Evidence of meeting #68 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was changes.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Nicholas Hamblin  President, Atlantic Chapter, Canadian Mortgage Brokers Association
Ajay Soni  President, National, Canadian Mortgage Brokers Association
François Vincent  Policy Director, Association des professionnels de la construction et de l'habitation du Québec
Georges Lambert  Senior Economist, Association des professionnels de la construction et de l'habitation du Québec
Michael Lloyd  Mortgage Expert, Team Lead, DLC Canadian Mortgage Experts
Paul Taylor  President and Chief Executive Officer, Mortgage Professionals Canada
Kim McKenney  Secretary and Board Member, Ontario Chapter, Canadian Mortgage Brokers Association
Stephen Smith  Chairman and Chief Executive Officer, First National Financial
Andrew Charles  President and Chief Executive Officer, Canada Guaranty Mortgage Insurance Company
Bob Finnigan  President, Canadian Home Builders' Association
Sherry Donovan  Chief Executive Officer, Nova Scotia Home Builders' Association
Tamara Barker Watson  President, Nova Scotia Home Builders' Association
Jason Burggraaf  Government Relations and Policy Advisor, Canadian Home Builders' Association

4:30 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you very much, Mr. Taylor, and thank you to all of the witnesses. We will go to questions. I think we'll have ample time to get pretty well everyone in.

Is there a motion to come forward here?

4:30 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Yes.

Chair, I move that Jennifer O'Connell replace Steven MacKinnon as a member of the Subcommittee on Agenda and Procedure of the finance committee.

4:30 p.m.

Liberal

The Chair Liberal Wayne Easter

Okay, it has been so moved.

As everyone knows, Mr. MacKinnon became a parliamentary secretary and vacated his post here as a result. The motion is that Jennifer O'Connell replace Steven MacKinnon.

(Motion agreed to)

Turning to the first round of questions, Mr. Sorbara, you have seven minutes.

4:30 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Thank you, Chair.

Welcome, everyone. You'll have to excuse the delay because of the vote. It seems to happen here once we start session, but thank you for your safe travels here.

I've been spending quite a bit of time reading all the material related to the housing market in Canada. It's a daily topic for my constituents. We get emails on.... The latest email I received was from an individual who wanted to buy a house in Waterloo for his daughter. The listed price of the house was $379,000, and it went for $500,000.

Closer to home, when I see houses selling in our subdivision for $1.4 million or $1.5 million, I kind of scratch my head when those houses were originally listed in 2007 for about $480,000. There is something going on, whether it's the supply or demand side that we need to look at.

When I look at all the changes that have taken place within the Canadian housing market, the price increases, the flow of the demographic slide, the flow of immigrants, newcomers, and Canadian citizens moving to the GTA, for example, the area that I reside in, there are a lot of natural outcomes. One of the outcomes has been a very large increase in indebtedness of individuals. It behooves any government, including my colleagues on the other side when they were in power, to make sure that changes are made to ensure the system does not go off-kilter, that we do not experience something akin to what happened in the United States.

In Canada, we have a very unique system where the government backstops a large portion of the market, i.e. the high-ratio portion or what's called less than 20% down payment. Going through all the changes that have been made, some of them are quite prudent. There's a structure in place in the housing market on mortgage generation, which were changes that were made, and I would argue that a lot of the changes are actually quite prudent and that we also have to incorporate regional differences.

My question is coming from the Bank of Canada's FSR report in December. Looking at the increase of indebtedness levels, I can turn to page 5 of the report. It says, “The proportion of borrowers with high mortgage debt is increasing in many cities”.

Looking at the trends, isn't it prudent for any government, when CMHC is effectively backstopped by the taxpayers of Canada, to implement measures designed to improve the quality of indebtedness for borrowers going forward?

I'll put that out there because I think it is prudent for any government, be it on the Liberal side or in the past on the Conservative side. Would you take 30 seconds each to answer that, please?

4:35 p.m.

President, Atlantic Chapter, Canadian Mortgage Brokers Association

Nicholas Hamblin

I'd like to start with that.

I keep hearing about this income-to-debt ratio. For me, that is a red herring.

There are two types of debt in this country. There's good debt and there's bad debt. First off, who knows how that ratio is calculated? I was in a meeting with the CMHC general manager for Atlantic Canada last week. I asked her that question. Frankly, she could not answer it. Her economist took a stab at it. We're still not sure in Atlantic Canada how that ratio is come to.

It's important to recognize there are two types of debt, good debt and bad debt. A housing payment is a good debt as it is a debt for an asset that not only appreciates in value but as you pay down that debt, it creates equity that is tangible. It provides shelter, and it builds net worth when there is a principal or balance reduction.

There are multiple factors considered when granting mortgage financing. Debt ratio, income, assets, income to assets, debt to assets, credit repayment history, credit utilization, income stability, income source, down payment, location, property type, and other qualifying criteria, i.e. the 3% rule on revolving credit. That is a good debt. It goes through a number of checks and balances to ensure that it is property administered and that it is on an asset that appreciates.

4:35 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Thank you. Can we move onto the next folks because I'd like to hear each perspective.

4:35 p.m.

President, Atlantic Chapter, Canadian Mortgage Brokers Association

Nicholas Hamblin

Well, you asked a question about the debt, and I would like to answer it.

Respectfully, there's bad debt. I want to get on to this. This is an important fact that you guys are missing.

4:35 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

If we could move on to Mr. Lambert and Mr. Vincent, please.

4:35 p.m.

Policy Director, Association des professionnels de la construction et de l'habitation du Québec

François Vincent

Sure. It is good for a government to protect citizens on indebtedness, but from our point of view, the decision that the government made was not the best one to help them have the best asset they can have, to buy a home.

You talk about houses in your place that are sold for $1.4 million, but we don't see that often in Trois-Rivières, in Saguenay, in Laval. Even in Montreal, if you go to Westmount or Outremont, it's a market where some houses are in that price range, but for a normal house sold in Quebec—and I think my colleague has the amount—it's really far from $1.4 million.

I think government could act to help citizens with the debt problem, but not with a policy that cuts the possibility for 74,000 households to buy their first home.

4:40 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Mr. Vincent, excusez-moi, I want to add something.

I do respect the regional differences in the housing market. I'm very well aware of that, and I do agree you don't want to treat a problem with a sledgehammer when you need a—

4:40 p.m.

Policy Director, Association des professionnels de la construction et de l'habitation du Québec

François Vincent

I did not say that you—

4:40 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

No, but I wanted to add that comment.

4:40 p.m.

Liberal

The Chair Liberal Wayne Easter

Can we get each of the witnesses on the record on this question, because your time is up.

We'll have Mr. Lloyd, and then Mr. Taylor.

4:40 p.m.

Mortgage Expert, Team Lead, DLC Canadian Mortgage Experts

Michael Lloyd

Thank you.

Of course, indebtedness is important and we have to review what it is, but a big makeup of that ratio is not mortgage debt. It's credit card debt and car loans, and those are areas that we're probably not going to get into here.

Right now, the requirements for our clients to get approved are strict. We have to go through them and we have to verify a lot of things. Car loans aren't the same and credit cards aren't the same, and unfortunately that's where most Canadians are running into trouble.

To me, there is good debt and bad debt. Buying a home is something that even if it doesn't go up, you're slowly going to pay down the debt. The likelihood of it going down in value is slim, whereas those other things aren't adding any assets to their bottom line.

4:40 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Taylor.

4:40 p.m.

President and Chief Executive Officer, Mortgage Professionals Canada

Paul Taylor

I would echo almost all of that sentiment.

I think we heard from CMHC on Monday that of the 165% debt-to-income ratio, 73% of that was actually mortgage debt. The rest of it must be change, and that is tied to not great assets.

If that's the case, mortgage debt is almost a forced savings plan for a good number of Canadians. Therefore, making it more difficult for folks to start to build an asset base by virtue of their first-time purchase is detrimental to the whole Canadian economy.

The other thing I would very quickly address, if I can, because you made mention that the Canadian backstop on the mortgage should be an insurance program, is that our financial system is probably the best regulated in the world. We have oversight of the lenders and we have oversight of the insurers who are insuring those lenders. Bankruptcies need to occur long before the Canadian taxpayer is really exposed to any liability there.

I think those are very far entailed issues for us to consider.

4:40 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you all.

I'll turn to Mr. Liepert.

4:40 p.m.

Conservative

Ron Liepert Conservative Calgary Signal Hill, AB

Thank you all for being here.

I'm going to make a couple of comments and then ask everyone, because there are four witnesses, to make a general response.

I come from Calgary. As you are well aware, the economy in Alberta has not been good for the last couple of years now and is probably getting worse. In speaking with a home builder quite recently, all through the downturn in oil prices, they were still building and selling homes. He said as a result of the move last fall, the new home construction in Calgary has effectively dried up. I would like you to comment on that.

Secondly, I would like you to expand a bit on the one-size-fits-all approach. Again, you mentioned Quebec. I'm from Alberta. It seems as though Canadians across the country are being penalized because of two hot markets, one in Vancouver and one in Toronto. I would like you to comment on that.

The third thing is that we had a group of witnesses here the other day. To an individual, they swore on a bible that they had not had any contact with federal officials asking for advice on what the right approach is. I would like you to comment on whether that is applicable to each one of you.

I'll leave all of those with you.

4:40 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Taylor will go first.

4:40 p.m.

President and Chief Executive Officer, Mortgage Professionals Canada

Paul Taylor

Mortgage Professionals Canada was not consulted prior to any of these specific changes being introduced.

Regarding the question of regionality and housing starts having stalled in Calgary, I am hearing very similar reports from the lenders within our community of the number of applications for new mortgages this January versus last January seeing startling drop-offs. First-time homebuyers are very specifically penalized by these changes. By virtue of there being a real lack of new entrants onto that property ladder, there is less need for new homes to be constructed, and certainly you're going to see those effects first in the regions that are currently economically challenged.

4:40 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Lloyd, go ahead.

4:40 p.m.

Mortgage Expert, Team Lead, DLC Canadian Mortgage Experts

Michael Lloyd

I'll echo this. Nobody I know was asked anything about these changes.

As for the regional differences, it's huge. We're trying to solve this Vancouver-Toronto situation with these changes, and it's not effective. In fact, it's not even effective in Vancouver and Toronto. You're bludgeoning everyone and it's not fixing a thing. That's the problem I have with this. I know CMHC's policy has always been to be national, to never have a regional policy, but I think those days should change too. I think we should have more localization for helping different situations, because we all have different situations we're living in.

4:45 p.m.

Senior Economist, Association des professionnels de la construction et de l'habitation du Québec

Georges Lambert

Likewise, to echo the comments of our two colleagues here, we were not consulted, although we did raise these issues in early November with the staff at the Minister of Finance's office.

I'll pick up very specifically on your point about the effect there. In Quebec, 40% of the buyers of either existing or new houses are first-time homebuyers. The issue here is.... Yes, it has an impact on housing starts, but it also has an impact on the resale market and the home improvement market. It's all a chain, because those existing buyers willing to sell their house to move into a condo or a retirement home have a house for sale, to be purchased by either another experienced homeowner or a new homeowner. It's a chain, and all the parts are linked together. It has an impact on all the dimensions.

One of the perverse effects of this new policy is that those who are on the brink of buying a house, with just enough down payment saved, are not qualified anymore. They're going to delay purchasing that house. They're going to purchase a cheaper house or locate somewhere else. They're going to call their aunt, dad, or uncle to raise more money, or they're going to remain a tenant, keep that money, and now with that $10,000, $15,000, or $20,000 they have saved, they're going to buy a truck, a boat, or something and get some of what was called earlier a “bad debt”.

You end up in a situation where people will knock at the bank's door not to borrow for a mortgage but to get some lending for more consumption—a trip to the south or a cruise, or whatever. It's consumption-related indebtedness, which is not backed by an asset that appreciates and that you pay down, like a house. That's the perverse effect, to pick up on what Mr. Sorbara was raising earlier.

4:45 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Soni, go ahead.

4:45 p.m.

President, National, Canadian Mortgage Brokers Association

Ajay Soni

As far as the Canadian Mortgage Brokers Association is concerned, we were not consulted on any changes. As I mentioned in my preamble, we'd like to be consulted.

As far as regional policy goes.... I'm going to date myself a bit here. I started as a mortgage broker in 1988 and there was actually a bisected policy. In those days, there was a $125,000 rule and a $175,000 rule. If you were in an outlying area, it actually was the opposite effect. You could put a minimum down payment to a maximum of $125,000, and in a larger city centre you could go up to $175,000. It has worked in the past.

When some of these changes came about, our association sent a letter to the Minister of Finance's office with some recommendations. It's in our submission. One of the basic ideas there was, how much is enough? How much is a lot of debt? We always talk about “a lot of debt”. We've recommended that maybe we should look at a number so that below, say, $500,000, we could actually qualify mortgages on a discounted rate, because now you have to go to the benchmark rate.

It has affected regions. We are taking issues that are maybe of concern in our primary centres like Toronto and Vancouver and putting these policies across the country. It's not really that fair. This idea of regional policies can work and has worked in the past.