Finance Committee on Sept. 28th, 2023

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 102 of the House of Commons Standing Committee on Finance.

Members, there is some quick housekeeping. You all should have received a budget from the clerk's office last evening. I'm looking around to see if it's the will of the committee to adopt the supplementary travel budget.

(Motion agreed to)

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, September 21, 2023, the committee is commencing its study of policy decisions and market forces that have led to increases in the cost of buying or renting a home in Canada.

Today's meeting is taking place in a hybrid format, pursuant to the Standing Orders. Members are attending in person in the room and remotely by using the Zoom application.

I would like to make a few comments for the benefit of the witnesses and members.

Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike, and please mute yourself when you are not speaking.

There is interpretation for those on Zoom. You have the choice at the bottom of your screen of floor, English or French. For those in the room, you can use the earpiece and select the desired channel.

Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters and cause some serious injuries. The most common cause of sound feedback is an earpiece worn too close to a microphone. We therefore ask all participants to exercise a high degree of caution when handling these earpieces, especially when your microphone or your neighbour's microphone is turned on. In order to prevent incidents and safeguard the hearing health of the interpreters, I invite participants to ensure that they speak into the microphone into which their headset is plugged and to avoid manipulating the earbuds by placing them on the table away from the microphone when they are not in use.

I remind everyone that all comments should be addressed through the chair.

For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as well as we can, and we appreciate your patience and understanding in this regard.

I'd like to welcome our witnesses with us here today.

From the Canada Mortgage and Housing Corporation, we have chief economist Bob Dugan, as well as deputy chief economist Aled ab Iorweth, and director of client development and government relations Chris Woodcock.

From the Department of Finance, assistant deputy minister for federal-provincial relations and social policy branch Alison McDermott has joined us, as has the associate assistant deputy minister for the financial sector policy branch, Nicolas Moreau; assistant deputy minister, tax policy branch Mr. Jovanovic; and Julie Turcotte, who's the acting assistant deputy minister, economic policy branch.

From the Office of Infrastructure Canada, we have Janet Goulding, senior assistant deputy minister, community policy and programs branch.

We are going to start off with opening statements of up to five minutes.

I believe we have Mr. Bob Dugan from CMHC.

[Bob Dugan, Chief Economist, Canada Mortgage and Housing Corporation]

Thank you, Mr. Chair.

Thank you for the invitation to speak to this committee once again on behalf of Canada Mortgage and Housing Corporation.

CMHC is pleased to offer the committee its trusted expertise, experience and knowledge on the housing market.

As this committee certainly knows, Canadians are struggling to pay their mortgages or rents. Housing prices have been escalating for some time. Now, inflation, higher interest rates and record levels of household debt are making matters worse.

More potential homebuyers are staying in the rental market. This has led to extremely low vacancy rates in most cities and towns and, as a result, a significant rise in rents.

There are many factors leading to Canada's housing affordability challenges. But the single biggest factor is a severe housing shortage.

Right now, we have a shortage of about two million homes across Canada. Basic economics of supply and demand are coming into play here and are driving the house prices and rents higher. Our studies show that to reach affordability by 2030, we need an additional three and a half million more homes than we are currently on track to build. Building that many homes would cost at least a trillion dollars. That's more than governments could ever hope to spend.

Yes, the federal government can continue to play a major role in supporting more community or social housing for low-income Canadians. However, we need private sector capital, so governments need to create the conditions necessary to attract that investment into housing.

There are some federal programs in place to incentivize this. For example, the rental construction financing initiative provides low-interest loans for developers at the early stages of the project. New measures like the housing accelerator fund, the new GST exemption for the construction of purpose-built rentals and the unlocking of new financing for this through the Canada mortgage bonds program are examples of such initiatives.

Still, we need to do much more, and we must do it in collaboration with the private sector, which currently provides more than 96% of rental housing in Canada. There are certainly challenges faced by some renter households, such as renovictions and security of tenure. We can't minimize these or suggest that they're just the cost of doing business; they aren't. Every one of those cases is a personal crisis for a real household.

These are all symptoms of a larger problem of supply shortage. What we truly need is for all levels of government to come together around a policy framework, one that encourages the private sector to produce the right kind of supply while also respecting tenants' concerns and best interests. These policies also need to address other barriers to supply. For example, they can encourage the construction sector to innovate better building techniques, to make supply chains more reliable and to address labour shortages in the trades.

As many people have said, housing affordability is a complex problem. Targeting the investors who provide the overwhelming majority of the housing stock in Canada is not a solution; rather, we need a comprehensive and coordinated effort that combines private investment, social responsibility and government solutions. The perfect storm of these three elements can bring about transformative change and improve housing affordability for everyone living in Canada, now and in the future.

Now I would be happy to answer any questions from the committee.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Dugan. There will be a lot of opportunity to answer many questions.

Now we're going to the Department of Finance.

I believe, Ms. McDermott, you'll be speaking on behalf of your team.

[Alison McDermott, Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance]

Thank you for giving me the opportunity to appear before you today.

The introductions have already been made, so I'll begin with my remarks.

We are pleased to be here to discuss with you the issue of rising housing costs and public policy measures to address this issue.

Housing affordability is obviously a major issue in Canada. While there are many dimensions to the challenge, our overall assessment is that affordability remains stretched primarily because supply has not been able to keep up with strong demand. That's consistent with Mr. Dugan's views.

Encouragingly, there are record numbers of new housing units under construction in many cities across Canada, which means builders are responding to this challenge. However, the scale of the issue is great. You heard the numbers from Bob about the 3.5 million additional housing units that would need to be built to restore affordability by 2030.

That increase will be challenging and will need to overcome significant barriers to ramping up construction. Municipal rules and practices like restrictive zoning, high development fees and long approval times are widely recognized as major impediments to this needed supply. Supply chain bottlenecks and labour shortages are also increasing the cost and the time that it takes to build a home.

We know that this challenge cannot be solved by one level of government alone. It will require a strong, coordinated effort on the part of home builders and all governments involved. The federal government has taken a comprehensive series of measures to address these challenges and to be able to provide new affordable housing to Canadians. However, it will take time for these measures to stimulate supply to take full effect.

To help address municipal barriers, among other initiatives, the government launched the $4-billion housing accelerator fund, or HAF. It encourages and helps municipalities to eliminate municipal barriers to housing and stimulate the creation of new housing.

As you know, the government also recently introduced legislation to implement a major tax change to increase the supply of rental housing. The proposal would temporarily eliminate the GST on new rental housing built for this purpose. This measure has been in effect since September 14, 2023, subject to the passage of the bill.

As FINA is well aware, housing affordability is a multi-faceted issue that affects all Canadians. The department is continually studying housing affordability issues and the effects they may have on financial stability and housing costs.

To address concerns that property flipping is driving up the cost of housing, budget 2022 introduced new rules to ensure that profits from properties held for less than 12 months are fully taxed, with certain exceptions for unexpected life events.

To ensure that homes would be owned by Canadians rather than foreign investors, the government announced a two-year ban on non-Canadians buying residential property in Canada in the 2022 budget. The ban came into effect on January 1, 2023.

Budget 2022 also included tax measures to make housing more affordable for first-time homebuyers. It enhanced the first-time homebuyers' tax credit and introduced the new first-time homebuyers' savings account, which financial institutions began offering this year.

Housing finance is another important part of the government's comprehensive suite of solutions to build more homes in Canada. Earlier this week, the Minister of Finance announced an increase in the annual limit for Canada mortgage bonds from $40 billion to up to $60 billion, which will be designated exclusively for funding mortgage loans on multi-unit rental projects insured by CMHC. This measure will increase access by developers and builders to cost-effective financing for multi-unit rental construction, which will in turn help to build up to an estimated 30,000 more rental apartments per year.

The government recognizes that rapid increases in interest rates have made it harder for some Canadians to make their mortgage payments. That's why the government has taken steps to ensure that federally regulated financial institutions are providing Canadians with fair and equitable access to mortgage relief measures appropriate to borrowers' circumstances. Notably, in July 2023, the Financial Consumer Agency of Canada published its guideline on existing consumer mortgage loans in exceptional circumstances following a public consultation process, which will assist financial institutions in adopting fair and consistent approaches when they offer relief measures to Canadian consumers.

Finally, the government is continuing to invest in affordable housing through the $82-billion-plus national housing strategy, which includes more than $48 billion in federal support for the construction and repair of rental housing, affordable housing and shelters; more than $15 billion in allocated joint funding with provinces and territories; more than $11 billion to support community and social housing; nearly $4 billion allocated for Reaching Home, Canada's homeless strategy; and more than $3 billion in additional national housing strategy support, including the one-time top-up to the Canada housing benefit.

As you can see, the government has implemented a wide range of measures to address various aspects of the affordable housing issue. I'm pleased to be joined by colleagues from Canada Mortgage and Housing Corporation and Infrastructure Canada, who are leading the national housing strategy programs, as well as the colleagues mentioned earlier.

We will be happy to answer any questions you may have.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. McDermott.

We have a lot of officials here with us today. Before we get into our rounds of questions, members, if the question is not specific to one of the witnesses, I'd ask whoever is best suited to answer the question. Please answer and let everybody know who you are and the department you represent.

On that, we are going to move to our first round. Each party will have up to six minutes.

We're starting with the Conservatives. MP Morantz, I believe, is up first.

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

Thank you, Mr. Chair. Thank you to all of you for being here today.

I have in front of me a report from the Canadian Alliance to End Homelessness, “A Multi-Sector Approach to Ending Canada's Rental Housing Crisis”. Are any of you familiar with this particular report?

It's a very interesting report. I have to admit that I haven't read the entire thing, but I'm going through it. One of the authors is Tim Richter, the president and CEO of the Canadian Alliance to End Homelessness. Naheed Nenshi, the former mayor of Calgary, is a participant in the report. There are a number of recommendations, but what caught my eye was recommendation number 3. I'll just read it to you. It says:

The federal government should help reform CMHC fees and the federal tax system, including changes to capital cost provisions and eliminating the GST/HST on purpose-built rental housing to incentivize the construction of purpose-built rental housing.

Then it goes into some detail, points “a” through “f”. Point “a” is the removing of the GST on purpose-built rental housing, which the government has now introduced legislation to do.

There are a number of other recommendations here on which I want to get your opinion. I'd like to find out whether you've done any analysis of these recommendations. For example, one of them is:

Defer capital gains tax and recaptured depreciation due upon the sale of an existing purpose-built rental housing project, providing that the proceeds are reinvested in the development of new purpose-built rental housing.

That recommendation comes from a report entitled “Encouraging Construction and Retention of Purpose-Build Rental Housing in Canada”.

Do you have any thoughts about that particular measure? Is there any analysis that you've done?

[Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

We do, in tax policy, continue to look at different potential approaches to try to alleviate the issues that we're facing in the housing market. Over the recent couple of years, we've announced a number of measures, in part to deal with some aspects of speculation and more recently, as you mentioned, to try to encourage supply of rental housing through the GST rental rebate exemption.

With respect to specific proposals, I'm not really in a position to necessarily go into the detail as to the state of our advice and analysis, but these proposals we are fully aware of. I have to admit that this one is not necessarily new per se, but my general answer is we're looking at everything, basically.

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

Then you have some analysis of it.

Point “c” in this recommendation is to increase the capital cost allowance, the CCA, on newly constructed purpose-built rental buildings above 4%. Have you had a look at that one?

[Miodrag Jovanovic]

Thanks again for your question. I believe my answer is the same. I'm not really in a position to go into the details on each one and where we are—

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

It's fair. I'm not asking for detail; I just want to know if you've worked on it.

[Miodrag Jovanovic]

As I've previously said, we are looking at everything in the tax system with respect to the tax treatment of housing capital gains, including capital cost allowance as well, so it's a broad review.

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

The next point in the recommendation, I have to admit, is something I don't know a lot about. It's more for CMHC. It says the CMHC should examine the point system in the MLI Select program. Do you know what that is?

[Chris Woodcock, Director, Client Development and Government Relations, Canada Mortgage and Housing Corporation]

CMHC's commercial—

[The Chair, Liberal, Peter Fonseca]

I'm going to interrupt. Could witnesses identify themselves for the members and those watching before they get into their answer?

Thank you.

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

Just to be clear, it says in the recommendation that this program is for new construction to increase the number of purpose-built rentals that are affordable. It sounds like an important recommendation.

[Chris Woodcock]

Mr. Chair, thank you for the reminder. I'm Chris Woodcock from Canada Mortgage and Housing Corporation.

Our MLI Select program was introduced fairly recently, with extensive demand. It is based on a point system that attributes a greater score to different social outcomes. I'm not familiar with the specific recommendation in the report that you're looking at, but it's definitely being looked at in terms of calibration to make sure it's effective.

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

That's good to know. I appreciate your telling me that.

The next one is this:

When selling to a non-profit operator, land trust or non-profit acquisition fund, provide a capital gains tax break to private owners of multi-purpose rental. This initiative would incentivize selling to non-profits and protect affordable purpose-built housing.

In other words, you get a capital gains tax break if you sell to a non-profit.

Have you done any analysis on that in your department?

[Miodrag Jovanovic]

This is Miodrag Jovanovic, in tax policy at the Department of Finance.

I don't want to necessarily repeat my previous answer—

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

That's okay. I'm happy if you want to repeat.

[Miodrag Jovanovic]

Again, when we look at a tax system.... The way you can use the tax system is to try to see how you can change the relative prices of things and make things a bit more attractive or less attractive, depending on the objectives you want to pursue.

Another important consideration is the incidence of what you're doing. When you get into a transaction like that, you have to understand who's benefiting.

That's one thing, and what—

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

I'm down to my last minute.

[The Chair, Liberal, Peter Fonseca]

You're out of time. We're just over six minutes.

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

Oh, I'm over six minutes. Okay, I'm sorry. Well, maybe I'll get back to it.

[The Chair, Liberal, Peter Fonseca]

Yes, there will be other opportunities, MP Morantz.

We're going over to MP Baker now for six minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you all for being here today.

Over the course of the summer, I spent time knocking on doors in my community in Etobicoke Centre. I consistently heard from folks about the challenges they or their family members are facing in finding housing they can afford, whether the purchase of a home or the rental of a home. One thing many of my constituents asked me is, “Why has this happened? Why have prices gone up so much?”

Could I ask you to explain this, for the sake of my constituents who are watching? Why have prices gone up so much?