Finance Committee on Sept. 28th, 2023

[Bob Dugan]

Thanks, Mr. Chair. That is a great question.

In our opinion, based on the analysis we've done, a lot of it has to do with the fact that supply has not kept up with demand for housing in recent years. We estimate that back in 2004.... That's the baseline for a lot of our study on supply gaps. That was a time when affordability was relatively good across Canada, at least from a historical perspective. Since that period of time, a supply gap has grown to reach about two million units as of right now, and we project that's going to grow in the years ahead to about three and a half million units by 2030.

That supply gap is one of the key reasons that we're seeing a deterioration of affordability. If something isn't done about it, I suspect you're going to continue to answer questions from your constituents in the years to come. As that supply gap gets larger, we're going to see more affordability pressures in terms of ownership of housing, but also within the rental market. We can't forget about that.

We're now collecting new data on rents, and not just on average rents. We look at rents for folks who stay in the same unit versus rents in apartments that turn over. In Toronto last year, the rent increase for people who stayed in place was about 2.3%. When a unit changed hands, the rent increase was a little above 29%. That gives you an idea of what happens when you have a supply-constrained market. People change units for whatever reason, or new people come to live in that market, and they're facing a market that's very supply-constrained, and that drives costs higher.

It is a big problem, but one that needs supply in order to fix.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

As the bottom line, what I hear you saying is, “We don't have enough homes for all the Canadians who need them.” Is that correct?

[Bob Dugan]

Yes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Okay.

To solve that problem, what I hear you saying is that we need to build a lot more homes as quickly as possible.

[Bob Dugan]

That is the key message we're putting out there. We need a lot more construction in order to alleviate this supply gap and restore affordability for Canadians.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

If we build more homes and address that gap you're talking about—two million homes in Canada—presumably that will have a positive effect on the prices of homes.

[Bob Dugan]

Hopefully, what that does is stop the erosion of affordability and lead to an improvement, and not just in home prices. I like to emphasize that we care about rental markets as well.

We often talk about home prices as a big driver of the erosion of affordability, but what concerns me more is the rental market. Home ownership is more of a choice. When you have a higher income, you can make that move from rental to home ownership. However, for folks in the rental market who are there because their income is low, where do they turn when they can't afford the housing they're getting?

To me, the bigger concern—the one that keeps me up at night—is the deterioration of affordability in the rental market, because we're talking about lower-income Canadians who need more help.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Yes, there's a lack of affordability for those looking to purchase a home and there's a lack of affordability for those looking to rent a home. That's the bottom line. We have to build more homes to make sure that homes become more affordable in both those categories.

Let me ask this, as I have I think two minutes left, and I think I'll direct it to the officials from the Ministry of Finance, if I may.

In the context of what we just talked about, one of the things the government recently proposed is the GST rebate on the construction of new homes. Could you explain, again for the benefit of my constituents who are watching, how that is going to help or how it was meant to help address the affordability challenge and the supply gap that we just spoke about?

[Miodrag Jovanovic]

Thank you for your question. I'm Miodrag Jovanovic, tax policy.

That's an important question. It's an important measure. It is, I would say, mainly targeted at reducing the cost of construction of rental buildings and rental housing. It does so by providing an exemption of the GST upon the completion of these buildings, which is the current system, basically.

Depending on whether the 36% rebate that exists now is claimed or not, the current GST rate may vary between 3.2% and 5%, so this proposed measure would eliminate that. It would give a break of between 3.2% and 5%, effectively.

Also, what is important to understand is that the GST right now is assessed on the basis of the fair market value of the building upon construction, not the construction costs. It's fair to assume that the fair market value would be higher than the construction costs, so when you now base everything on the basis of the construction costs, the benefit could be significant.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

That makes sense.

I only have about 15 seconds, so I'll just make a comment, and there's a yes-or-no answer perhaps, if you can. What I hear you saying is that the GST rebate will make viable certain projects that weren't previously financially viable. In other words, it's incenting those who are building homes to build more homes.

[Miodrag Jovanovic]

That is the idea, and it is in consideration of the recent increase in financing costs through the last year or 18 months, which have been pretty steep. It would be a way to try to offset that and encourage these investments to happen faster.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Baker.

Now we have questions from MP Ste-Marie.

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

Thank you, Mr. Chair.

First of all, I would like to welcome my colleagues, particularly Mike Morrice, from the Green Party, who is joining us, as well as Francesco Sorbara and Peter Fragiskatos.

Mr. Fragiskatos, it was a pleasure to sit with you on the committee some time ago before you got promoted. So it's good to see you again.

The same is true for you, Mr. Sorbara. I hope there won't be any filibustering, since you are a master at it.

I'd like to thank all the witnesses for being here. Obviously, the housing issue is critical and of great concern to us. My questions will therefore be for the CMHC representatives.

First, I have a couple of technical questions about your most recent projections of the number of units that will need to be built by 2030, which were published a few days ago.

In your basic scenario, you take the average population growth over the last decade or so. According to the statistics, this average seems to have changed, and permanently. For example, today's headline in La Presse touts that Canada’s population growth hasn't been seen since the baby boom. You have to go back to 1957 to see such high increases, especially when temporary workers and foreign students are taken into account.

Mr. Dugan, do you think that the projections for the baseline scenario for immigration, or for population growth, rather, have already been exceeded?

[Bob Dugan]

Thank you, Mr. Chair. This is Bob Dugan at CMHC.

I'll start, and then I'll turn it over to my colleague Aled, who is the author of that report.

With regard to our approach to estimating the supply gaps, you raise an important point about population growth, which is a key assumption. Also, a key to our approach is to include economic variables as well, because traditionally, when you just use demographics to project the needs for housing, those approaches always tend to undershoot. We try to augment that approach by using economic factors such as income growth, interest rates and those kinds of things to come up with a better estimate of supply gaps.

When you look ahead.... When we looked at our population projections, we used information that we had available on the immigration targets that existed. Beyond that, we went to Statistics Canada's population projection, but we did try to look at alternative scenarios, One was with higher population growth, in order to assess what some of the upside risks could be in terms of how large that supply gap could become if population growth was stronger. We also had a lower-growth scenario to give an estimate of what it might be if we had slower economic growth in the years ahead, and that's important.

We include those economic projections, and that might add a little bit of volatility to our estimates. Having a range is useful. I still think it gives you a better estimate than ignoring the economic factors.

Aled, I'll pass it over to you, if there's more you'd like to add on our assumptions.

[Aled ab Iorwerth, Deputy Chief Economist, Canada Mortgage and Housing Corporation]

I don't think there's much to add. The baseline scenario was basically current government policy on immigration until 2025. Then, as Bob said, there was the reversion to prior growth rates. That's why we did an additional scenario with higher growth in population until 2030.

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

Thank you very much for those clarifications.

Mr. Iorweth, if we were to repeat this exercise and establish a scenario for the rate of population growth between now and 2030 based on the figures we have from Statistics Canada today, wouldn't we exceed even the high population growth scenario?

[Aled ab Iorwerth]

It's possible, yes. We've had the opportunity to examine the issue and, in principle, the gap between supply and demand could be even wider.

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

That's great.

Given the Statistics Canada numbers we got this morning and the government's commitment to the immigration threshold for the coming decades, if we were to take these new scenarios, we might get a different result, one that would exceed the high population growth scenario. That's what I understand from what was just said.

Would it be very complicated for you to send our committee an update of your scenarios, taking into account, for example, last year's growth rate and applying it to 2030?

[Aled ab Iorwerth]

We could do that, but it would take a few weeks. We would also have to take into account the direction of the economy and general economic situation. The advantage of the model is that we could take into account the economics and demographics. In principle, we could do that.

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

Okay.

Obviously, you're already overwhelmed.

[Aled ab Iorwerth]

That is our challenge, yes.

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

The first thing is to address the housing funding needs. My understanding is that you don't have enough staff to properly respond to all the requests. If you can find the time to respond to this request, I would greatly appreciate it.

I wish I had four more minutes, but I only have 10 seconds left, so I'll stop there.

Thank you very much for sending us all this information with us.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

Now we're going to go to MP Blaikie, whose motion actually got this study on housing started.

MP Blaikie, the floor is yours for questions for six minutes.

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

Thank you very much, Mr. Chair.

I want to start with a question to Mr. Dugan. In respect of the Canada mortgage bonds, are the Canada mortgage bonds offered at the same rate as the Canada Savings Bond, or do they pay a different interest? If so, do you know what the difference is between interest on a Canada mortgage bond and a Canada Savings Bond?

[Bob Dugan]

I have not compared them to Canada Savings Bonds rates. I can say that they tend to trade at a slightly higher yield than Government of Canada bonds.

I could probably get a better answer from Nicolas, if he wants to chime in.