Finance Committee on Sept. 21st, 2023

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

Thank you, Mr. Chair.

There are many interesting topics for us to consider. As the Chair said, I have two and a half minutes for this round. I have further questions for Ms. Laflamme.

You said that in the very short term, possibly as soon as the fall economic update, there should be new predictable and ongoing funding for the Rapid Housing Initiative, RHI.

Could you please reiterate why this measure is so important, in the very short term?

[Véronique Laflamme]

Thank you very much for the question.

Let's recall that this initiative was set up in the fall of 2020, during the pandemic. Initially, it was not part of the National Housing Strategy initiatives and funding. The initiative was divided into three phases. In Quebec, in particular, this has allowed social housing projects led, for example, by non-profit housing organizations to come to fruition quickly. So it's a decisive factor in a context where social housing projects are urgently needed.

We do think that the federal government should provide subsidies for tenant assistance and community support. At present, agreements have to be reached with the Quebec government to fund these subsidies for social housing projects. As Ottawa has done in the past, we should also provide funding for this financial assistance to low-income tenants, because rents may continue to be too high for them.

We therefore urge the government to plan a new phase of this initiative so that projects can get underway quickly.

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

Thank you very much.

You also mentioned the time lags between voting in funding for programs and transferring it, for example, to Quebec City.

Can you tell us more about that?

[Véronique Laflamme]

Yes.

Recently, that's made headlines in Quebec. I'm thinking in particular of the $900 million from the Housing Accelerator Fund, which mayors discussed at the end of the Homelessness Summit. It takes a long time. It can take up to three years for an agreement to be signed with Quebec following a federal announcement. That was the case for the first, second and third phases of the Rapid Housing Initiative. So we need to find a way to get the money flowing more quickly. We think this would be possible if programs targeted social housing and gave provinces with social housing programs the right to opt out with compensation. That would be one approach.

Another approach, in the very short term, would be to inject new funding into the contributions component of the National Housing Co‑Investment Fund. This component enables projects to be unlocked and financial packages to be completed, as I mentioned. We're not ardent defenders of this fund, but technical resource groups in Quebec tell us that new funding would be very useful, pending other, more comprehensive federal announcements on social housing.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Ste-Marie.

Now we go to MP Blaikie for two and a half minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Mr. Rabidoux, earlier you said you had some ideas on the demand side. We have talked today about the supply side issues in respect to the housing crisis. I was curious to hear some of your thoughts on what can be done on the demand side.

[Ben Rabidoux]

Yes, certainly.

Look, I think it's important to recognize that there are no silver bullets. There's no simple solution. It's going to be a number of small, incremental policies that can move the needle, but there's certainly some low-hanging fruit there.

I would say that the move towards a national beneficial ownership registry is a welcome move, and there's no reason to delay that. It's understood that we have a problem. We have a fairly porous border as it relates to international capital. We don't want to be a welcoming jurisdiction for anyone globally to park money here. We need to know who's owning these properties. Frankly, the creation of that registry would dissuade a lot of that capital flow. That's one.

The other thing I would suggest is that we look at a scaled down payment model for multiple properties. Right now, if you buy a second property in Canada, you need to put 20% down at a minimum. There's no reason it couldn't be 35% for the third one and 50% for the fourth one. We'd just scale up, because ultimately what we have right now is that people who are already in the market have access to housing equity, and that becomes the source down payment for multiple property acquisitions. It's very difficult for newcomers who are trying to get into the market. That's another.

The third I would point to is that we have a problem with mortgage fraud in Canada. I would encourage all the members to look at the CBC documentary from last year related to this. It's well known within the industry.

There is a simple, elegant solution here. Mortgage Professionals Canada has advocated for it in their submission. It's just to streamline direct income verification between lenders and the CRA. It's just a simple yes/no verifying of line 15000 on the notice of assessment. It's been live in the U.S. for 20 years. There's no reason we can't verify income directly from CRA. The mortgage industry is begging for it. When an industry's begging for regulation to weed out bad actors, we should listen to them.

Those are three off of the top of my head. We could go on, but I could follow up off-line.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Okay.

Are there any quick thoughts on the role of short-term rentals in the demand side equation of the housing crisis?

[Ben Rabidoux]

Yes, that's another one that I think is worth looking at.

Again, look, short-term rentals have been a part of the Canadian landscape in particular regions that tend to skew towards cottage and recreational properties. I don't fundamentally have an issue there.

I worry about the impact that it's having in some of the major metros, because the economics on short-term rentals are such that for many people you can make more renting short term than you can renting long term, so we have seen a flight out of that.

Now, I'm not against any bans that we've seen in cities. I think some of that makes sense. Part of the issue is that we have a broken landlord-tenant system—and I'm focusing specifically on Ontario right now—such that it is very difficult to get anything done both for protection of renters and for protection of landlords. We often miss that, because it's often so punitive towards landlords who try to get non-paying tenants out, as an example, that it encourages people to move into the short-term rental market.

There are multiple issues to look at within that dynamic.

[The Chair, Liberal, Peter Fonseca]

Thank you for that. Thank you, MP Blaikie.

Now we'll go to MP Chambers for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

It's a great discussion today. It's nice when we've had a bit of consistency in theme, but also, I think, we've had the opportunity for all of our witnesses to present.

I wanted to follow up on my colleague Mr. Blaikie's conversation with Mr. Rabidoux.

On the mortgage fraud issue, would it surprise you to understand that the CRA today is blocking third parties from verifying income when they already have consent from the borrower and a request from the lender to verify the income?

[Ben Rabidoux]

Yes, this is a frustration. I don't understand that.

I know the basic premise is that this is on privacy grounds, but that frankly does not make sense, because borrowers have already given the financial information to the lenders, and all that the lenders are looking for is a yes/no verification of the stated line 15000 income on the notice of assessment.

There is no privacy issue here. This is a pretty simple API that can be designed. We can debate the magnitude of the problem, but there's clearly a problem, and it's one that has a very simple solution. I don't understand why we're not pursuing that.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you. That's very helpful. There was a small amendment to the budget bill last year, but it might have got mixed in with all of the other theatrics that were happening. I hope we can advance that issue over this fall and perhaps even into this year's budget.

Sticking with you for a second, we talked about short-term rentals. You talked about StatsCan. Does StatsCan have enough data or good data on the housing market with respect to how many people own 10 homes, how many people own three homes, how much investment activity there is and how much short-term rental activity there is in the market? Do we have the right data coming from StatsCan to allow us to make decent public policy decisions?

[Ben Rabidoux]

That's a great question.

Here I want to be careful not to criticize Statistics Canada. It does a great job with the resources that it is given. However, the reality is that when you look at the data availability in the United States, it's just an order of magnitude more detailed. One of the reasons I have a job at all working with institutional investors is that navigating the Canadian data landscape is such a challenge and such a steep learning curve. It's not easy to find the data that we need. In many cases there are glaring data gaps.

I would certainly welcome any move to better fund Statistics Canada and give more direction around studying the issue of housing and making better data available to us.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

Sticking with data, OSFI is still struggling to figure out how much activity in the real estate market is happening in the non-bank sector, or what we call the shadow banking sector. At the same time, OSFI is actually reviewing some of those regulations with respect to stress tests, which—as an unintended consequence, perhaps—are pushing more people into the shadow banking sector.

In your opinion, if there will be challenges in the mortgage market space, are they likely to emanate from the shadow banking sector or from the highly regulated sector that OSFI is turning the screws on?

[Ben Rabidoux]

This is a big discussion. I'll try to make it really simple.

For the members that maybe haven't looked at this dynamic, in Canada we have a fairly vibrant private lending market. By and large, these are one-year mortgages. They are very short-term mortgages with high interest rates, typically to borrowers who do not qualify at traditional lending institutions.

There are two problems. One is the ultra-short-term nature of these loans. The second is that the funding behind them is often very flighty. It's often coming from retail investors. Many times they're leveraging a home equity line of credit to lend privately and pocket the difference.

There are some concerning dynamics there, and I do worry that we may see a bit of a liquidity issue there. That's where I'm looking first, and then we'll see where it goes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

[Ben Rabidoux]

I'm sorry, Mr. Chambers. I saw you. Were you waving at me there?

[Adam Chambers, Conservative, Simcoe North, ON]

No, that was good. I was just checking my time. Thank you very much.

[Ben Rabidoux]

I cut that answer short, but I can elaborate if you want. I thought you were waving me off.

[Adam Chambers, Conservative, Simcoe North, ON]

It's all good. Thank you. I may not have time for another question, but perhaps I can make an observation.

Pension funds aren't investing in Canada, perhaps because the opportunities to invest in Canada are very low. I'll just try to bring a couple of things together. We talk about a potential grocery tax. We talk about a bank tax, which is unlikely to bring down prices for consumers. Also, I was sent some information from a bank's energy investment department that said that 80% of the investments that it's made in the green energy space have actually gone to the United States. It's not for lack of capital; it's for lack of projects and a welcoming investment climate.

I will use my time up with that statement. However, hopefully one of my colleagues will follow up and let you respond accordingly.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

Now we'll go to MP Thompson.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you.

I have to begin by saying how pleased I am to be here. It's been a little bit of a quick study because I received notice late yesterday, but I am delighted to have the opportunity to speak to the witnesses today. Coming from the east coast and St. John's, I would like to say that I'm very pleased with the clean energy projects on the east coast and certainly in Atlantic Canada. I'm quite optimistic that indeed there is local investment, and we are leading the way for the country.

Could I go back to something you said earlier, Mr. Letko, and ask if you could elaborate, please, on the very complex reasons that the pensions are not being invested in Canada? I was reading some of this earlier this morning. Could you elaborate on that, please?

[Peter Letko]

Well, I think that what has been happening in the marketplace is that there's been a wave in the investment field towards indexation. Daniel often refers to it as the zebra mentality. People just want to have a portfolio that doesn't deviate too much from averages, and this has had a big influence on our industry. Canada is about 3% of the global markets in the Morgan Stanley World Index. This has encouraged many investors to think, “Look, I don't want to be caught way offside and have 10% or 20% in Canada.” The question is whether this level of investment is really adequate. We don't think so. In fact, as Daniel pointed out, it's been quite harmful and has reduced activity.

In the end, this is about jobs. Now, people may not be very sympathetic to whether the head trader at the Royal Bank of Canada is getting paid well, because he probably is. However, it begins there. The investment activity begins through the trading desks. Then it has impacts on financing, law firm activity and accounting. It just radiates through the economy.

I don't know whether that answers your question about why that is happening.

[Joanne Thompson, Liberal, St. John's East, NL]

Please go ahead, Mr. Brosseau.