Finance Committee on Sept. 28th, 2023

[Bob Dugan]

Whether increasing taxes would...?

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Yes.

[Bob Dugan]

No. I think the opposite would be the case.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Would you state that as being the obvious?

[Bob Dugan]

As an economist, that would be my answer, yes.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you.

We had Professor Ian Lee here last week from the Sprott School of Business. I have his quote here. I want to read it to you. He said:

If you look at the sheer magnitude and you accept CMHC's number for a shortfall of 3.5 million units by 2030...the idea that governments, plural, can handle the majority of that 3.5 million...is preposterous.

He goes on:

What it means is that it is going to be fundamentally the private sector that's going to have to be involved...[for] the vast majority of housing that needs to be built....

He goes on, but do you generally agree with that sentiment?

[Bob Dugan]

Thank you very much for the question.

Absolutely: I don't think the government can do it alone. It's too monumental a task. The private sector has to be involved. That explains my position on financialization. I think we have to find ways to incent money to flow into the housing sector in order to get more of it built so that we can supply more housing to Canadians.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

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

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Morantz.

We're going now to MP Baker for five minutes. When MP Baker concludes, we won't have enough time to go through another round, but we do have a bit of time, and I'm going to allow each party to ask one question of the witnesses. We're going to go into that round before we suspend.

MP Baker, you have five minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Mr. Chair.

We've been talking a fair bit today about the government's plan to provide a GST exemption on new rental builds. There has been a proposal by Pierre Poilievre, the Leader of the Opposition. He has presented a private member's bill in which he proposed to provide the GST exemption on new rental builds only to below-market units.

My question is this: What would be the difference in impact between providing a GST exemption only on the new rental builds, as Mr. Poilievre has proposed, versus the plan the government has put forward?

[Miodrag Jovanovic]

Thank you for your question.

I'm going to start by replying at maybe a higher level.

The proposal on the GST exemption put forward by the government is relatively simple. It's simply an exemption, a temporary one, and it's broad-based. There's no phase-out. There are no specific conditions, really, other than making sure it's directed at purpose-built rental construction and so on. That is made with the intent to ensure that it's not complex and it increases certainty for investors and therefore tries to maximize the potential effectiveness of this measure.

What I would say is that when you start from that basis and you start adding conditions, generally the effect would be to add complexity and uncertainty for investors, because they may not know up front exactly whether they're going to get it or not, and therefore that would potentially significantly reduce the effectiveness of the measure.

That would be my answer.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

When you say it would significantly reduce effectiveness, are you saying that it would therefore result in the construction of fewer homes?

[Miodrag Jovanovic]

Yes, it would, because of that uncertainty. That typically would be factored in up front as part of these upfront decisions by investors. If there's more uncertainty and the likelihood of getting the benefit may be in doubt because of the complexity or uncertainty, that could reduce it, yes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Then it would have less impact and therefore it would build fewer homes. That's what I'm hearing you saying. It would result in the construction of fewer new homes and therefore do less to address the supply gap that we talked about earlier. Is that correct?

[Miodrag Jovanovic]

Yes. Potentially, yes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

There's another thing that I want to ask you about.

We are here at the finance committee of the House of Commons, and you are representatives of.... You work within the federal government. I used to be a member of the provincial parliament in Ontario. I know that when I served as a member of the provincial parliament, there were a number of initiatives related to housing, whether they were rules around development and growth plans or whether they were rules imposed on municipalities around development, etc. There were a whole series of things. There were incentives to build homes and all those sorts of things. Therefore housing is, in my opinion, largely the jurisdiction of the provinces and the municipalities, because they make the decisions—whether they're in terms of regulations or incentives, etc.—that really impact how many homes are being built.

I guess I have a two-part question, and I think I have about 60 seconds left. Is my statement correct that municipalities and provinces have the most significant impact on the number of homes that we can build across Canada in the coming years to help us address that supply gap? If so, what can they do to help ensure that we build more homes so that homes can be more affordable for Canadians?

I think I have about 60 seconds.

[Aled ab Iorwerth]

The short answer to your question is that, yes, I agree: It's mostly within the provinces and the municipalities. They set the rules and the regulations that roughly determine how many housing units get built.

Obviously the private sector puts a lot of capital up and it wants to build a lot of housing. However, the rules of the game are set, for the most part, by the provinces and municipalities. That's why we conducted a survey jointly with Statistics Canada. The results were published in June or July. The survey looked at regulatory burdens across Canada, and it found that the burden was quite heavy in the Toronto area and in the Vancouver area, which correlates fairly well with the lack of affordability in those areas.

Clearly, anything to accelerate approvals, speed up processes or create certainty—all of those actions—would really help. I think one of the concerns is that if there were, hypothetically, tax provisions that would be brought forward, builders would still have to face the reality of uncertainty in the regulatory processes at the local levels.

[The Chair, Liberal, Peter Fonseca]

Thank you. Thank you, MP Baker.

As I said, members, we don't have much time, but we want to squeeze as much time as we can out of the witnesses because they've been great witnesses, so it's one question per party. We're going now to the Conservatives and MP Chambers.

[Adam Chambers, Conservative, Simcoe North, ON]

Thanks very much, Mr. Chair. I really appreciate the candour.

Mr. Dugan, I just want to leave an idea with you.

Forty cents of every dollar today already goes into real estate. We have a productivity problem in the country. If we want to drag more investment dollars into real estate, that's going to create some other challenges.

I would submit that we should be looking at the level of retail investment activity in the real estate market. If we want to stop that and want to release houses, forget about new construction for a second. Why do we still allow borrowed money for down payments? If we stopped that today, we would wipe out a ton of retail investment activity and release units, already built units, onto the market.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

Go ahead, Ms. Bendayan.

[Rachel Bendayan, Liberal, Outremont, QC]

Mr. Chair, I'd like to hand over my time to my friend and colleague Mr. Morrice, from the Green Party.

[The Chair, Liberal, Peter Fonseca]

Go ahead, Mr. Morrice.

[Mike Morrice, Green, Kitchener Centre, ON]

Thank you. That's very kind.

I want to start quickly with a brief comment. I'm concerned that in this conversation the term “financialization” has been conflated with investments in the housing market. Financialization has led to the loss of 15 affordable units for every one new unit created.

My question is for the CMHC.

I have a local organization in my community that's been waiting for MLI Select insurance since July 2022. That is putting into question a building in which 60% of the units would be affordable that has been purchased by the community. At the same time, we have large real estate investment trusts that have received over a billion dollars in loans through the RCFI, and 80% of the units could be unaffordable.

My question is this: What can be done at the CMHC to better make sense of the program offerings so that communities like mine across the country get to report back to say that more is being done to address the affordability crisis?

[Chris Woodcock]

I'll be candid. The MLI Select program is outside of my direct responsibilities, but I do know that we're well aware of the challenges with wait times and processing times in that program. We've been putting significant efforts into moving staff in, training staff, upgrading our capacity, shortening the process and really trying to accelerate it as quickly as we can.

There are completely different processes and teams involved in RCFI—the rental construction financing initiative—and MLI Select. Wherever we have the ability, we've been pouring resources in to shorten those timelines from MLI Select. It is not a prioritization or a distinction between the type of applicant; it's simply a matter of a different program.

[Mike Morrice, Green, Kitchener Centre, ON]

Thank you.