Finance Committee on Jan. 30th, 2017

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

I think the criticism I've heard from a number of people is that this only taps down demand. David Dodge, the former governor of the Bank of Canada, has said there are policy tools to deal with supply to encourage more affordability that way. I'm deeply disappointed that this government has yet to do that. By the Bank of Canada's own report, they say $6 billion will be pulled out of the economy as far as construction is concerned, and I think that's a big issue.

Perhaps this question might be more appropriate for OSFI, given the fact that certain types of mortgages with amortizations of more than 25 years and refinancings in particular will no longer be by monoline lenders, non-financial-institution lenders like the big traditional banks, who will not be able to give loans and refinance existing mortgages. To me, that seems to create a situation that gives banks an inherent advantage because if they cannot refinance under these new rules, there will be a lot of people in Alberta and other economically depressed places who are going to be surprised that they can't go back to their existing lender. They would have to go to either a traditional bank or pay a much steeper price. Are we concerned about that, a lack of competitiveness in Canada?

[Carolyn Rogers]

It's not my understanding that the rules will preclude mortgage finance companies from doing renewals. What the rules do is they reprice portfolio insurance. That is how some of the mortgage finance companies fund their mortgages. For finance companies that don't have their own balance sheet from which to fund their mortgages, it's true that these recent measures have a disproportionate impact, but they don't preclude any one lender from being able to do refinancing.

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

Okay, but it's just that about 39% of loans in Canada are done outside the traditional banks, and that's quite a big lump. In fact, when we had a briefing from officials from the Department of Finance in October of last year, we were told that consultations were only done with the larger banks. We've received a briefing note—members can see—from Dominion Lending Centres, which says that the government is actually taking away the refinancing option from Canadians because of these new rules. Hey, I'm just reading what the briefs here say.

I'd appreciate it if you could clarify this, but I'm worried about affordability and also about the competitiveness of the mortgage industry in Canada. We have to be able to give young people an opportunity to join the 69% of Canadians who enjoy home ownership. I tell you what, it's spinning it. We're trying to think of people by not letting them get into debt, but that's not how they feel. They feel they're being denied an opportunity that their parents and other people were given. I'd be quite surprised....

How much time do I have, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

If you go to your question, that's fine.

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

You know what, we'll have other questions, but as you can see my constituents are concerned, and I would hope that the witnesses would be able to lend some clarity to this, or else this study won't give Canadians the transparency they need about these new changes.

[The Chair, Liberal, Wayne Easter]

Ms. Rogers.

[Carolyn Rogers]

I think 80% of the mortgages originating in Canada end up on the balance sheets of banks under OSFI supervision, the larger banks. What Dominion Lending Centres is describing is the origination of mortgages. There's a difference between who originates a mortgage and who ultimately funds a mortgage. It's the funder who ultimately holds the risk. Regardless of whether their mortgage is brokered or originated by a broker, for the most part the risk of those mortgages in Canada is held by the banks.

The challenge that Dominion Lending Centres is communicating to you is that the options available to brokers on where they can send their mortgages are reduced when some of the finance companies are less able to fund their mortgages through portfolio insurance. It's more common for finance companies to use mortgage brokers than it is for banks, so measures that affect mortgage finance companies by design affect mortgage brokers. That's what that brief that you have is telling you.

[The Chair, Liberal, Wayne Easter]

Do you want a supplementary question on that?

I know you're out of time, but this is a fairly good point.

Mr. Caron.

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

Thank you very much.

I will begin with you, Mr. Leduc.

Much is said about household debt and the mortgage debt component. I remember that in the previous Parliament, the government insisted that this was not very important, since the net worth of households was growing. At a certain point and for the first time, Canadian households were richer than American ones.

My position on this has always been that a large part of this household wealth was due to the value of homes, or the real estate equity. We can't really determine whether there are bubbles or not. We all have our own views on that. Most of the time, we know that there was a bubble on the day on which it starts to deflate, or has collapsed.

I would like to know whether household net worth is a parameter that can be considered or taken seriously. We worry about household debt. Can we be reassured by the net worth of households, or is that component of the value of homes a problem in itself?

[Sylvain Leduc]

It is always a bit difficult to answer that question, because we have to be mindful of the effect that that could have on the markets.

In our last review, published in December, we noted that several fundamental factors impact price increases, such as demographics, interest rates and low mortgage rates, as well as constraints on supply which we discussed earlier. These are all factors that keep the price of homes high, but there is at least something concrete and real.

In June and December, the Bank of Canada said that it was a little concerned by the fact that expectations could become self-fulfilling prophecies. People think that the cost of homes will be higher in the future, so they buy today and this causes the cost of homes to increase. That is to some extent what is happening. Expectations can change rapidly when there are shocks.

That is an abiding concern, but the fact remains that fundamental factors linked to jobs and incomes support the price of homes in Greater Toronto and Vancouver. Nevertheless, we still have concerns along the lines of those you have expressed.

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

The measures taken by the government were subject to some criticism. I think they were well received in certain markets, but the danger is that they may have a perverse effect in certain other markets. That could be the case in Quebec, where home ownership is below the Canadian average. There is certainly no real estate bubble in Montreal or Quebec City, nor anywhere else in that province, and Quebeckers fear that the measures that were taken may constitute an additional obstacle to home ownership.

My question is somewhat political, but I'm trying to keep it from being partisan. In your opinion, has the government gone as far as it can go to tighten up requirements for home ownership, or mortgage conditions?

[Sylvain Leduc]

That's difficult to say. We don't have a lot of data on that right now. These policies are relatively new and have not been put in place in many countries. It is difficult to assess their impact given the data and tools at our disposal.

Before we can know whether the government did everything it could, we would have to know the impact of the measures it has taken. That is one of the reasons why, when we published our report on monetary policy in October, we said that there was a lot of uncertainty around these measures.

Our expectation is that this will cut approximately 0.3% of GDP by 2018. We note that there is a lot of uncertainty because once again we don't have a lot of experience with such measures. What we have to do now is wait and see where these measures take us.

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

I have another question for the representatives from the Office of the Superintendent of Financial Institutions, but before that, I will give a minute to the CMHC representatives to add to their answer to my last questions if they wish to do so.

[Michel Tremblay]

As Mr. Leduc mentioned, it is early days yet to determine what impact these measures will have, because only a few months have elapsed since they were put in place. To date, volumes at the CMHC have remained more or less the same, but there are several factors that may be at play as compared to 2015, so it is a bit soon to answer that.

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

Thank you very much.

My question is first and foremost for you, the representatives of the Office of the Superintendent of Financial Institutions. Of all the witnesses on the list, you are probably in the best position to answer.

Among home ownership facilitation measures, there is the use of an RRSP to purchase a first house. This is a good measure, since it allows people to use their savings to make their purchase. However, certain economists and tax specialists have warned of the possibility of creating supply that is higher than it should be, because of the possibility of transferring sums to one's spouse to purchase a second property.

Have you seen people access RRSPs in order to purchase a second home for the same household? Of course, both spouses are considered individually.

[Carolyn Rogers]

Thank you for your question, and I apologize that I must answer it in English.

I'm actually not going to answer it, really, because I don't think I have appropriate data. I don't think that's a piece of information that our office would necessarily gather.

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

Do you know who could answer my question? Is it the CRA? Is it the bankers? Who would be in a position to give me some data on this?

[Carolyn Rogers]

I imagine the banks would have it. If I understand your question, you're looking to determine the usage of RSP programs for down payments and whether they're being used for a primary residence or second houses. Is that right?

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

Yes.

[Carolyn Rogers]

I think it's the banks that have to track that information. They would have it. It's not a question that's necessarily pertinent to our prudential mandate. I can ask at the office to see if it's data that we have, but I suspect not.

[The Chair, Liberal, Wayne Easter]

If you do have information on that, Ms. Rogers, just send it to the clerk, and we'll provide it to the committee.

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for coming today.

If you look at the data, there's a 7% year-over-year increase in prices, but if you remove the GTA from the data, it's flatlined across the country, which I found very interesting. I think that we're well regulated in the housing market, and I think that the latest regulations from the federal government were the right thing to do to control the temperature in the housing market.

My concern is, are we asking the right questions? In terms of foreign investment—and I don't know if you'll be able to answer this question, but this is something I'm concerned about at a local level and on a broader macro level across the country—does the data track if a foreign investor buys the house in cash? If somebody from China, for instance, or anywhere in the world, to be honest, purchases a property in the GTA or anywhere in Canada and pays cash for it, is that data tracked in terms of foreign home purchases?

[The Chair, Liberal, Wayne Easter]

Is anybody willing to take a stab at it? If we don't have the data, that's fine. That's all we need to know.

Mr. Laurence.

[Michel Laurence, Vice-President, Housing Markets and Indicators, Canada Mortgage and Housing Corporation]

CMHC has done some survey work to cover the extent of foreign investment in condominiums. Typically, the percentages are very low. We don't make any distinction whether it is through cash transactions or with or without mortgages. There's that bit of information, but we don't track cash per se.

[Raj Grewal, Liberal, Brampton East, ON]

My follow-up question would be this: if there were a restriction in foreign countries, specifically China, on taking money out of China, restricting their citizens from removing the money, how would that impact the Canadian market?