Finance Committee on Jan. 30th, 2017

[Sylvain Leduc]

I'm not sure we've modelled your exact concern, but the stress tests we conduct are really potent. We look at scenarios that are dire to really make sure that the financial system is resilient to shocks that are maybe unlikely, but would be, if they were to happen, substantial in terms of their impact. To be honest, in terms of reverse mortgages, I don't have a whole lot of knowledge about that specifically in terms of the supply.

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

You haven't modelled my concern about a 5% increase...a 5% change in the population, and all the—

[Sylvain Leduc]

Not in terms of demographics, but we've dealt with a substantial increase in mortgage rates, let's say through term-premium increases, and substantial increases in the unemployment rate, that type of thing.

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

Do you think your institution has the intergenerational data? It's never reported. When we talk about these important numbers such as debt-to-income ratio, it's always reported as one number for the entire population, but of course, there's going to be huge variability of that number over the lifespan of citizens.

Do you have the data available to you on that number for every five-year demographic? Have you seen any problem or any blips that have happened in that cohort of people who are just about to retire or who have just retired and are carrying significantly more debt than they used to, and should we be concerned about that as part of our housing study?

[Don Coletti]

We do have data locked on that. We think about these demographic factors as being longer-term factors that happen more gradually. You raised some really good points. As part of the stress scenarios that we're focused on, they are more short term, things that can happen in the next few years, things that would happen abruptly—a big change, for example a big rise in the unemployment rate or something like that.

So yes, we have that data. I'd have to get back to you on that. But that's not been a part of our scenarios, because it's not something that we would see happening in the next, say, four or five years.

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

When I think about the housing market, I think in generational terms, because it's a generational investment. You're hoping to get into your house and raise your family, and then move into a smaller property, or not, when you retire. In terms of that aspect of the market, I'd love to have the thoughts of your group on the question I raised. And if you haven't considered that climate change type of scenario, where the whole nature of the Canadian housing market changes over the next 20 years due to the retirement and the demise of the baby boomers, I'd love to have your thoughts on it, because that's the one that keeps me awake at night.

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Laurence, go ahead.

[Michel Laurence]

At CMHC we have done some long-term demographic projections. These are based on census data.

We look at cohorts over time and how their demand for housing evolves. From what I can remember, going out as far as 2020 or 2030, there's still an ongoing demand for more housing. Even if the population is aging, the number of units continues to rise. A big reason for this is immigration, where there continue to be large inflows. That offsets it and contributes to the demand.

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

Thanks, Mr. Laurence.

I have a quick follow-up question. There are many regions of the country where the immigration is net neutral or negative. When we look at long-term housing policy, should we be differentiating our policy between those markets that are growing as a result of immigration and those that are contracting as a result of no net or falling migration patterns, or those that are neutral, and stop considering Canada as a single market as a result of this more pronounced issue?

[Michel Laurence]

We started going down that path in terms of looking at it from a provincial perspective and even from the perspective of large centres versus rural areas. From what we've seen in the Atlantic region, as an example, our estimations or projections are showing that the Halifaxes, the larger centres, continue to grow, but the rural areas do not. There is some shifting of populations towards larger centres, and that continues to grow. There's that going on, but we will continue to do this, though, in other centres.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll turn to Mr. Caron, then come back to Mr. Sorbara, and then to anyone on the Conservative side.

Mr. Caron, you have five minutes.

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

Thank you.

I would like to come back to a few things that have been mentioned, including by Mr. Liepert, and also to discuss demography.

The measures announced and taken by the Department of Finance generally affect demand. We are trying to decrease demand, and the growth in demand is caused by factors x, y, and z. It is often independent of what we or the federal government want.

The problem is that by affecting the demand, we also affect supply. The number of housing starts was mentioned. In Quebec, they feel that there will be a drop of about 10% next year, largely due to measures taken by the federal government. And there is the demographic aspect, as well. A growing number of houses are being put on the market and, therefore, new house starts aren't needed.

How can the federal government have a real effect, if any, on demand, especially when the situation is different from province to province?

This leads me to a second question, which I'll ask at the same time. As MPs, we like to give power to the federal government. However, wouldn't it be possible to give more power to the provincial governments, since the reality of the provinces, or at least of the regions, is different?

The measures taken by the federal government can be positive for some sectors and extremely negative for others. Why couldn't the federal government encourage the provinces and even help them deal with their specific realities?

The question is for anyone who wants to respond, but it is specifically for the representatives from the Bank of Canada and CMHC.

In fact, the first question is whether there is a way to change demand without altering supply, otherwise the two measures are likely to cancel each other out. The second question is whether it would be desirable for the federal government, instead of acting directly in the marketplace, to assist the provinces so they can act in their respective markets.

[Sylvain Leduc]

The two measures are closely related, in a way. My impression is that it depends a bit on the speed at which housing starts can take place. There is a reaction time that can, in the short term, affect demand more than supply. Of course, in places like Vancouver and Toronto, there may be more constraints and administrative delays in terms of housing starts. There are not only physical constraints, but also administrative delays related to the approval of the various levels that can come into play.

So, in the short term, the measures could have a greater effect on demand than on supply. Naturally, in the long run, the two will interact. There will be price expectations, which will also have an impact on supply, but in the short term, in some markets at least, there will probably be a greater effect on demand than on supply, given the time required to approve the plans.

[Michel Laurence]

Our analysis suggests that demand may be affected in several centres, but supply does not follow as quickly in Vancouver and Toronto as in other centres. We are seeing that. The idea is to hold a discussion on how to help the supply respond to demand. So we have to do a comparative analysis between various municipalities and determine where things are going well and where they are doing not so well.

In this vein, the Fraser Institute has produced an analysis that examines the parameters of regulation in various centres to demonstrate that the situation is better in some centres than in others. It is therefore a question of sharing this knowledge and improving the capacity of supply to respond to demand, everywhere.

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

In the specific case of the Vancouver market, the decrease in demand was caused by two things: the federal government imposing constraints on access to real estate, and the provincial government imposing a sales tax on foreign buyers.

Is it possible to separate the effects of these measures in order to determine the extent to which the increase in the sales tax or the federal government's measure has played a positive role in achieving the desired outcomes? Has it been attempted?

[Sylvain Leduc]

Without time data, it is very difficult to do. It could be modelled, but it would be necessary to see if the model is really good, and if it can follow the data. Naturally, it is always a little more difficult to do with financial data, in the economic context. Empirically, I feel it would be very difficult to do. However, the more theoretical models that we have could give us a glimpse.

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

Right.

I understand that you also agree.

Thank you.

[The Chair, Liberal, Wayne Easter]

Are you done, Guy?

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

I have a couple of follow-up comments. When we look at the Canadian housing market, one of the really good things is that about 40% of homeowners don't have a mortgage. The last time I looked, the numbers in my riding were 37%.

The other thing is that our interest expenses are tax deductible as they are south of the border, which encourages Canadians to pay down their mortgage as quickly as possible.

Another great thing in Canada is that we have about 100,000 new folks who want to live, work, study, raise a family in the greater Toronto area. The downside is that we have a housing market imbalance where the supply of new housing takes a very long time to come to market, whether it's due to municipal rules or to land zoning issues that have come down from the province onto municipalities.

Demographics support housing growth because so many new folks are coming in, whether they're immigrants or just people moving from different areas of Canada. We've now put in some measures.

If you want to go back to 2008 or if you just want to comment for now, with the new measures that have been introduced, what anecdotally are you seeing for consumers? What are you seeing on choice, competition, and from my perspective, liquidity in the Canadian mortgage market? I think those are things that we need to consider. The BOC forecasts that housing will have a negative impact on growth of GDP of 0.3% for next year. There may be tail risk on that, if I can use the word on that side.

I'm curious to see your early anecdotal evidence or data that you've seen from the housing market changes. If you want to go back to the 15 changes or just go back to those from October, what have the individual organizations seen on that front?

Thank you.

[The Chair, Liberal, Wayne Easter]

Ms. Rogers.

[Carolyn Rogers]

Is your question specifically around the availability of funding for mortgages when you mention liquidity?

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Yes, liquidity and the availability of funding.

[Carolyn Rogers]

I don't have any particular data around individual institutions' liquidity. One of the things that we're tracking both at the bank and OSFI is the proportion of mortgages that are secured through us, whether or not the originators of mortgages hold the mortgage on their balance sheet and therefore are incented to manage the risk on a long-term basis versus whether they're sold into the securitization market. As you well know, that was one of the things that in hindsight was considered a contributory issue to the U.S. housing crisis.

I think that was the comment earlier by Mr. Albas and his question around the difference between mortgage finance companies and banks and who has access to the different forms of funding or liquidity to fund mortgages on a go-forward basis.

I don't know, but Sylvain may have more specific information on that.

[Sylvain Leduc]

I don't have that much to add about liquidity here or from what we've heard on the ground.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Is there any other comment or feedback on the activity in the housing market?