Finance Committee on Feb. 1st, 2017

[The Vice-Chair, Conservative, Ron Liepert]

Thank you to both of you.

I know every member can ask questions for a fair amount of time, but we have to stick to the rules.

Mr. Caron.

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

Thank you very much.

The first question is a follow-up to what Mr. McColeman asked. Are you usually consulted on changes to the mortgage regulations? There have been quite a few in the last 10 years. Are you or your organization, of course, consulted usually beforehand?

[Jason Burggraaf]

Yes, for the majority I would say so to a certain degree, if not the specifics, at least an idea of where they wanted to go and what our feelings were on it.

I will say immediately after the October changes came out there were some issues, especially with people who had contracts and how that would transfer over. The department then worked with us and reissued some of the rules to fix those deficiencies.

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

Is that the case for the other organizations?

[Stephen Smith]

We were not specifically consulted on the changes in October. I would say, though, we have excellent dialogue with the Minister of the Department of Finance and we talk to him on a regular basis.

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

Just to be clear, I'm not asking if there is lobbying or discussions, but specifically it's when a government considers moving towards a change in mortgage regulations, lately with more constraints. There have been changes in the last 10 years—in 2008, 2010, 2011, twice in 2012, and more recently in 2016.

I just want to know the modus operandi of the department. Are you consulted before the announcement of those changes?

[Andrew Charles]

I would characterize it as follows. There is no formal consultation period, i.e., there's no published document that welcomes input into it. I think we make it incumbent upon ourselves to make sure we're in front of the Department of Finance officials to try to gain insight into their most recent thinking, but to my experience—I've been in the role now since 2006—I don't have a strong recollection of any formal documentation requesting input.

I do think it's incumbent upon the industry to maintain a dialogue with the finance department, but no, sir, there has been no formal communication.

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

Okay.

Then most of you, as most of the other groups we had in previous panels, seem to be opposed to the last round of changes. Fair enough.

As I said, there have been quite a few changes in the past, like the reduction in length of the amortization rate, gradually, from 40 years to 25 years, or the decrease of the level of refinancing that's possible, from 95% to about 80%. Were you opposed to these changes? Why are you so opposed to the last changes compared, for example, with those previous changes that took place?

[Andrew Charles]

As I indicated in my opening comments, we were supportive of the fairly extensive changes that you referenced from 2008 onwards as strengthening the housing market. In fact, I think they have created a lot of positive dividends for the housing market.

As it relates to these most recent changes, it's the level of impact. These particular changes are impacting the competitive structure of the housing market, and when I say that, I mean the mortgage lending market.

When I first started in my role, the first-time homebuyer was at least in the 40% of new mortgages, with some lenders as high as 50%. I think we would take the view that it has had the cumulative impact of reducing the first-time homebuyer, and this most recent change may have been a bridge too far.

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

Yes, go ahead.

[Stephen Smith]

I find these changes came without any consultation, and they're eliminating the ability of the insurance for mortgage refinances. That's a big part of the business, so it structurally changes the lending industry from a model where Canadians have choice, to where they are further concentrating the lending business back to the D-SIBs, which is a significant change, a big structural change.

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

Obviously we know the situation in some local markets, especially Vancouver, Toronto, and Regina as well. What could the federal government have done differently? What should have been the federal government's prescription to prevent or to reduce the overheating in those markets, while not affecting the other markets and having those adverse consequences you're talking about?

[Stephen Smith]

Here are a couple of options. If they're concerned about too much liquidity in the marketplace, how about increasing the qualifying rate and the 70% of the market that is conventional mortgages below 80%. If you want to reduce liquidity in the marketplace, what about increasing the down payment that people have to have on conventional mortgages? Certainly that was the case prior to 2007 in the last amendments in the Bank Act. That would be one option.

Certainly taking away the ability of Canadians to have other options is very anti-competitive and doesn't help Canadians achieve their dreams of home ownership.

Those are a couple of options.

[Andrew Charles]

I would echo that and I would add for precision that when we talk about the qualifying rate, we're talking about the stress test and the application of the stress test not just on the insured marketplace, which as I said is reducing. The government could have considered or contemplated the stress test overall being uniformly applied to all mortgages.

As I said, I think we've been very supportive of the concept of a stress test and the reduction in amortizations. The way I would try to frame this for the committee's benefit and the committee's reference point is that these changes are disproportionately impacting the first-time homebuyer who's not creating any froth, any challenges in the marketplace.

[Stephen Smith]

The $300,000 average insured loan is not the loan in greater Vancouver or Toronto. It's the loan in Calgary, in Rimouski, in rural Ontario, in Ottawa-Gatineau. Those are not the places to put the stress test. The stress test should be put on big homes and the big amounts in the big urban areas.

[The Vice-Chair, Conservative, Ron Liepert]

All right. Thank you.

Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

Thank you for coming.

I'm going to start my questions by following up with Mr. Smith and Mr. Charles on the points you were just making on competitive structure. I find this interesting and it's something we haven't talked about yet: the government. Essentially what makes it different for your organization versus, say, the banks is the government support of public mortgage insurance.

If we're at about 58% compared to 14% in the United States, 0.4% in the United Kingdom, if we were to change that model and not insure and back those mortgages, could your business model function without this high level of government support that's already provided to your industry?

[Andrew Charles]

Is that a question for my benefit?

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

I think you said, you supported previous regulations but your biggest concern is about the competitive structure and that choice. However, in substantial amounts compared to other countries, the government supports your industry through backing the insurance of these mortgages. If we didn't do that as a government, as I said, at 58% compared with 14% in the United States, could your business model structure even exist and function if we didn't heavily support your industry already?

[Andrew Charles]

Yes. I take the view that the government's participation in the housing market has been a net positive for Canadians. By virtue of owning 100% of CMHC, it is a public organization. It's an organization that, as people have indicated in some of the testimony I hear, has been very positive for the industry, and I believe that. But by virtue of owning 100% of CMHC—I'm going back now probably 15 to 20 years, if not longer—the government at the time wanted to encourage some competition to provide Canadians with choice.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

I'm sorry, but I have only limited time. I'm not trying to cut you off in terms of hearing what you have to say, but here's what my question was in regard to. If the government did not support this through the backing of this insurance, could your model function without the government's substantial support?

[Andrew Charles]

It would be significantly challenged if the government continued to own 100% of CMHC. If the government wished to exit the mortgage default insurance and withdraw that government sponsorship, we could compete quite effectively on an apples-to-apples basis.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

Because I don't have much time, I want to move quickly to the conversation that was had with my colleague Mr. McColeman in terms of land availability supply.

Being from the GTA, I understand your point, Mr. Finnigan. I'm going to make a quick statement and then get to my question. In terms of development charges being high in these areas, I guess my rhetorical question—and perhaps Mr. McColeman can think about this—is that, and I'm just curious because development charges go to the municipalities that support new homes, what should municipalities no longer supply to bring that cost down? Should we no longer build fire stations? Should we no longer build police stations? Should we no longer plow snow? Should we no longer collect garbage? Those are exactly the things we use that are supported by those development charges.

To get to my question to you, Mr. Finnigan, I'm just curious. You talked about land supply. I know the GTA well, so I want to ask this question. Without those government regulations and the control...because it's not saying that you can't build anymore. It's saying that you need to build higher density and you need to have better land use planning. What happens when the day comes that you've paved over every piece of farmland, every valley, creek, and stream, and eventually the land runs out? I'll tell you: the land runs out and then you get into water.

If you're going to build communities on water, Mr. McColeman, that's a different conversation.

Is the suggestion just to forget that regulation so that future generations are built out and there really is no more housing for anybody? Or is the government regulation really to have better land use and better building and design to also bring in a better efficiency of services?

[Bob Finnigan]

In terms of land use and planning, there is absolutely no argument from the building industry as to the direction we're taking on land use planning, which is much smaller homes, much better use of the land, more sustainable products being built, and things of that nature.

Our problem is that the land is not available to build on. The designated lands that have been earmarked for development in the GTA by the provincial government are not physically available to the industry in a timely manner. It's not a matter of our taking any more land or using it any more efficiently. It's just not available. The pipes aren't there. The roads aren't there. The approvals aren't there. The land's sitting there, ready to go and approved, and with densities that we all agree on with the province, but it's just a matter of access. The 10 years it took to get that program in place put a huge dent in the supply for that long. You can't make it up by continuing to have a program that moves at 30% speed when it should be moving at 80% or 90% speed.

Again, we're not using any more land and we're not.... It's already been designated. We just can't get to it in time.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

Is that really an issue of government regulation or of a market controlled by a few really large developers? There are going to be 70,000 new homes in my community, but guess what? They're being built by a handful of developers. Is it really government regulation in terms of availability of land or is it market access through some companies that choose to pay a higher price because they just want to build?

I would think that's a very conservative mentality and free market in terms of the access. In terms of where the land is available and ready to go, I think the issue is that perhaps smaller developers are not getting access because there are very large development companies that are buying it up before it opens up to the larger market.