Finance Committee on Feb. 5th, 2020

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Khan.

I'm turning to Mortgage Professionals Canada, Ms. Taylor, chair of the board, and Mr. Taylor, president and CEO.

Welcome.

[Paul Taylor, President and Chief Executive Officer, Head Office, Mortgage Professionals Canada]

Thanks very much indeed for the introduction, Mr. Chair, and thank you for the opportunity to address the committee today.

Mortgage Professionals Canada is a national industry organization representing mortgage brokers, mortgage lenders, mortgage insurers and technology service providers in that channel in Canada.

As all of you will likely know, MPC has for some time now been asking for a number of changes to the mortgage macroprudential rules, primarily a reduction in the mortgage rules stress tests; the reintroduction of a mortgage insurance-eligible 30-year amortization for first-time buyers; a stress test exemption for borrowers who have paid, as agreed to, the first term of their mortgage and who wish to renew with a different lender; and an increase in the RRSP withdrawal limit under the homebuyers' plan, which was granted in budget 2019.

[Elaine Taylor, Chair of the Board of Directors, Head Office, Mortgage Professionals Canada]

First, we thank the government for implementing an increase in the homebuyers' plan from $25,000 to $35,000 and, as of January of this year, for expanding the program to include those who have experienced a breakdown of a marriage or common-law partnership. This is a good change.

Our request to reduce the stress test has been continuous since that test's introduction. We have also been consistently clear that we do not advocate the elimination of the stress tests. However, the current Bank of Canada-posted rate mechanism is unduly onerous, and increasingly so over the last 15 months. Five-year fixed rates are now generally 240 basis points below the current benchmark rate of 5.19%. While market rates have been reduced in response to bond yields, the posted rates have not moved in line. Accordingly, would-be borrowers today are tested proportionately harder than borrowers in January of last year.

We are very encouraged to hear OSFI's assistant superintendent, Ben Gully, acknowledge the stress test gap. As we are advocates to uncouple the Bank of Canada rate from the stress test mechanism, we welcome this acknowledgement. This public sentiment, coupled with the instruction in Prime Minister Trudeau's mandate letter to Finance Minister Morneau to make the borrower stress test more dynamic, we take as a clear expression of a problem understood.

During the examination of alternatives, we asked that MPC and other senior stakeholders in the housing industry have their recommendations regarding the mortgage stress test included in the review process and their potential marketplace impact appropriately modelled.

[Paul Taylor]

We also continue to recommend an exemption to the stress test where borrowers have paid as agreed through their initial term and wish to move their mortgage at renewal. Maintaining the current requirement is anti-competitive and, frankly, anti-consumer. Canadians with a proven payment history should not be tied to their incumbent lender's renewal offer.

Also, while the program is in its infancy, the newly implemented first-time home buyers incentive plan seems not to be providing the level of support the government had projected. Numbers published recently describe funding of roughly 50% of the projected take-up rate.

We acknowledge that the winter months are traditionally a slow period for home purchases, but given the feedback received from our member mortgage brokers across Canada, we do not expect to see much of a change in the overall level of activity. We contend that the income multiples are the largest deterrent to the program's overall success, if success is defined as having the $1.25 billion allocation actually issued in equity mortgages.

Program participants are limited to four times their income, up to a household maximum of $120,000. If purchasers decide not to take a shared equity mortgage and instead simply use the existing mortgage insurance option, all things being equal and in today's low interest rate environment, they'll qualify to borrow significantly more than four times their income.

Our members also note that the program as currently structured does not assist anyone to qualify to purchase a home who would not otherwise already have qualified. The election campaign promise to increase the income limit and its multiplier to five times, and $150,000 in greater Toronto, greater Vancouver and Victoria, will go some way to increase participation and invites a discussion on regionalization of mortgage policy through the future design of this program.

Our ongoing primary recommendation to assist first-time home buyers is for the government to reintroduce an insurable 30-year amortization exclusively for first-time buyers. As a practical alternative, it would also reduce monthly carrying costs for the purchasers, who are traditionally the cohort with the highest propensity for income growth. Our own research has confirmed year after year that Canadians pay off their mortgages much faster than their original amortization schedule requires.

If a reintroduced insurable 30-year amortization is not deemed appropriate at this time, even though unlike the first-time homebuyer incentive it would receive 100% participation from mortgage lenders, we recommend increasing the qualifying maximum income multiple to 4.5 times. While we don't believe this will be as supportive a change as the reintroduction of the insured 30-year amortization, it will increase the number of would-be first-time buyers, would-be owner-occupiers and generally young and aspiring middle class Canadians benefiting from the program.

It would also place the limits more in line with commentary from the IMF that loans greater than a 450% loan-to-income ratio present the greatest risk. Increasing the income limit to 4.5 times nationally, therefore, should not raise the ire of the international financial community.

Thank you very much indeed. We welcome any questions.

[The Chair, Liberal, Wayne Easter]

Thanks to both of you.

The last witness on this panel is from the Vanier Institute of the Family.

Ms. Spinks, president and CEO, welcome.

[Nora Spinks, President and Chief Executive Officer, Vanier Institute of the Family]

Thank you for the invitation to join you today.

You've heard from business, energy and financial services. I'm here to talk to you about families in Canada. Families are the engine of our economy and the cornerstone of our society. Families are the primary caregivers, helping people recover from illness and injury.

We live in an increasingly complex and interconnected world with unparalleled access to information—information about families and family life. However, despite the fact that we have enormous volumes of data, data is not the same as understanding. At the Vanier Institute, we focus on enhancing the national understanding of how families interact with, have an impact on and are affected by cultural, environmental, social and economic forces.

The Vanier Institute is an independent national charitable organization dedicated to understanding the diversity and complexity of families and the reality of family life in Canada. We envision a Canada where families fully engage and thrive in a caring and compassionate society, with a robust and prosperous economy, in an inclusive and vibrant culture, in a safe and sustainable environment. The Vanier Institute is an evidence-based learning organization and a national resource for anyone interested in or involved with families in Canada.

General the Right Honourable Georges Vanier and his wife, Pauline, created the Vanier Institute in 1965 as a royal standing commission that should never be discharged. We continue to provide a wealth of information about families and family life, family experiences, expectations and aspirations. We've circulated some material for you just as a sample of what's available to you as you do your work. I think we've sent you some material on student finances and some of the other material that's available, as well as materials dedicated to seniors and finance. You name it, we have it, and if we don't have it and you want it, we can likely get it for you.

By analyzing data and synthesizing information, organizing resources and mobilizing knowledge, we expedite research to practice. We facilitate meaningful partnerships and collaborations across all sectors to maximize the impact of research on policies and practices. We engage in conversations and collect stories from families and from people who study, serve and support families. We are a resource for those who fund or invest in research, services, policy analysis, program delivery and innovation. We identify leading and promising practices in communities, organizations and workplaces, and we share our findings across Canada and around the world.

We have a broad and inclusive functional definition of family, focusing on the important role that families play in the lives of the individual family members, the workplace and the communities in which they live, using a family lens to explore a wide spectrum of topics, since there are few things in life that don't affect or aren't affected by our circles of kinship. We make evidence-based forecasts while anticipating, planning and preparing for the future. For example, in our recent work on intergenerational transfers of wealth, we've estimated that $750 billion will be exchanging generational hands in the next decade.

We know that the fastest pathway to poverty is either divorce or loss of a life partner, and that disproportionately impacts women who are seniors. We continually seek and embrace new and innovative ways to reach out to researchers, educators, students, journalists, service providers, faith leaders, policy-makers, business entrepreneurs and others with an interest in families and family life. With decades of experience and commitment, we've earned the respect of our peers in the voluntary, public and private sectors.

Since our founding 55 years ago, we've earned a reputation as one of the country's thought leaders by sparking important conversations across boardrooms and around kitchen tables alike. Family finances and family policy have been a focus of ours for the last 25 years, as we've studied income expenditures, savings and debt, wealth and net worth.

The last year we've been focusing on three issues that may be of interest to you. These are the Canadian family policy monitor, the family well-being index and the family research network. The monitor provides evidence-informed decision-making and evidence-based policy development and evidence-inspired program innovation. The index provides an opportunity to measure the way in which families are thriving and we're working with our colleagues in New Zealand, Scotland, Iceland and Australia and building on their work.

We engaged with Canadians on our listening tour across Canada: families affected by incarceration, military veteran families, first responder families, people working in early learning and child care, and families navigating the system designed to support adults and children with disabilities. This month we are meeting with LGBTQ2S youth who have been rejected by their birth families and have created chosen families, as well as Inuit elders who have been forced away from their families in order to receive medical care. The network will bring all of these together.

In the spirit of reconciliation and to further our relationships with indigenous peoples, we are aligning our efforts with the calls to action. In the spirit of a global community, we are aligning our work with the UN's sustainable development goals.

In closing, I want to leave you with a quote from a report that was written by Mr. Khan's colleagues in New Zealand. They write that there are three evidence-informed foundations for the efforts that are going on in New Zealand:

First, people care about their wellbeing as much as their income. Second, wellbeing depends on a range of factors, only some of which can be purchased. Third, public policy that is exclusively or primarily focused on increasing income (or GDP in aggregate) may actually end up decreasing wellbeing now, or in the future.

In closing, I'm not asking for anything specific in the budget—although it would be nice if you found some funds for the Vanier Institute in your budget, as our counterparts in Australia are receiving $4 million a year from their government, and we aren't—but we are here to provide you with answers to whatever questions you need answered in order to make your decisions going forward for budget 2020.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you all very much for your presentations. We'll try to get eight questioners in, but we will hold people to four minutes, with little flexibility. We'll start with Mr. Cooper.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Thank you, Mr. Chair, and thank you to the witnesses.

I'm going to direct my questions to Mr. Taylor from Mortgage Professionals Canada. I think everyone agrees that first-time homebuyers have been inordinately impacted by the mortgage stress test, yet is it fair to say that first-time homebuyers are among a group of borrowers who are quite reliable? These are low-risk borrowers.

[Paul Taylor]

I don't think they are any more or less at risk than the larger community. The biggest trigger for mortgage default is loss of employment, which really can affect anybody in almost any geography. First-time homebuyers are certainly a community that has had the hardest time qualifying since the introduction of these new rules. I think the societal concern we've had with the test since it was introduced is that while it seems to achieve the intended fiscal policy response in trying to curb overall levels of indebtedness, by creating a bit of a pause in housing market values because of a roughly 20% reduction in first-time buyers' borrowing power, those homes have effectively been on sale for the well-capitalized and the investment classes. The would-be owner-occupiers, the young, middle-class Canadian families trying to build homes for their growing families find them really unattainable.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

I saw some statistics, though they may be a little out of date, from Mortgage Professionals Canada indicating that about 100,000 Canadians who otherwise would have qualified for a mortgage did not qualify as a result of the mortgage stress test. Do you have any updated statistics in that regard?

[Paul Taylor]

That was probably from our report written by our chief economist, Will Dunning. It was a cumulative total of his estimate of the number of folks who would have been pushed out of potentially being able to purchase a home following the introduction of the test. That report, I'm guessing, is about six months old at this point. He's currently authoring a new report that is likely to be published in about three weeks, so I can only assume that number is higher than it was when it was last published. Unfortunately, I haven't read the currently authored report, so I don't have a direct number for you today

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

That's fair. When the stress test was implemented it was to address an overheated market, primarily in Vancouver and the GTA, and there was a debate about whether it was an appropriate response to an overheated market. I would say it wasn't. It suppressed demand, but the issue is really one of supply.

That said, how does it make sense in my province of Alberta, where in fact prices have been decreasing not increasing, where the market has cooled and has been cooling for a considerable period of time? It's really a one-size-fits-all approach, which is a common thing I hear. Would you agree?

[Paul Taylor]

Yes, that's a reasonably accurate statement. One of the largest concerns about it is that there are pockets of the country that have been significantly and disproportionately impacted by this policy.

Economies vary, as you well know, from city to city, and rural region to rural region. If the intent was to take some of the heat out of the Toronto and Vancouver markets, we all understand why there were inflationary adjustments in pricing that were eye watering at times. When reducing the purchasing power of the people at the bottom end of the economic ladder, we have to be really cognizant of the societal outcome we create, and not focus entirely on just the financial outcome. If we're trying to build a country where we're supportive of our young and up-and-coming middle-class Canadians, we should be ensuring that the policies we create encourage ownership by them while potentially discouraging other forms of ownership.

[The Chair, Liberal, Wayne Easter]

Ms. Koutrakis.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you to all the witnesses who are here today. Thank you for presenting your reports and recommendations before the finance committee.

I will be directing my question to Ms. Spinks. Everybody around this table knows that family is very key and important. If we're going to move forward and prosper as a nation, especially with all of the technological advances happening in our society, we need to be well-educated. Education is very important. I notice in your handout that you say 7 out of 10 parents have considered putting the Canada child benefit toward their children's education.

Can you tell us about the impacts you are seeing as a result of the Canada child benefit—for example, lifting 300,000 children out of poverty? What more can this government do to help in that vein to ensure that no child is left behind where education is concerned?

[Nora Spinks]

The most significant impact is that families have a predictable income. It's not a lot, but per child it makes a big difference. In fact, for those at the low end of the income spectrum, it can mean the difference between using a food bank or not. We've seen the population profile of food bank users shift dramatically since the introduction of the child care benefit.

It gives families an option either to cover their basics or to start planning for the future, depending on where they are along the income continuum. What we're hearing from families is that they are very grateful to know that the funds are there to invest in the future or just to offset some of the high costs of early learning and child care services, or to supplement a child's experiences with music lessons, dance, or camp, that the family might not have been able to afford.

[Annie Koutrakis, Liberal, Vimy, QC]

Does your organization have any statistics comparing our government or country with other countries with similar challenges where education is concerned?

[Nora Spinks]

Yes, we have those. I don't have them off the top of my head, but I would be happy to provide them for you. They're not extensive, but we do have information about how people are spending or saving for education, and for those who are not, what kinds of impediments lead to their choices or options for education in the future. I would be happy to provide that to the committee.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Ste-Marie.

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

Thank you. I'll be able to use the extra minutes very effectively.

Good evening, ladies and gentlemen. I would like to thank you for being here today and for responding to our invitation on such short notice. We are very pleased that you are here.

I have questions for Mr. Céré of the Conseil national des chômeurs et chômeuses, the CNC.

My first question concerns the use of EI benefits as sickness benefits. The Parliamentary Budget Officer did a study on this last April. It revealed that 77% of EI recipients who were ill had exhausted their 15 weeks of benefits, were not ready to return to work and had taken at least 26 weeks of sick leave to get back on their feet.

I believe the CNC is asking that length of sickness benefits be increased to 50 weeks. From what I'm hearing, the minister is concerned that the premium rate for companies would be very high.

What arguments would you make to convince him to adopt this measure?

[Pierre Céré]

First of all, Quebec and Canadian society has long expressed a need for sickness benefits. When a comparison is done, it is not to our advantage. When we compare Canada to similar countries, we see that it is the worst in terms of the protection provided by its sickness benefits in the event of a serious illness. We face immeasurable tragedies every day. Canada must assume its responsibilities and rebalance EI sickness benefits. We have been hearing about this for a long time.

In the last election, the Liberal Party of Canada, which forms this government, committed to advancing and extending sickness benefits to 26 weeks. Our position, which is also the position of many in society, is that this should be the minimum and that benefits should be extended to 50 weeks for those who are seriously ill. People need it, and their testimonies show that.

For example, on the Facebook page of the Conseil national des chômeurs et chômeuses, we posted a message about sickness benefits two weeks ago. It has been shared 1,300 times to date, and there are nearly 130 comments. I will share a few of them with you.

One person said that she had 15 weeks of sickness benefits, was still waiting for surgery and had no income. Another person said that she had had 15 weeks of health insurance benefits during her radiation treatments and all of her exams in Montreal, that she was no longer employed, that she was undergoing chemotherapy treatments and that it did not make sense. Another said that she had been off work for 15 months, that she was lucky to have had wage loss insurance and that she had taken her savings for the remaining five months. Finally, one person said that his spouse had cancer, that he did not work last year and that he had only had 15 weeks of sickness benefits, and that a person cannot get very far with that.

People's testimonies are sometimes overwhelming. They tell us that the government needs to rebalance sickness benefits. The Parliamentary Budget Officer's study tells us that there would be a 6-cent increase with a premium rate that keeps going down. Indeed, the employment situation is good. More money is flowing into the employment insurance fund, and to offset this, the contribution rate is being lowered.

We could arrive at a balanced rate that would be reasonable for everyone. Take the case of an employee who earns the average Canadian industrial wage of $50,000 a year or $1,000 a week. The contributions would increase by 6¢ per $100 of salary. That is 60¢ a week. What do we do with 60¢? That is $31 a year, but $31 a year per citizen to provide better protection in the event of serious illness. It's time to take action to change things.

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

We're talking about—

[The Chair, Liberal, Wayne Easter]

I'm sorry, Gabriel. We'll have to move on to Mr. Green.

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

Thank you, Mr. Céré.