Finance Committee on Jan. 30th, 2017

[Stuart Levings]

Yes. I would just say that from our perspective, condo construction has really served the needs of the rental market because there haven't been any purpose-built rentals for many years. The vast number of condos that get constructed in both Toronto and Vancouver, while they caused some concern at one point, have been absorbed by investors for renters, and this has provided the rental accommodation.

On the point of home ownership, what I would say is this. We firmly believe that home ownership is truly the cornerstone of the well-being of a family. When we speak to our consumers, our first-time buyers or immigrants, having that ownership is a very important step. It's the ability to build equity through the forced savings of a mortgage payment that also protects you from rental rate increases. When you own a home, you're not subject to potential rate increases of exorbitant amounts.

[Nick Whalen, Liberal, St. John's East, NL]

I want to move on to my next question. Sorry, Mr. Martin.

The other axiom I wanted to challenge is whether or not the debt-to-income ratio that people talk about as causing great concern is the thing that we should really be worried about. In terms of that number within the different segments of the market, is it really a concern for first-time home owners or two-income families with kids, or are we focusing on the wrong thing when we're talking about debt-to-income ratio?

Again, Mr. Ciappara, I know you have thoughts on this one.

[Alex Ciappara]

I would say that the debt-to-income ratio is just one ratio amongst many that are available to analyze the housing market. For instance, you have the debt-to-income ratio, the “net-worth to income” ratio, and also the debt-to-asset ratio, which looks not just at the income of an individual but also at the asset side. While debt-to-income ratios are quite high, the assets that are backing up the debts, which are largely used to purchase assets like homes, are also increasing in value. The net worth of Canadians is actually quite high.

The other thing to note is that debt servicing ratios have actually been coming down as a result of lower interest rates. My point in all this is just that you can't glom onto just one ratio. You have to look at the whole series of ratios.

[Nick Whalen, Liberal, St. John's East, NL]

Mr. Levings, do you have something to add?

[Stuart Levings]

I wanted to absolutely agree with that point that Alex made that debt ratios are only one measure. When we underwrite a borrower we always look at the full spectrum: the credit profile, the income stability and sustainability, the level of income from one or two borrowers, and of course, the asset that it's backing as well.

[Nick Whalen, Liberal, St. John's East, NL]

You said earlier that the lending risk really isn't on the first-time homeowner. Where is the debt risk in the Canadian market right now, in your opinion?

[Stuart Levings]

We have a view that a true stack risk would obviously be someone with the smallest down payment. In addition, it would include low credit scores, very high debt ratios, and also buying with a single income in the sense that they are the most vulnerable to be at risk in their employment. We certainly know that in our own portfolio, today to afford a home, we see a dominance of double-income families. Two-thirds of our borrowers present with two incomes. That's pretty much almost the only way you can buy in many parts of the country.

[The Chair, Liberal, Wayne Easter]

Before I turn to you, Guy, in December this committee tabled a report in advance of the 2017 budget, looking at what ways we can enhance economic growth.

From your perspective, with regard to the measures that were implemented in terms of the crisis of inflationary prices in housing in Vancouver and Toronto, does that dampen the possibility for economic growth? If it does, what would you suggest be done to neutralize that impact? Also, how would you ensure stability in the financial markets?

Does anybody have any thoughts?

Mr. Hogue.

[Robert Hogue]

In previous panels you heard some estimates of the economic impact, on the part of the Bank of Canada, of the recent measures in terms of one-third of 1% over a number of years. At the margin these might lead to some reduced rate of growth in the country. That being said, these are very difficult. As they pointed out, we have very few historical precedents or any kind of tool to assess the economic impact of those measures. As they pointed out, there is quite a bit of uncertainty with respect to the economic impact at the end of the day.

[The Chair, Liberal, Wayne Easter]

I think if there was one thing we certainly learned when we had the regional development agencies as witnesses in our previous study, it's that this is a country of economic regions. As a number of witnesses have mentioned today, this is also a country of entirely different housing markets when you're looking at Vancouver, Toronto, remote areas, Prince Edward Island, you name it. One-policy-fits-all can create certain complications in certain areas, especially in rural areas.

Does anyone else have something to add to the previous question I raised?

Okay, with that, we'll turn to Mr. Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

I want to go back to where I was at the last round. We were talking about the reliability and quality of the data. Someone mentioned that more data had been made available by CMHC, which is understandable.

However, since Genworth Canada is a private entity, I guess you don't make your data accessible to the same extent. I think I asked Mr. Morrison this question because he had talked about it, but I would like to know whether that mandate should be given to Statistics Canada.

Somewhat like the Labour Force Survey, which covers the labour market, a division or study could be created for the real estate market.

Do you think other entities would be better suited to do it?

[Jeff Morrison]

I'm sorry, but I will answer in English.

I think the challenge with a federal government department playing this enhanced role is that it may not have the mechanisms to bring together the wide array of stakeholders that would be necessary and beneficial in that kind of forum. If you were, for example, to have a StatsCan-run body, that may not allow for the active participation of the provinces, of municipalities, of territories, or of the other research hubs and organizations that currently exist.

In addition, I think one of the things that we hope to see out of the national housing strategy is that, as a means of measuring the impact that the strategy has, the federal, provincial, territorial, and possibly municipal governments will establish a series of indicators and measures. This way, we will know year over year whether the goals and objectives of the strategy are actually being met. To do that, there would need to be some form of an intergovernmental component to that research body. Whether a federal stand-alone department or organization, such as StatsCan for example, could do that is questionable.

Again, we've looked at some different models, both international and even domestic, that could serve that purpose.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Does everyone share Mr. Morrison's opinion?

[Robert Hogue]

I think Statistics Canada would be in a position to play that role. It is beyond the federal level, but Statistics Canada is able to interact with various levels of government in other areas. Since this body has the expertise needed, it is mainly a question of will.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Okay.

What do you think, Mr. Ciappara?

[Alex Ciappara]

As a federally regulated financial institution, we provide a tremendous amount of data already to the Bank of Canada and OSFI. It's not necessarily public, although some of it is. The federal authorities do have a pretty good lens as to what's going on in the federally regulated financial institutions.

We're also working with CMHC with respect to helping them to fill some data gaps. They have issued some publications. They've published their securitized book as well as a mortgage insurance business supplement. I think the stakes have been moved a little bit more over the last year or so in terms of addressing data gaps. I suspect there will be still more to come.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

What's your opinion on this, Mr. Martin?

[Robert Martin]

I just wanted to comment, as Alex has mentioned, that CMHC is going in the right direction right now. They're providing more data publicly, and they're engaging with more stakeholders. We're being pulled into a lot of the discussions and we're grateful for that. It would be unfortunate if somehow that got waylaid because there was a shift in where it was going to reside in government. I think I'd prefer it to remain where it is.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Morrison, in your presentation, you mentioned that we would do well to find inspiration in the best international practices. Having said that, most of the commentators agree that we have one of the best systems in the world. The previous panel of witnesses felt the same.

What best practices could we adopt to improve the best system in the world?

[Jeff Morrison]

It's an interesting question. One of the models I talked about in my opening remarks was a model of social housing that incorporates financial literacy programs. The provider actually provides an upfront grant that is matched by the tenants as part of this one particular program. That fund is put in escrow and then the tenant is able to use that fund for whatever they would like, including a down payment.

That's actually an American model, called Compass, out of Boston. We don't have a comparable, similar model in Canada. We hope that we will. Again, we want to see greater innovation, greater transformation, and greater creativity within the social housing space in this country. Because social housing is by its nature a different model from the private sector, because it is also heavily reliant on supports—social housing is more than a roof over your head, it is also a provision of social, health, legal, and financial supports—and because there are different ways to carve that pie, we think there is great value in learning from what our international counterparts are doing and bringing best practices to Canada. As part of a research hub, that international component is absolutely crucial.

[The Chair, Liberal, Wayne Easter]

Is that it, Guy?

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Yes, that will be all.

[The Chair, Liberal, Wayne Easter]

Do you have more questions?

Dan, you can have a couple of last questions and then we're going to wrap it up. Go ahead.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

Many of you I am sure were here for the previous panel. One of the observations from the Office of the Superintendent of Financial Institutions was that when it came to pricing risk, that was a non-regulatory call. That's the choice of every institution, whether it be a bank or credit union or mortgage lender, etc., to make. From my listening-in to everyone's testimony, that may be true, but I don't think that any of us here would believe that there wouldn't be a risk premium included because of the new regime.

Am I correct? I see some heads nodding but that won't be in the testimony.

Mr. Levings, please, and then we'll just work our way down.

[The Chair, Liberal, Wayne Easter]

It has to show on the record, guys.