there is a way — if policy-makers wanted to achieve that — for it to fit nicely within our system. When you’re talking about long-term investments to support construction of housing for social development reasons or for other reasons, if you make a loan, there is a risk the loan doesn’t pay back, so you could put capital up against that. A reasonable person could say, “Well, if you look at those investments without regard to any social support, they are risky; therefore, I’m going to charge you a lot of capital.” Therefore, banks don’t put capital against those loans and they don’t happen.
We had that problem coming out of World War II when people were trying to get loans after World War II to buy homes. We created this thing called CMHC, or at least intensified or grew the mandate. The government assumed the first-loss credit risk at CMHC in order to enable first-time homebuyers to buy homes. It still exists today. If you have less than 20% down, the bank doesn’t take your credit risk. The credit risk belongs to CMHC or a private mortgage insurer, which also has a federal government backstop.
You could create a similar structure for long-term housing developments in which a public entity — perhaps the federal government — could assume that first loss. That would make the investment attractive to banks. It would direct the decision making of individual institutions which would see capital flow towards that activity. But unless you had a public-private arrangement, like a CMHC, the capital requirements could mitigate against that development. It was a feasible idea that has been done in Canada in other markets.
The Chair: Thank you.
Senator McBean: What risks does OSFI see emerging from the growing use of alternative or private mortgage lenders? How is the Superintendent monitoring or mitigating those risks?
Mr. Routledge: We certainly monitor them. Private mortgages or mortgage investment corporations, it varies over time, but they account for roughly 8% to 10% of originations a year, so new mortgages, and 1.5% to 2% of the existing mortgage stock. It’s not huge. But 8% to 10% is not small. It’s a real trend.
By design of that business model, we don’t regulate them. Those are private institutions that make usually high-risk loans and charge high interest rates to homeowners. We don’t regulate. In fact, our regulatory framework, which is our Guideline B-20, would prevent the institutions we regulate from participating in that business.
We monitor and make sure or try to determine whether that segment of the market is growing in a way that is unsustainable. We have not seen that yet. If it ever was growing in a way that was unsustainable, we don’t have the regulatory authority to address that. We would alert our peers in the federal government. If they wanted to make policy that involved us in that, we could, but right now we don’t.
It’s a small, niche segment that doesn’t appear to be putting undue credit risk into the system.
Senator McBean: We heard from a previous witness there is an anticipation of increased job losses coming up from Canadians who have had six-figure salaries. There is going to be an increased number of delinquencies from people who were otherwise financially stable homeowners.
Consistent with Senator Wallin’s question about looking at the potential mortgage defaults and delinquencies coming up, I heard you say here you wouldn’t step in the way of that. Sometimes it’s not nice to say, but foreclosure is an important way of protecting the health of the banks.
You also opened up by saying there is a lot of resilience in the Canadian banking system, and that it’s more than 2% over the regulated backstop. At what point is it important for the banks to be also feeling the risk and the squeeze and to come down to lose that 2% cushion? I’m sure 11% is a healthy cushion. At what point should the banks be partnering with Canadians in the struggle for home ownership?
Mr. Routledge: There is a two-part answer. In the normal course, say you are a bank and you have a customer with a 10-year relationship. Technology knocks out the income of one of the partners in the household. The household falls behind on mortgage payments, or the bank expects the household to fall behind on mortgage payments. They will implement what we call — I’ve lost the word here — they won’t be as rule-based in adjudicating that mortgage. They will give people grace to sort through their problems. They will extend amortization periods to lower monthly payments. They will take all sorts of actions to preserve the currency of that household in a mortgage to ensure they stay onside. Forbearance is the word I’m looking for. They will forbear on the credit weakness of that household.
Their view is, “If we get this client through the next two to three years, they will stick with us and that will be a long-term, valuable client.” People do recover from job loss. That happens a lot more than people realize. It’s happening today. Their buffers and earnings give them the ability to take that risk.
Senator Yussuff: Thank you, Mr. Routledge, for being here.
The competition in the federal jurisdiction, especially in the financial sector, is one of the hallmarks of trying to ensure we have many products and many people doing it.
A credit union can, under the Bank Act, provincially incorporate in the federal system. They must follow the two processes to get there. To date, only a handful of credit unions have done so and made the switch. The sector finds the process to get there extremely slow, cumbersome and costly.
Is OSFI doing anything to try to make this more enhanced and supportive? I have been a member of a credit union for almost 50 years; they play an important role at the local level. They are provincially regulated for the most part. Why can we not enhance the system to make more credit unions who want to incorporate at the federal level do so and deal with the issue they have been raising around the frustrations and challenges to get there?
Mr. Routledge: The answer is we at OSFI can do better on that. The way to do better is not administrative; it’s based on our risk appetite.
We don’t want institution failure, so we hold new entrants — credit unions or otherwise — to very high standards. In effect, we ask them to prove to us their probability of failure over the next five years is near zero. That means it’s harder to get into our system. At the root of it, that explains the slowness of a credit union entering the federal system.
We have to shift our risk appetite internally. We are going to do that in our approvals unit, which is the unit that processes those applications.
With credit unions, one credit union that joined our system took roughly six years to get in. That’s a long time. For the first three, the credit union had to get its governance right. Credit unions are member-owned, as you know, and there is a process to go through that does take time. We own three years of it. I would have liked that to have been shorter.
We have to revamp, not our process, but our basic risk appetite. That will add more competition to the system through credit union entry and innovators entering our system.
I’ll be blunt. We have to do better on this as a regulator.
Senator Yussuff: Let me ask you the tougher question: What is the time frame — because we’ll have you back at this committee sometime soon — you would provide some guidelines and direction as to how we can get this accomplished? It really is frustrating. We could add more competition in the federal jurisdiction. I don’t disagree at all with the points you’re making about the risks and ensuring they are going to meet the same obligation as the federally regulated institutions, but we could do that in a way that doesn’t take five years.
Mr. Routledge: We won’t take five years to fix this problem. Why don’t we come back next year, and I’ll have a deliverable for this committee? I would think over 2026, we will shift our risk appetite and make it easier for institutions to choose to enter our system. I was talking to an innovator just last week, and I said, “What do I need to do to make you choose to join the federal system?” So come back in a year, and I’ll tell you what we have done on it. It is a high priority for us.
Senator Yussuff: I will take you at your word.
The Chair: We have just one minute left — time for one question — and my colleague generously offered the spot to the chair. So I will use it to close with the last question. Unfortunately, there’s no time for the second round.
In the U.S., their regulation intensity has declined on the material risk assessment. Do you have the intention to follow the U.S. path as a Canadian regulator to maintain competitiveness between banking systems in Canada and the U.S.?
Mr. Routledge: There are two questions there. No, I am not going to follow anyone’s path other than what is right for the Canadian financial system.
Yes, we have always had an eye toward how our regulatory environment might compare to other systems, and we don’t want to competitively disadvantage one of the most international sectors in our economy. We won’t do that. There are always trade-offs and choices you have to make. We’re more than happy to ensure that our capital regime is equivalent to other countries, and we have paused certain actions in order to maintain adherence to that principle. There is this thought out there that the only thing that matters for financial institutions is financial capital and liquidity risks. We reject that. Capital and liquidity are usually the last signals right before the bitter end. There are material non-financial risks, like cyber, third-party, operational risk, integrity and security risks, which require vigilance, and we will not drop that.
The Chair: Thank you, Mr. Routledge. Your role is very important for us to have a sound financial system in Canada, and you have a busy agenda, and you accept on a regular basis to see us, so we appreciate it very much.
[Translation]
Senators, we are now ready for our second panel today focusing on our study on Canada’s housing crisis and the challenges currently facing Canadian home buyers.
I wish to welcome our guests: Vince Gaetano, Principal Broker and Owner of Owl Mortgage; Mark McQueen, Founder of Wellington Growth Partners Inc.; by video conference, Julie Di Lorenzo, President and CEO of Mirabella Development Corporation; and lastly, Jordan Kupinsky, Partner with Windsor Private Capital.
Thank you all for accepting our invitation.
Ms. Di Lorenzo, as you are appearing before us by video conference, should any technical challenges arise, please signal this, and we will temporarily suspend the meeting.
I understand that some of you have opening remarks. If agreeable with all, I would like to invite Mr. Gaetano to begin, followed by Mr. McQueen and Mr. Kupinsky. Ms. Di Lorenzo will be sharing her time with Mr. Kupinsky following the opening remarks.
Mr. Gaetano, the floor is yours.
[English]
Vince Gaetano, Principal Broker and Owner, Owl Mortgage: Good morning, Mr. Chair and honourable senators. Thank you for the opportunity to appear before you today. My name is Vince Gaetano; I’m principal broker and owner of Owl Mortgage and was previously the founder of MonsterMortgage.ca. I’ve spent 35 years in the mortgage industry helping thousands of Canadian families secure mortgages for their homes. I’ve had the privilege of educating tens of thousands of viewers weekly on CP24’s “Hot Property” program for almost 20 years and now do so on social media platforms like YouTube and Instagram.
Today, I sit before you as someone who has lived with thousands of client mortgage stories and hope to share what Canadians are facing. I see the stress of families every day, and the housing environment is not just strained; it’s dire. I also see the problem of misalignment across levels of government. Programs and regulators are not working together to help Canadians. Instead of clarity, we’ve created confusion, often at the expense of the very families they claim to help.
One example is the launch of the Housing Accelerator Fund in early 2023. Ottawa encouraged municipalities to add density by allowing fourplexes, to strip away red tape, to add laneway and garden suites and such. On paper, it sounds progressive. In practice, it’s not working.
The fact is there are banks that won’t recognize the value of these garden suites in appraisals. Homeowners building these separate units are expecting to refinance their construction loans into lower-rate mortgages. Surprisingly, bank credit departments are not eager to recognize the additional units or the rental income they generate in the underwriting process. Here, we have ordinary Canadians who did exactly what the government asked — they built new rental units — and are now forced into alternative mortgages at higher interest rates.
Any federally funded program encouraging construction of new units needs to coordinate with the bank regulator or CMHC to ensure lenders finance these units at completion. Not doing so is the equivalent of building a bridge that stops halfway across the river.
Another regulatory initiative, the mortgage stress test, has had unintended consequences. Hailed by some, including myself in 2018, as the silent hero for families on the edge, the stress test has not been kind. Canadians have been pushed out the door of prime A banks and their lower interest rate offerings. Failing the stress test is a financial jail sentence, as it forces borrowers to go to alternative and subprime lenders. Although they offer more flexible qualifying criteria, it’s at the expense of higher interest rates plus lender and set-up fees.
The difference between the two lender types is expensive. It’s about 1.5% in interest rate premiums plus 1% lender fee and set-up fees on shorter terms. A $500,000 mortgage would incur over $12,500 in additional borrowing costs the first year, and renewals terms are not necessarily favourable. For a household earning $100,000 in gross income, this premium is painful, and when it’s after-tax disposable income, it’s very grim. For context, prior to the stress test, my brokerage’s mortgage fundings represented 80% of prime A residential mortgages. Today, it’s less than 50%.
Any regulated test forecasting future outcomes needs to also consider that households do experience income increases annually, and mortgage balances are paid down by 12.5% in the first five-year period. All mitigating factors should be considered in any qualifying test.
Once upon a time, mortgage approvals utilized all five Cs of credit. Today, the stress test prioritizes only capacity, without much consideration for the other four: capital, collateral, credit and character of the Canadian homeowner.
The stress test needs modification for today’s environment. The 2% buffer should be eliminated on all five-year fixed-rate mortgage terms and modified for shorter terms and variable-rate products. This will help rehabilitate many alternative and subprime homeowners to prime A lenders, saving them tens of thousands of dollars over a five-year term.
Every day, I sit with families who thought they were doing the right thing chasing the dream of home ownership, only to discover their financing options take up more of their disposable income. Instead of helping their efforts, we’ve punished them with higher interest costs and dead-end borrowing options. This isn’t just policy failure; it’s policy betrayal.
Senators, I urge you to raise an eyebrow, ask the hard questions and push for accountability. Why is the federal government funding housing solutions that banks refuse to recognize? Why are Canadians on the margins being punished by a stress test designed to push them to higher-cost lenders?
We are at a crossroads. Without serious reform, we’re not just facing a housing crisis; we’re facing a confidence crisis. When Canadians lose confidence in the system, they stop building, they stop buying, and they stop believing.
Thank you for your time. I look forward to any questions.
The Chair: Thank you. We are moving to Mr. McQueen from Wellington Growth Partners. Welcome.
Mark McQueen, Founder, Wellington Growth Partners Inc.: Good morning. Thank you, senator.
I’m here today as someone who spent five years on Parliament Hill, including a tour of duty in the Prime Minister’s Office, working with your late colleague senator Hugh Segal, and another 30 years on Bay Street after that.
During my eight years as chairman of the federal Toronto Port Authority, we got the P3 pedestrian tunnel built with zero tax dollars, a project that was started in 1935 and ended that same year. It finally opened in 2015. I was also the inaugural chairman of the Windsor-Detroit Bridge Authority, launching the construction of that $6-billion project in 2014. I’m currently a director, for my sins, of Ontario’s Metrolinx transit agency.
That’s a good starting point. To build $120 billion of transit infrastructure in Ontario is goofy if Ontario developers can’t launch new housing projects to take advantage of this generational investment.
According to CMHC, the total annual housing starts are trending around 280,000. While that’s about 30% higher than in 2010, our annual immigration intake exploded by 100% — 500,000 people — over the same period. We also need accommodation for the additional 1.7 million individuals the government has announced its intention to bring in between 2025 and 2027 as students, refugees and temporary foreign workers.
Ottawa’s waiver of the HST on new home sales for first-time buyers won’t begin to solve Canada’s self-induced housing shortage. According to a study by the Canadian Centre for Economic Analysis, taxes and development charges represent about 30% of the total component costs of a $1-million single family home in Ontario. That’s pure government greed.
When what was GST at the time was first launched, then-finance minister Mike Wilson determined that it shouldn’t apply to the necessities of life, such as groceries or drug prescriptions. Although the GST did apply on new home sales, which never made any sense at the time, it didn’t kick in until the home cost more than $450,000 in 1991. At that threshold, 95% of homes sold would be tax-free, was the thinking. The government also promised that the floor would increase by 2% every year, which never happened. Instead of growing to about $900,000 today, it remains at 1991 levels.
Revising the HST threshold is a necessary step in making homes more affordable. Take the retired couple who wants to downsize from their current $2-million home to a new $1.5-million condo in the Greater Toronto Area, or GTA, and pocket the difference to help finance their retirement. As they’re not first-time homebuyers, the government will charge them $171,000 in HST on their new place, representing 40% of the money they were hoping to take off the table to finance their retirement post-commission. That tax hit will keep them from selling, reducing inventory for young couples to move up.
My fellow witnesses will outline how to solve the second challenge: the reality that on a $900,000 condo in Toronto, a young family is asked to pay $100,000 of development charges on each unit up front, despite the fact that they’re leveraging existing services, such as the TTC, fire hydrants and sidewalks.
Tax increment financing, as we see in many U.S. jurisdictions, could jump-start new construction. As a site is redeveloped, the increase in the assessed value of the property raises the amount of taxes payable. No new building, no new tax base. If a city could borrow against that increment, perhaps by tax-free municipal bonds — as we also see in the United States — issued under the watchful eye of the Ontario Financing Authority, buyers would save $100,000 of that $900,000 overnight.
Private sector players tell me the key barrier is too much red tape. From a builder’s first meeting with local bureaucrats, it’ll take, on average, 11 years to build a new home or a community. That’s an eternity given the affordability crisis facing many young Canadians. Even if we cut that timeline in half, you are still spending five years in your parents’ basement. The only benefit is 2036 becomes 2031.
There’s nothing this committee can do about red tape, but I caution you not to put all of our eggs into the new agency known as Build Canada Homes. Hope as we might it will be easier to build homes quickly when federal lands are involved, the Jericho Beach site of the Department of National Defence, or DND, is a cautionary tale.
Circa 1990, I attended a meeting with my then boss, the Honourable Mary Collins, MP for Capilano—Howe Sound and Associate Minister of National Defence. She encouraged CMHC and DND to declare the site surplus, reduce the costs of our military infrastructure while opening up a new parcel for housing development. It took 24 years to transfer that parcel to Canada Lands in 2014. It took another 13 years for the Vancouver City Council to manage to take over. So it will be 40 years from the time that minister tried to declare the land surplus to when the person turns their key in the door.
The Windsor-Detroit bridge, declared a need in 2002 by George Bush and Jean Chrétien, isn’t open yet in 2025. Federal agencies are not the Pollyanna. We need to arm entrepreneurs with the right tax policy to let them get the homes Canadians need built.
The Chair: Thank you. I’m sorry to interrupt. We are moving to Mr. Kupinsky. I understand you have agreed to share your five minutes with Ms. Di Lorenzo. You have the floor.
Jordan Kupinsky, Partner, Windsor Private Capital: Mr. Chair and senators, thank you for the opportunity to appear before you today. My name is Jordan Kupinsky, and I am a partner with Windsor Private Capital, an investment firm that is active in the residential real estate sector in the Greater Toronto Area.
Canada, and particularly its major municipalities, is facing a profound housing affordability crisis. While there is no shortage of analysis on how we arrived here, what matters now is how we move forward. All participants — governments at every level and industry alike — share some responsibility, but we also share the opportunity to help fix it.
At its core, housing affordability comes down to two variables: household disposable income and the cost of housing. Sound pro-growth fiscal policy can improve the income side of that equation, but those gains take time to materialize. On the cost side, however, there are tools available today that could meaningfully reduce the upfront cost of new housing, protecting jobs and improving affordability almost immediately.
One such tool is the use of municipal bonds to finance development charges — a model long established in U.S. municipalities and readily adaptable to Canada. This approach offers a rare win-win: Municipalities would still receive 100% of the development charge revenues they rely on, while new construction homebuyers would be relieved of an upfront cost that can exceed $100,000 in the GTA.
Under this framework, the development charge would be amortized over the life of the benefit — say, 50 years — and collected through an incremental property tax line item. Because the municipality’s borrowing cost is roughly one percentage point lower than a typical homeowner’s mortgage rate, the result is lower monthly payments and an estimated $2,400 per year in after-tax savings for purchasers of newly constructed homes.
The investor base for such municipal bonds already exists, and this could represent $1.5 billion to $2 billion in new annual issuance in the GTA alone, creating a healthy incremental market for Canada’s financial sector. While enabling legislation would fall to the provinces and municipalities, the federal government can play a catalytic role by making the interest on these bonds tax-exempt, as is the case in the United States. That single measure would further reduce financing costs, and those savings would flow directly to homeowners.
In addition, I would like to flag two complementary policy adjustments that could quickly improve the economics of housing supply, especially for multi-family developments.
First, lift the foreign-buyer restrictions on multi-family condominium projects, maintaining them only for single-family homes and townhouses, those typically purchased by end users. These restrictions currently constrain access to capital for high-density housing, limiting the supply pipeline where it is most needed.
Second, allow accelerated expensing of construction costs for purpose-built rentals — similar to the tax treatment of exploration expenses in the resource sector through flow-through shares. This could attract new retail investment and lower financing costs for rental projects.
Together, these measures would help address the affordability crisis not years from now, but in the near term — stimulating construction, supporting jobs and expanding supply.
Thank you, senators. I look forward to your questions and discussion.
The Chair: Thank you. Ms. Di Lorenzo, you have the floor for two or three minutes, if possible.
Julie Di Lorenzo, President and Chief Executive Officer, Mirabella Development Corporation: Thank you. Good morning, esteemed committee members.
I have been a builder developer of residential commercial projects for over 40 years. As I am sure you have heard, the conditions present in the housing industry are some of the most challenging encountered over the last four decades.
While we have inventory overhang for a short period of one to two more years, we have dismal housing starts. In some cases, housing starts are down 90%. We will not achieve any of the housing goals set by any level of government. Everyone appears consistent in their understanding that we will have a shortage by 2028-29, and an escalation of prices is expected.
We are distracted, though, by altruistic “innovations” to solve the issue when, in my mind, the problem is fiscal and financial. We already were one of the most productive housing markets in the world, so to pretend otherwise is folly. We are concentrating on the wrong areas.
Feeding into and consistent with Mr. Kupinsky’s points, intensification also on public infrastructure not only is efficient fiscally but certainly provides positive tax revenue to fund infrastructure through the new property tax created. This is called tax increment financing and is a tool used all over the world. It also provides more economic quality of life with public amenities available and no need for the drain of assets, like the depreciating vehicle.
To start, development charges, or DCs, should be removed on projects on existing subway lines and public infrastructure. The new annual property tax base will provide capital to fund necessary infrastructure. We need financing tools to continue and accelerate and be fairly allocated — tools like MLI Select, MLI and ACLP, through CMHC.
The residential housing sector was known as 8% of the GDP of the country, as cited by The Wall Street Journal. The loss of jobs and economic output will hurt the economy at large.
To start, DCs should be removed from housing on public infrastructure. The new property tax base should fund those needs. We also need financial tools to get projects off the ground urgently. If we do not accelerate housing starts as soon as possible, there will be a long-term shortage, and affordability issues will rapidly escalate into the next decade and severely limit economic prosperity. Thank you.
The Chair: Thank you. Colleagues, we have 35 minutes left. I propose to have three minutes each, and I invite our witnesses as well as our colleagues to be concise with the Q & A.
Senator Varone, the Deputy Chair, please.
Senator Varone: My question is for you, Mr. McQueen, and it goes back to your time in the Prime Minister’s Office. You recounted how Mike Wilson said $450,000 covered 95% of all homes being sold. There have been seven governments since that time and seven prime ministers taking office. Each one neglected to put that escalator in. My question, though, is why wasn’t it first put in?
Mr. McQueen: I think I would defer to Michael Sabia, Assistant Secretary to the Cabinet in the Prime Minister’s Privy Council Office at that time, to appear before you as Clerk of the Privy Council and tell you, since he had his hand on the documents that he was tabling at cabinet, why that wasn’t actually in the aide-mémoire.
My recollection is just simply that the translation of what ministers’ intents are into law is a very tortured process, and it is just that simple. The fact that it has been decades now and hasn’t been fixed is a function of Finance, in my experience, not wanting to give away any tax points they don’t have to, and it is a constant struggle to make that happen. And this would be that, right? There is revenue that disappears. It is just that simple.
Senator Varone: My second question is for you, Mr. Gaetano. The Superintendent of Financial Institutions appeared before us right before you, and they were contemplating the removal of the mortgage stress test but replacing it with an income-to-value-type scenario. What are your thoughts on that replacement?
Mr. Gaetano: It would be more restrictive. The best way to describe it is wearing a life vest in a bathtub. We really need to think this through. A loan-to-income ratio of 4.5 is going to be more restrictive than the actual stress test. I think we have to revert to the mortgage qualifying rate again at 5.25%. It worked. It was a tool that has always been very effective, and it is indicative of the fact that our delinquency rates have not moved at all. There are very subtle movements. Where you are seeing the most delinquency increases is on mortgages over $850,000, where you saw 40 to 42 basis points in the last Canadian Bankers Association report.
Senator Varone: Okay.
Senator Marshall: I certainly felt the weight of your words as you were giving your opening remarks. This is probably an unfair question, but I have to put it out there anyway: The government is spending billions and billions of dollars on new programs. They are reorganizing government to address the housing problem. Some of the programs are moving from CMHC. They went to a department, and now they are going to Build Canada Homes. We’re counting on the public service, which is now under stress because they are looking at a program of restraint to deliver these programs.
When you sit back and look at it, is the government on the right track? You are on the outside looking in. I’m questioning whether they are on the right track. Are they sort of on the right track and they need to address some of the issues that you raise, or do you think that, as Mr. Gaetano said, they need to rethink the whole thing?
Mr. Gaetano, I picked on you first, so maybe you can start. I would like to know if the government is on the right track.
Mr. Gaetano: I think they are on the right track. I see the problem of aligning with different levels of government and regulators. For example, let’s talk about the Housing Accelerator Fund — it’s very progressive, and it’s encouraging municipalities to increase density and build fourplexes and whatnot. So people are out there doing it.
The problem is the Housing Accelerator Fund should be working in conjunction with OSFI to direct the banks to fund these projects. There should be an MLI Select light for four units and below because MLI Select only pertains to five units and above. CMHC and OSFI should be working with the federal government to say, “Okay, how are we going to help these folks who want to invest in a garden suite or a laneway suite?” And when you see chartered banks sending emails back to me, saying, “Sorry, we can’t value that garden suite that was built and is being rented in the appraisal or use that income to qualify that client,” it is absurd. They are not on the same page.
My answer is yes, they are on the right track, but they are not talking to the other parties involved. I think banks are just eliminating risk in general, and the reality is they’ve got to lend more. If you have zero delinquency, you’re not lending. You’re looking for a perfect client. In today’s economy, there aren’t perfect clients out there. They are not all perfect. We live in a very fluent economy. People are changing jobs all the time. There are no more salaried positions for 35 years anymore. We have to adjust to that.
I think banks are no longer underwriters, in my opinion. They are checkers. They check the box. There is no more mitigation. There is no more looking at the character of the borrower, no more looking at how much downpayment is coming in. Look at retirees on fixed incomes.
The Chair: I’m sorry, Mr. Gaetano.
Senator Marshall: Do I have time to hear from someone else?
The Chair: No, sorry about that.
Senator Loffreda: Thank you all for being here. Thank you Ms. Di Lorenzo also. Too bad I only have one question. I’ll save it for Mr. Kupinsky. Windsor Private Capital has developed valuable experience in converting existing buildings into new purpose-built rental housing. Your project at 950 King Street West in Toronto is a notable example. Announced in June, this redevelopment will transform a former hotel into a 231-unit residential building, including 40 affordable homes. In your news release, you highlighted that the project reflects your firm’s ongoing commitment to supporting affordable housing in Canada.
Could you share with the committee some of the key challenges and hurdles you faced in bringing this project to life? What specific barriers slowed progress or even risked derailing the project entirely? More broadly, where do you believe the committee should focus its attention in identifying practical, on-the-ground solutions that could help streamline and accelerate similar building conversions across the country?
Mr. Kupinsky: Thank you. We’re very proud of that project and pleased to be working with our partners, Greenwin and Intentional Capital, on that as well. With respect to that specific project, what is interesting to note is that CMHC is not a part of that project. We got shovels in the ground faster because we have conventional financing. The process to get financing in place with all the rules and procedures with CMHC right now, unless you can get ACLP financing, it’s our firm’s opinion that we can get a shovel in the ground faster working with conventional financing than with the CMHC programs.
So, again, there are things that need to be done that the federal government can do to provide greater access to capital. In answering your question earlier, the government’s putting forward billions of dollars of capital, but the quick fixes are taking the costs out of the system and letting the private sector do what it does best. That is getting the shovels in the ground, getting the financing, getting the places built. If you took the HST, as Mr. McQueen said, and adjusted it, you would save $100,000 there. If you finance the development charges over the life of the assets, that’s another $100,000; that’s $200,000 right now. That creates affordability. If the government focuses on policies that grow our per capita GDP, over time, consumers will have the wealth to buy the homes.
[Translation]
Senator Henkel: My question is for Mr. Gaetano. Faced with stricter requirements from large banks, an increasing number of borrowers are turning to non-traditional lenders. What is the current market share of these alternative lenders, and what do you think about their current framework?
Do you see this as a growing risk for consumers, or is it a necessary valve in the system?
[English]
Mr. Gaetano: The alternative lender community has embraced the stress test. The quality of their applicant has gone up, and it comes at a premium cost. When you go into the alternative space, there are additional fees. It’s not a free service in my world; it’s lender fees, set-up fees, higher premiums. They are traditionally one- or two-year terms, so the renewal situation is not as favourable. Once you are in the alternative and subprime space, it is very difficult to get back into that rehabilitated form to get into the A space.
I think there is a growth in the alternative and subprime space because there are more and more people being pushed into it. The reality is they are popping up all the time, and the MIEs, as the Superintendent of Financial Institutions mentioned — I think he is understating how big they are. I think it’s probably more than 8% of the market. The home trust, the equitable banks, they are growing. We’re seeing more of that alternative space in my office, looking for more business every day.
Mr. Kupinsky: I would add one comment to that. What is ironic in this alternative mortgage space, which we’re somewhat familiar with as well, is many of our chartered financial banks are actually providing senior loans to the mortgage investment corporations that are actually lending. The irony of the situation is they are making profits and taking less risk than lending to the direct borrower for the first time, so the actual homeowner is paying a higher interest rate than they would have otherwise paid if they were able to get the mortgage in the first place from the bank. The bank is still profiting off that homeowner, but being in a more secured position. I just think that’s kind of ironic, and maybe we have to look at that.
The Chair: Thank you, I will restrain myself, since I worked in the banking system for years.
Senator McBean: I think we would have used a different word than “ironic” for that situation.
Mr. Gaetano, what federal actions could help improve mortgage affordability and maybe, more importantly, stability for Canadians facing rate renewal? I’ll tack on another one. What federal programs could be restructured to support alternative lending options and co-ownership models to expand access to housing?
Mr. Gaetano: On the renewal front, banks have a really interesting way of posting their regular rates that no one ever gets. For example, the five-year posted rate at banks is 6.09%. No one ever sees that. In 35 years, I have never seen a chartered bank charge a posted rate. It’s always discounted. When they calculate penalties, they always include the discount off the posted rate. Maybe what would be appropriate is for the regulator to say that if that initial client got a discount of 1.5% or whatever that rate is off the posted rate, maybe they should get that again on renewal if they’ve made all the payments. So not be very predatory in knowing that, “Hey, I’m checking their bank accounts.” There are algorithms that know what payroll is going into bank accounts; they know if people are in the margins or not. They are not always getting the best rates at renewal. They are always having to negotiate the rates. When clients are going in afraid of negotiating because they know things are getting tighter, they are very reluctant to push that envelope.
So, it’s clever by the banks, but I think it’s also predatory. That should be sorted out. As far as your second question, can you repeat that? I’m sorry.
Senator McBean: What federal programs could be restructured to support alternative lending options or co-ownership models to expand access?
The Chair: Ms. Di Lorenzo wants to intervene as well. Please go ahead.
Ms. Di Lorenzo: Senator, thank you for the question. It has always been a mystery to me as to why in the United States you can get a 25-year fixed rate. If you’re asking people to amortize their mortgages over 25 and 30 years, it seems equitable and fair that they would have security in terms of the interest rate they pay for a longer period than 5 to 7 years.
Senator C. Deacon: I just want to acknowledge Mr. Gaetano’s point that federal regulatory agility and policy alignment, I think, are crucial elements. Thank you for making that point.
My question is to Ms. Di Lorenzo and Mr. McQueen about the importance of ensuring — and what the federal government could be doing to ensure — that residents don’t have to spend $8,000 to $10,000 a year on a car and that public transport is actually an option for them in a lot of our building. What federal policies could help to achieve that, starting with Ms. Di Lorenzo?
Ms. Di Lorenzo: Growth management is important to me. I understand the fiscal benefits of intensification on public infrastructure are enormous for the economy. We have done a good job shifting from low-rise to multi-unit residential development over the last 15 years. We have done that.
What is important is the federal government programs can be used to accelerate funding for those actual projects. Should they be on public transit, they should have priority in terms of allocation of MLI Select and ACLP, et cetera. Any fiscal tools within the federal government’s venue should be used to accelerate projects with those criteria.
If I may add a sidebar, some of the inventions we are seeing don’t promote intensification. We’re talking about innovation. If you apply those innovations, they’re for low-rise housing. I have nothing against the opportunity for low-rise housing, but the industry was extremely efficient already in multi-unit residential. We should continue to promote that built form as efficient fiscally.
Mr. McQueen: No matter the stripe of the government, provincially or federally, there has been cherry-picking done for decades over which transit projects — which is what I think you’re referring to — suit the flavour of the day. Fortunately, in Ontario, we have a 30-year program now that is going to be safe from intervention, no matter what political persuasion there might be in a change of government some day down the road.
These partnerships have become the norm. It’s more constructive than what we saw 15 years ago in Toronto, when we had the federal, provincial and city governments all trying to either open or close an airport depending upon the day, as Senator Pupatello would remember.
The fact is that in the 2008-09 financial crisis, there were shovels in the ground and a structure of money that worked. Again, that was a tactical thing at a point in time for a reason that, again, was cherry-picked for projects that suited a flavour of the day.
I have no issue with how things are working from my chair at Metrolinx. The question is how to combine, to Ms. Di Lorenzo’s point, the trains in the community’s idea. You have these blocks of land. How do you optimize those blocks of land with the trains underneath it? That outfit, we have not gotten that right yet, for sure. I’m not sure that’s a federal policy. If the federal government said the final sign-off on this $6-billion grant requires densification of a certain amount approved by the municipality before we send the money, you know what would happen, right? Approvals would have happened by that time.
Senator Dalphond: This question is for you, Ms. Di Lorenzo, and also for Mr. Kupinsky. I understand you are a member of the Housing Affordability Task Force that Ontario has set up.
We just heard that Bill 17 is trying to change the models for DCs to ensure development costs for water and sewer systems could be passed along to a separate corporation instead of being paid up front. Is that one of the measures we should be pushing for?
Ms. Di Lorenzo: In relation to that bill, I’m sorry, but I’m not as familiar with it. It sounds conceptually like we’re trying to take away that front-loading of development charges to the first purchaser that is completely inappropriate because that first purchaser carries the burden of that on their mortgage.
When we look at the amount of money they are actually mortgaging, the inputs of those taxes double over the time frame of their amortization. If that is the tool being implemented, that is a good tool because, in conjunction with bonds and other financing mechanisms, those items can be funded through the new property tax base.
I often give an example, sir, of a project I built at Bay and College, which was an obsolete office building. We added on 100 feet by 100 feet, over 150 families. The tax base on that mere 100 feet by 100 feet would have funded exponentially a very nice infrastructure addition. That tax base never existed before.
The intensification causes there to be very efficient new tax revenue on an annual basis. That is the revenue that should be used, not to penalize homeowners.
Mr. Kupinsky: To add to what Ms. Di Lorenzo said, I’m not specifically familiar with the legislation, but let’s just say water and sewer would be a component of the overall DCs, so it is not going to solve the whole problem.
The municipal bond concept would be incrementally above and beyond, if that’s the solution they are proposing. The federal government can play a catalytic role if it were to do what is done in the U.S. and make these bonds tax-exempt from an interest perspective to further lower the cost.
Even if the federal government didn’t use that tool which it has, any encouragement to the provincial municipalities to adopt this type of financing would have a meaningful impact up front, on a lower cost of purchase up front and then an ongoing monthly carrying cost for a consumer or a homeowner.
Senator Dalphond: No, I understand 50% of the DCs is really the sewer and water systems. We’re talking about $100,000 in the Toronto area.
Senator Martin: I have one brief question, and then I hope to be able to ask Mr. McQueen to talk more about Build Canada Homes and that the agency is not the solution.
Mr. Gaetano, you said many things that caught my attention. One of them was to push for accountability. We can’t revamp the whole system now. What we can try to do is build in greater accountability measures that could rein in unnecessary charges and reduce red tape. If these hidden taxes were known to buyers as a fully itemized component of the final home price, would the resulting public pressure compel the government to significantly reduce the fees? Is that one accountability measure that could be affective?
Mr. Gaetano: Transparency would help significantly. Ms. Di Lorenzo pointed out what a borrower finances. On a $200,000 DC financed by a homeowner, depending on whether they are a prime A client or an alternative or subprime client, that additional interest cost over 25 years is $165,000 to $190,000. It’s double, to her point.
Having consumers know exactly what those development charges are — everybody thinks the builder is collecting it and making profit on it, but they’re not; they’re passing it on to the consumer — I think is vital. It would be helpful.
Senator Martin: Thank you. Mr. McQueen, you have extensive experience. I heard you say another federal agency is not the solution. That is in line with what Senator Marshall asked of both of you, but we ran out of time. Would you expand on that comment?
Mr. McQueen: We’re all victims of our experience, right? I’m hopeful that Build Canada Homes can break through some of the challenges that the prior government spent 10 years telling us they were breaking through and apparently didn’t succeed, not for a lack of trying, will, might or money.
The challenge with these arm’s-length agencies is they are not arm’s-length. You don’t know that until you are in charge of one, and you find out the Treasury Board wants to approve your core plan every year. You say, “What core plan?” They say, “Well, the one we have to approve for you to spend the money the Prime Minister told you to go and spend to build that bridge or do that development,” be it at Jericho or Downsview Airport or somewhere, to build thousands of homes, a tunnel or what have you, or a $6-billion bridge that had been Canada’s most important project apparently, except for the fact that the Treasury Board analyst wanted to see the risk matrix on the project you had been ordered to get done in six years.
The government doesn’t empower these agencies to do anything. It’s that simple. They empower them to spend money that could have been spent by the department in question overseeing their activities, choosing their board and giving them bureaucrats to borrow for the time.
It’s not that no one wants to build these homes. I just don’t want us to put all our eggs in that one basket and, five years from now, we’ll wonder why that didn’t work out again. The Jericho story is an example: 40 years from concept to direction, 40 years from direction to turning the key. We don’t have six years.
Senator Martin: I’m from B.C., by the way, so —
Mr. McQueen: Does that story resonate?
Senator Martin: It resonates, yes. Thank you.
Mr. McQueen: I wouldn’t believe it if I hadn’t been there myself.
The Chair: Thank you.
Senator Yussuff: Thanks to all the witnesses for being here. You were trying to cover a lot of ground. As you know, the system doesn’t work that way. I hate to frustrate you, but I want to dig in a little bit. You made an interesting comment — and we have heard a similar plea to the committee — that in the U.S., there is a system that works to help municipalities deal with their challenges because they have to finance the infrastructure to make their city successful. The way we do it right now doesn’t seem to be the way that everybody has indicated is the way we should go forward.
Given that reality, is there any provincial jurisdiction that is looking at this in a concrete way to say, “We need to do this because, ultimately, if we don’t do this, we will not bring down the cost of owning a home or a condo, and, more importantly, the crisis will just get deeper”? If we are going to put forward a system where a municipality can actually have a bond system and be backstopped by somebody — the provincial or federal government, because they are the only two entities that can do it — is there any appetite? The Ontario government is saying, but I haven’t heard them say they are going to take on this responsibility or push for this responsibility to make sure we get across the finish line.
Mr. Kupinsky: I can tell you my experience. I got involved with this about four months ago because it seemed that, as a concerned Canadian citizen, it was time not to keep complaining but to try to step up and do something.
Since that time, I have spoken with a mayor, a large GTA suburban mayor who is 100% in favour of this and doesn’t know why it’s not done. He has relatives in the U.S. who are in the civic service, and it doesn’t make sense. I have spoken to a councillor in a GTA suburb who, when he heard about this, he said, “This is amazing; I think we should definitely do this.” I have reached out to the office of the Minister of Municipal Affairs in Ontario and spoken with their policy adviser. To the best of my knowledge, I don’t know that they were looking at this.
And I’m here today, again, knowing that the federal jurisdiction doesn’t have a lot of tools for this because it mostly falls to the provinces and municipalities, but hoping that raising awareness to this allows me to sort of go back and try and have further conversations.
But I think to the extent that the senators around the room and anyone can leverage their networks to try and bring this forward, it will help make it happen. Because, again, this is easily implementable. It can be done very quickly if there is a desire.
Senator Yussuff: Mr. McQueen, thank you again for the work you’re doing with Metrolinx. I live in Toronto, so I’m very familiar with the challenges we face as we’re trying to build transit in the city. It looked like we woke up one morning and realized we had a problem, but you could have seen the problem 20 years ago in the system if you were paying attention.
Given this reality and the fact that the investment is there, in your conversations with developers to take advantage of all the multi-layered projects that are happening in the city, is there some enthusiasm to try to drive this? Because I think densification can make significant inroads in bringing the opportunities for people to actually have a condo or home ownership in the city if we are going to, as my colleague said, get them out of their cars so they can walk or bike to work or whatever the case might be at the end of the day.
I’ll end on this: I was in Toronto on Monday morning. I had to go to the airport. I was downtown at College and Bay Street. I walked across to take the subway to Front Street, and then I got on the UP and went to Pearson Airport. It took me less than 30 minutes. If I had taken a cab to do that, it would have taken me 45 minutes to an hour. My point is that I understand the necessity to do this, but most people don’t appreciate the importance of the work that needs to happen around the densification of transit systems.
Mr. McQueen: This is why we have time, while these projects — Finch West, Eglinton Crosstown, the Ontario Line, the Sheppard extension — are happening before your eyes to get the tax policy to arm the entrepreneurs and possibly the homebuyers to make what needs to happen in time to be open around the time these stations open. Whether that’s three, four, five or six years, we have this window, and with your input, I think, and changes in the federal tax policy, we can bring all this together for it all to make sense. You’re absolutely right.
Senator Fridhandler: Mr. Kupinsky, it is a very important suggestion to look at the municipal bonds and interest-free element of them to incentivize people. But if you’re going to address the front-end entry question, I haven’t heard any mention that, well, at the same time, because the feds aren’t going to give up tax points so easily, maybe you should reduce capital gains to 75% as opposed to 100% on your principal residence. To find a full balance here, we’re making it easier to get in, but you don’t get as much of a windfall at the back end. Would that be acceptable to you?
Mr. Kupinsky: I will probably offend some of my business colleagues here right now, but I personally believe that we have distorted the system by making capital gains tax-free on principal residences, as it encourages people to overbuy a home because it’s tax-advantageous. Instead of maybe investing in businesses, they are buying “more house” because that’s a tax-free capital gain. It’s a misallocation of capital. I may offend some of my peers by saying that, but from a policy perspective, that is my opinion.
Senator Fridhandler: Would you do the trade-off then?
Mr. Kupinsky: Would I personally do the trade-off?
Senator Fridhandler: For tax-free interest on the bonds, you are going to reduce capital gains so government breaks even.
Mr. Kupinsky: Sorry, not specifically for that trade-off, but if you were making many changes to the tax system, I believe that is a trade-off you can make on an overall tax regime modernization. But I don’t link those two as specific trade-offs.
Mr. McQueen: The tax you pay on the mortgage has to be deductible, though, too. Since we have to tax the gain and not allow them to accumulate on the mortgage, like in the United States.
Mr. Kupinsky: I agree with that.
The Chair: Thank you. Time is running out, and we have three minutes left, but you raised an interesting topic at the end, to play with the exemption of capital gains on the primary residence.
Correct me if I’m wrong; it’s applied on your primary residence, because if you have a condo or another pied-à-terre, you pay the capital gains. At least I have paid in my case — so just to be sure —
Mr. Kupinsky: It’s the principal residence. That’s correct.
The Chair: Yes, exactly.
So, colleagues, we have only three minutes left. We don’t have too much time for a second round. But do you have one question that we can allow?
Senator C. Deacon: One small one. When we had Jon Love here, he spoke about the amount of money collected on development charges in Toronto and what a small effect that would have if they were eliminated and put across the overall tax base — what small effect that would have to the overall annual tax base for property owners.
Do you have any data or insights on that? Maybe, I’ll start again with Ms. Di Lorenzo.
Ms. Di Lorenzo: Thank you. I was president of the Home Builders’ Association years ago, and I remember even then that there were many, many funds that were still being held in reserve that were collected that aren’t being deployed. For example, I believe there may even be $1 billion in parks levy that is just sitting there. So if it’s just sitting there, was it really needed in the first place? Why do we penalize all that housing inventory up front? The answer to your question — if the question was that — is that the accountability of earmarking these receipts is really important. I argue that if the parks levy was not earmarked, we wouldn’t have it sitting in an account.
Recently, we understood there was an uploading of $400 million from the City of Toronto by the province. Thank you to the province, but then there were no tools asking the City of Toronto how that money would be deployed. So the tools that we’re describing today actually allow for more accountability. You can’t simply upload $400 million and then not care about what the municipality is doing with those funds. They can’t be going to projects that are potentially politically motivated when they should be going to the greater interest of the city and the municipality. The tools we’re speaking to actually allow for greater accountability, earmarking and transparency.
Mr. Kupinsky: Mathematically, just roughly, the GTA in 2024 is about $1.8 billion in development charges. I couldn’t tell you how many households there are if you amortize that over the overall household base. Again, the philosophy of development charges was always that growth should pay for growth. The solution of municipal bonds is growth will pay for the growth, right? A bigger question is whether the new homebuyers today subsidizing the existing property owners, because the way the DCs are calculated, it’s not just growth you’re paying for. Again, those are municipal issues and provincial issues, but I think that’s sort of where your question was headed.
The Chair: Mr. Gaetano, Mr. McQueen, Mr. Kupinsky and Ms. Di Lorenzo, we want to thank you. I know you have busy agendas and we appreciate it very much that you take time to share your thoughts with us.
Colleagues, we want to thank our interpreters and our personal staff who make this meeting possible. Our next meeting will be on Wednesday next week, after the budget. It will be November 5 at 4:15 p.m.
(The committee adjourned.)