Finance Committee on May 19th, 2020

[Pierre Poilievre, Conservative, Carleton, ON]

Okay. Thank you for getting that information so quickly.

Finally, you are buying mortgages from banks, basically, and other insured lenders. They want to get the maximum price for the mortgage products you're buying from them, and their shareholders depend on getting the best price. You don't have the same profit motive discipline over at CMHC. You're a government-owned entity. How do we as taxpayers know that you and therefore we are not overpaying for these hundreds of billions of dollars of mortgage products that you're buying on our behalf?

[Evan Siddall]

The only mortgages that we're buying are through the insured mortgage purchase program. I've given you the pricing of that in a chart, which will come to you through the chair. You will see that our pricing is deliberately competitive versus market products. In fact, we peg it off something called “covered bonds”. Covered bonds are sold in the market to European investors. They're effectively securitized mortgage bonds. Those, right now, in U.S. dollars, are 1.66%, and in euros, 1.63%. We are charging for IMPP, 1.71% to 1.88%, and we're doing that deliberately to make sure we're not the cheapest form of money and subsidizing this bond.

[Pierre Poilievre, Conservative, Carleton, ON]

This is the last question. Covered bonds are an alternative to government-backed mortgages, but they constitute a very small part of the Canadian landscape. Why have we not moved away from governments backing up the holdings of banks towards covered bonds, which are widely used in Europe and which keep the risk and reward firmly together in one product and in private hands?

[Evan Siddall]

Indeed, we have somewhat. OSFI relaxed the so-called encumbrance limits, which allow banks to issue more covered bonds as a result of this crisis. It's a move that we at CMHC support, both in diversity of funding and making sure, as you say, Canadians and banks aren't too reliant on the federal government. That said, as I said earlier, having CMHC as a public policy instrument in these times is a form of stabilization. We certainly saw it in our performance in the last crisis compared to the U.S.

[The Chair, Liberal, Wayne Easter]

We're quite a bit over, but I think we're on a theme. It's nice to finish it. Thank you, both.

Mr. Fraser.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you so much to our witness for being here. I know you mentioned you're here without a haircut. I recently got a haircut in the very seat I'm sitting in now. I let my wife do it in the living room. If it looks a little unprofessional, I have her to thank. It's passable that's for sure.

[Evan Siddall]

You're a braver man than me.

[Sean Fraser, Liberal, Central Nova, NS]

A major commercial real estate landlord is based in my community. On the announcement of the commercial rent assistance program being rolled out, one of the very first calls I made was to them to ask if it was going to help their tenants stay in business if they access it. They very quickly pointed out the lack of clarity around why someone may need to mortgage to take part in the program was potentially going to be an obstacle. One of the things I committed to do was to go back to the government and see if we could make sure businesses that perhaps don't take mortgage debt, but maybe issue unsecured bonds to finance properties, or some other instrument, could similarly have access.

Could you comment on how a business like that will be able to access the commercial rent assistance program?

[Evan Siddall]

CECRA was designed to be delivered through CMHC just because it's easier to do that. By virtue of our legislation, we had to do that through a mortgage or find another way. You'd be amazed at how much work it took to find another way, but in summary we did by having a mortgage ready to register that we don't register, and then upon forgiveness this is relieved. There's a technical way for us to deliver this program to landlords who do not have mortgages.

[Sean Fraser, Liberal, Central Nova, NS]

It strikes me that this is similar to some of the other programs that have been launched by the government over the past number of months. It's really a matter of using the existing mechanisms to get cash to distressed businesses or households as quickly as possible and figuring out how to expand them on the heels of the program being introduced.

Is that a fair assessment as to how this particular decision went?

[Evan Siddall]

We were very confident we would find a solution, but until we had authorities and clarity on that we couldn't say. We announced it with the confidence we could deliver.

[Sean Fraser, Liberal, Central Nova, NS]

That's excellent. Thank you. For the record, it is helping quite a few businesses.

I want to go to some of the scary data—as my colleague, Mr. Poilievre, put it—you shared during your remarks. I think the scariest piece for me was the fact you said it's going to be 2030 before you can project that everyone's going to have access to a home they can afford, notwithstanding the financial difficulties that others are in. It's unconscionable to me today that homelessness is such a prevalent feature of Canadian society. I think this pandemic has shone a light on not just the social and economic consequences, but the public health consequences that people face if they live in a housing-insecure environment.

Do you have suggestions on what the federal government could most effectively turn its mind to and help expedite the effort to provide affordable access to a home for all Canadians?

[Evan Siddall]

I didn't project it would be by 2030. It's our aim. We've had persistent homelessness in this country. Eradicating that and making sure everyone in Canada has a home they can afford and that meets their needs is the reason we have an entity like CMHC.

The building of affordable rental housing in dense locations will be most supportive of economic growth. It's sustainable economically and environmentally. Unfortunately, urban sprawl itself creates a need for passenger car transportation, which is not good from a greenhouse gas point of view.

The other thing is, as I showed you on one of the slides, inequality and higher levels of GDP per capita are related to housing. We've overdone our support for home ownership in this country. When we do that, and supply doesn't keep up because of long lead times, approvals, etc., then we have high house prices. We have to attack both the supply and demand side of the equation.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you.

You mentioned significant potential decline of housing prices over the next year or so. Do you anticipate that this is going to be a short-term blip on the radar with an eventual bounce back, or are you projecting that this is a market correction that's going to have some staying power?

[Evan Siddall]

We are projecting a recovery that will probably achieve pre-crisis levels in 2022. I should use this time to say that our estimate is that something like 2% of insured mortgages could experience losses. That was a question that Mr. Poilievre asked.

[Sean Fraser, Liberal, Central Nova, NS]

Finally—and I'll let you use the rest of my time in your response—we heard from certain witnesses on occasion about the cost of inaction or not taking measures to intervene in the economy. You've pointed to the insured mortgage purchase program of $150 billion that would essentially inject liquidity in the banks' ability to lend to other sectors.

I'm thinking about that program and more broadly. Can you talk about the social or economic cost if there had not been a serious economic intervention, not only on the insured mortgage purchase program, but more broadly on the income supports for people and businesses that would have an impact on the housing or mortgage sector?

[Evan Siddall]

Most certainly. Of course, our primary defence against this virus is our health care workers. A very close second is the secure sanctuary of a home. We're seeing in places where that housing is a little more precarious—whether it's long-term care or homeless people—the difference in that.

Income support has actually been the primary measure through which people are paying their rent and staying in homes. The CERB has been the primary form of rental support. It's been such that we didn't feel we had to offer supplemental rental support on top of that.

[Sean Fraser, Liberal, Central Nova, NS]

Excellent.

Thank you, Mr. Chair. Those are my questions.

[The Chair, Liberal, Wayne Easter]

I will turn next to Mr. Ste-Marie and then to Mr. Julian.

Gabriel.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good afternoon, Mr. Siddall. Thank you for being here to answer our questions.

You might find my first question a bit broad. If you had to compare the role of CMHC and the real estate component of the residential and commercial sectors in the current context of the COVID-19 pandemic compared to the crisis of 10 years ago, the “commercial paper” crisis, what would your conclusions be?

[Evan Siddall]

Our responsibilities touch the residential sector, not the commercial sector. My answer would be speculative, but I will say that how we're working seems to be different. People are becoming used to working from home. I know that at CMHC we had already planned to do this, to reduce our footprint from four buildings to one. I think that could happen. It could reduce the demand in price pressure on commercial real estate.

With regard to residential real estate, on the other hand, we're going to go through an adjustment that is primarily debt-driven because people are under pressure. That doesn't exist as acutely in the commercial sector. We're going to suffer some adjustment for sure and then recover in a year and a half to two years.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

How do you think the current crisis will affect real estate prices? We know that the drop in income and the increase in the number of bankruptcies could push prices down. However, many economists argue that the massive injection of cash into the economy could have the opposite effect and drive real estate prices up. What do you think?

[Evan Siddall]

Yes. It's a tricky question.

We forecast that house prices nationally will decline 9% to 18% on average. There will be greater declines in places that are oil-producing regions—Alberta, some parts of Saskatchewan and Newfoundland—and also in places where house prices got ahead of themselves—Toronto and Vancouver—or more ahead of themselves, if you will.

Governments create a bridge to the future by providing liquidity. We've done that through the insured mortgage purchase program. That bridge needs a landing place. We need a solid foundation for economic growth. As the days emerge, as we come out of this, we're starting to test—in your province and in Ontario and a few other places—what restarting an economy looks like. Hopefully, we can do that in a responsible way, and that bridge comes sooner. That liquidity will dissipate over time as growth pays for it.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

On another note, Ottawa still hasn't signed the social housing agreement with Quebec. From CMHC's perspective, do you think this can be done in the near future?

[Evan Siddall]

It would be our hope that we could do so in the near future. We have been engaged in negotiations with each province for, as you would know, a long period of time. For the Province of Quebec, we have sent them a number of draft agreements. In fact, there are a number of projects that are held up on announcement pending that agreement. Our people stand ready to finish an agreement. We're working earnestly with our colleagues at the Société d'habitation du Québec.