Finance Committee on April 1st, 2021

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I'll be ready.

[The Chair, Liberal, Wayne Easter]

Thanks, Pat.

From United Way Centraide Canada, we have Mr. Clement, president and CEO.

[Dan Clement]

Thanks for having me.

Let me start by recognizing and thanking the federal government, all of you as MPs and Canada's federal civil servants for the critical work you've been doing through this pandemic. Your work has been extraordinary, important and needed, and we're not done, obviously.

United Way Centraide Canada is Canada's largest funder of vital community services. We're focused on eliminating poverty and ensuring vulnerable Canadians have the support they need to build sustainable livelihoods. We serve all regions of Canada. Every year, United Way Centraide invests over $500 million to support 3,500 different community organizations and over 5,000 programs and services.

We've stepped up over the course of the pandemic. We're working with municipalities, public health organizations, foundations and frontline agencies to coordinate local responses. Through our fundraising, we've also been able to mobilize an additional $40 million in support for our community responses.

I would note that with the support of the federal government, we've been able to rapidly expand our 211 navigation service to all regions of Canada to help ensure that every Canadian can get the help they need when they need it. Also through the support of the federal government, we were able to expand funding to over 870 seniors organizations serving hundreds of thousands of isolated seniors through the new horizons program for seniors. Through the emergency community support fund, we were able to fund over 5,260 community programs across the country.

With that as context, there are really about five key messages I'd like to share with you.

The first is that our community services infrastructure in Canada has really stepped up to meet the needs of Canadians, but I also want to let you know that these organizations are under great stress and need your support. We know, and we've heard consistently over the course of the year, that demand for services has increased. Not only has it increased, but it has stayed elevated throughout the pandemic.

We know revenues are declining amongst community services organizations by an average of over 40%. Some of it is due to lost donations and some of it is due to losses in earned revenue, but we also know costs are going up due to social distancing, PPE, safety requirements and the loss of volunteers. We don't have the same capacity to participate, due to health and safety issues.

The third point I'd like to raise is—certainly I've heard this—that programs like the Canada emergency wage subsidy program have been tremendously helpful to charities and community services organizations. It has helped them protect staff positions in the face of declining revenues. We know and support the fact that this program was extended until June, but we certainly also support Imagine Canada's call for a further extension of that program.

The fourth point that I think is really important—it's perhaps my most important point—is that our essential community services need a lifeline to the other side of this pandemic to ensure that they can continue to serve, adapt and respond to the needs of Canadians. This is why United Way Centraide Canada, alongside the YMCA and the YWCA, the Boys and Girls Clubs of Canada, Big Brothers Big Sisters, the National Association of Friendship Centres and many others have been calling for a community services COVID relief fund.

This fund would do a couple of things. First, it would provide a temporary, 18-month operating funding program to help bridge the gap in the operating capacity of charities and community services organizations, so they can continue to serve Canadians. The second component would be a transformation fund—a fund that can help community services invest in their capacity, whether it be technology, operating model changes or innovation in the program delivery, so that they can come out the other side of this pandemic stronger and more resilient.

Perhaps I'll close here. When I think about where we are in the pandemic today, if we want a strong and equitable recovery for all Canadians, we're going to need to support the very community-based and community-led organizations that support youth, that deliver child care and after-school programs, that protect women and families experiencing domestic violence and that support our Black and indigenous communities and people of colour who are living in vulnerable circumstances. We know they have faced the most significant impacts of these pandemics.

I really appreciate the opportunity to speak with you today. I'm happy to answer your questions.

Again, thank you for all the leadership and support you are also providing to Canadians every day.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Clement.

We'll start with Mr. Poilievre.

Just to remind the committee, we will have to stop at about 5:20 p.m. Ottawa time, to deal with the subcommittee report that just came out of the subcommittee the other day.

Mr. Poilievre, go ahead.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you very much, Mr. Siddall, for your service to the country. I know you have worked extremely hard and, politics aside, you have made great sacrifices doing your job. I hope you have health and happiness in the next phase of your life.

On the issue of Canada's housing market, you said you were wrong to predict that housing prices would drop between 8% and 16%. I'm not sure you were wrong; I think you might have been early. I think there is another chapter to unfold in this story.

As your data has shown, for a house to be affordable, the monthly payments on it should not consume more than 30% of pre-tax income. Right now, the average house costs the average family 50% of pre-tax income. That means that, for the average family, the average house is two-thirds more expensive than the family can afford.

Vancouver is the second most expensive housing market in the world, behind Hong Kong. Toronto is number six, when you compare average income to average house price. Housing prices rose record levels last year, in a time when immigration was down and the GDP fell by $120 billion. None of this makes any sense whatsoever.

That said, there are causes driven by the federal government that explain some of the story. One, of course, is that the Bank of Canada is printing money and pumping it into the financial system, and it's being lent out and driving up demand, but CMHC has a role here as well. You, as a mortgage insurer, are taking the risk off the lender and putting it on the taxpayer, which creates a distortion that separates risk from return. Anybody who can earn a return without a risk is going to engage heavily in the activity that produces that return.

What is the total dollar value of all the mortgage debt in Canada that CMHC insures, not just through a portfolio and transaction insurance, but through other securitization in Canada mortgage bond products?

[Evan Siddall]

I don't have it at my fingertips, but if you give me a moment, I will get it for you shortly, if I may.

[Pierre Poilievre, Conservative, Carleton, ON]

Sure.

[Evan Siddall]

Perhaps in response to another question.

[Pierre Poilievre, Conservative, Carleton, ON]

That would be just fine.

What is clear, though, is that, instead of using covered bonds, which are basically backed up by solid and excessive collateral, banks are overwhelmingly using government-backed insurance, either by having their customers pay for it up front or by bundling up all their mortgages and getting an insurance stamp from you, or Genworth or Canada Guaranty. They are choosing to use government-backed insurance instead of using collateral.

Do you not believe that this is creating a major distortion in our housing system, which allows the banks to have the profit and the taxpayers to have the risk, and housing prices to skyrocket as a result?

[Evan Siddall]

I don't quite agree.

Thank you for your comments about my service. The “politics aside” reference I smirked at because, of course, I have served you, sir, as minister—

[Pierre Poilievre, Conservative, Carleton, ON]

Yes.

[Evan Siddall]

—and the current Liberal government as well, proudly I should say.

The mortgage insurance is required by the Bank Act, so it's mandated by Parliament, not CMHC. I will say that CMHC makes a significant amount of profit, in the neighbourhood of a billion dollars or so a year, off this business, which then is returned to the federal treasury.

[Pierre Poilievre, Conservative, Carleton, ON]

Well, there's no doubt about that. The government is making lots of short-term profit, but if housing prices do drop, as you have predicted they will, and people default on their mortgages, there will be mortgage defaults. Then all of a sudden taxpayers will be losing money paying out that default insurance to the banks and other lenders.

How much do you think we could end up paying out to those who are insured by these products?

[Evan Siddall]

We run stress tests every year outlining a range of scenarios. We, of course, retain capital for the purposes of that, as do the other mortgage insurers. The private mortgage insurers in addition have private equity capital ahead of them.

All of that is absorbed before the government would have to pay on its guaranty. We are satisfied in our significant stress testing, which involves scenarios that are wildly more pessimistic than anything I forecasted, that we have sufficient capital on hand. OSFI regulates and oversees the other mortgage insurers and I'm sure has satisfied itself of the same of those two businesses.

[Pierre Poilievre, Conservative, Carleton, ON]

How much have you set aside?

[Evan Siddall]

Our capital is in the many billions of dollars. Right now I think we have around $16 billion in capital. There's also something called “insurance for business losses not yet recorded”. There are a couple of categories, but it's in the many billions of dollars.

[Pierre Poilievre, Conservative, Carleton, ON]

Right.

[The Chair, Liberal, Wayne Easter]

This is your last question, Pierre.

[Pierre Poilievre, Conservative, Carleton, ON]

Well, I suggest you set aside many more billions of dollars, because when interest rates rise back to normal levels, trouble comes this way, and I hope that we have many, many billions of dollars set aside to pay for the resulting damage.

In conclusion, do you think it is fair that we have a system where the bankers get the profits, the homebuyer gets the costs and the taxpayers get all the risk?

[Evan Siddall]

Well, I don't think the taxpayers do get all the risk.

By the way, in response to your prior question on mortgage insurance, we have $438 billion of that on our books, and mortgage funding or securitization is about half a trillion—$500 billion. That, by the way, has the credit support for the mortgage insurance, so our risk there is actually only the timely payment guarantee between a default and our recovery on the insurance. So, it's not quite additive.

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Chair, I will just conclude on that clarification, if I could.

So, you said you have half a trillion dollars—

[Evan Siddall]

Five hundred billion, yes—

[Pierre Poilievre, Conservative, Carleton, ON]

—and that accounts—

[Evan Siddall]

—of securitization timely payment guarantee through CMHC.

[Pierre Poilievre, Conservative, Carleton, ON]

Right.