Finance Committee on May 4th, 2021

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

Very good. Thank you very much.

On page 61, under the subheading “Our Risk Profile,” there is an item titled “Strategic Risk.” This is actually considered high. It states:

The need for housing affordability is accentuated by the asymmetric K-shape recovery, which could undermine the achievement of our aspiration. The shift in housing market dynamics, changes in mortgage insurance market share, and rapid implementation of intervention programs have elevated pressure on strategy execution.

Can you comment on and explain these statements?

[Michel Tremblay]

I certainly can do that. I talked about it a little bit earlier.

Affordability, rising prices, the pandemic, and very low interest rates have all played a role in the National Housing Strategy, which aims to provide affordable housing for all Canadians. This is the set of risks we illustrate.

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

The next section talks about emerging risks.

We see that CMHC is targeting increased need for affordable housing and structural rebalancing of the housing market.

Could you explain those two aspects a little more?

[Michel Tremblay]

In terms of increasing needs, we believe that the solution in terms of affordability and climate is through some intensification in Canadian urban cities. We sincerely believe that this is one of the solutions that is likely to increase the supply of housing.

I'm sorry, I don't have the document in front of me. Could you repeat the second part?

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

The second part focuses on the structural rebalancing of the housing market. Declining immigration, social changes, including telecommuting, are cited. It also says that there could be an increase in the supply of condominiums and rental housing. There is talk of the end of eviction bans and its impact on the rental market. There is also a reminder that the pandemic has changed the dynamics of the housing market throughout the year, so there is a need to adapt.

[Michel Tremblay]

I think this still illustrates some of the uncertainties of the pandemic. We don't know yet how people are going to react. Right now, a lot of people are moving out of urban settings and into suburban areas.

Will this continue? What will happen in the inner cities? Will many businesses adopt telecommuting? These are uncertainties that need to be considered.

As Ms. Farha also mentioned, there are 235,000 Canadian renters who are behind in their rent payments right now. What is going to happen in that regard?

We need to take all of these things into account as we develop our strategy.

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

Thank you.

If I understand correctly, you are carefully observing all of these aspects. However, does CMHC already have an opinion on the trend regarding telecommuting? Have you ever estimated how much telecommuting would continue in the wake of the pandemic? Would it be 10%, 50% or 75%?

Can you produce an estimate on this, or are you more of a careful observer?

[Michel Tremblay]

For now, we are in an observation phase. We are in the process of seeing what happens. It's a little too early in the pandemic to determine whether these are medium- or long-term trends.

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

Thank you very much.

On page 56 of the annual report, there is a section that I find particularly interesting. It is an analysis of climate change risks, an analysis that we are seeing more and more in finance.

Are you able to tell us how CMHC is incorporating such risk analysis into its activities in the Canadian housing market?

[Michel Tremblay]

We recently, last year, in fact, appointed a chief climate change officer, who would probably be better able to answer that question.

At this point, I can say that all of the products in the National Housing Strategy require some degree of energy efficiency. We are also beginning to consider issuing social bonds, and we are looking at a framework mechanism on that front.

Many initiatives are being looked at right now from a climate change perspective, including their impact on residential building resilience.

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

I see; that's very interesting.

As far as green bonds go, as I understand it...

[Michel Tremblay]

Yes, that's right.

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

Is CMHC interested in issuing green bonds to finance energy efficiency retrofit programs?

Can you elaborate on that?

[Michel Tremblay]

As you know, we already issue Canada Mortgage Bonds. This would be based on the same principle, but it would be green bonds.

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

This is very interesting. We will definitely invite you back to discuss this in the future.

On pages 36 and 37 of the report, there is a section titled “Capital Management.” There is a table there that shows ratios. We see that between 2019 and 2020, the percentage of available capital appears to have increased. If you look at the line “Mortgage Insurance: capital available to minimum capital required,” it goes from 195% to 234%. On the next line, “Mortgage Funding: available equity to required equity,” it goes from 190% to 263%.

Do you know what accounts for this increase in the ratio during the pandemic year?

[Michel Tremblay]

Thank you for the question.

[The Chair, Liberal, Wayne Easter]

That will be the last question in this round, Gabriel.

[Michel Tremblay]

One of the main reasons for the increase in ratios is that in 2020, we suspended dividend payments to the government, given the uncertainty in the housing markets and all the uncertainty related to the pandemic. We wanted to be able to have capital available if there were increased losses in the insurance business.

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

Thank you for all the clarifications.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Following Ms. Kwan will be Mr. Kelly.

Jenny, everybody else had seven minutes, so you will too. Go ahead.

[Jenny Kwan, NDP, Vancouver East, BC]

Thank you very much, Mr. Chair.

I am delighted to join your committee for today.

My first question goes to CMHC.

For CMHC's insured loans of new constructions and acquisitions, CMHC must be satisfied that a property has achieved a projected rent level in order to achieve a loan beyond 70% to 75%. Do these rental achievement requirements need a minimum amount of rent to be met, based on the amount of the loan?

[Michel Tremblay]

Sorry; just to clarify, are you talking about our multiple underwriting loan insurance or homeowner?

[Jenny Kwan, NDP, Vancouver East, BC]

I am talking about the loan grant programs for multiple units, not for individual homeowners.

[Michel Tremblay]

Okay, thank you.

Yes, before we underwrite and provide insurance, we do make sure there is a capacity to repay, and that would include both rent as well as operating costs and pro forma financial statements to make sure there is an ability to pay.

[Jenny Kwan, NDP, Vancouver East, BC]

Sorry, my question is this: Is there a minimum amount of rent to be met, based on the amount of the loan?