Finance Committee on Sept. 28th, 2023

[Nicolas Moreau, Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance]

Thank you, Bob.

When we look at the cost of financing a CMB—a Canada mortgage bond—we usually compare them to the Government of Canada rate, our GOCs. They are currently trading, on a five-year rate, around 30 basis points above, which is 0.3 percentage points, and 40 basis points if it's a 10-year loan. We need to understand that the CMBs are usually financed for five-year and 10-year sectors. Ten-year sectors are mostly for multi-unit projects. It's five years for the residential housing.

Canada Savings Bonds were completely cancelled many years ago. We do not issue Canada Savings Bonds anymore in the federal government. Basically, we only have a stock of Canada Savings Bonds that are gradually fading out right now in the market.

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

Okay, but the federal government does issue its own bonds. At what rate does it issue them, compared to CMHC?

[Nicolas Moreau]

Thank you for your question.

As I said, we are issuing our own bonds around 30 basis points below CMHC in the five-year sector, and 40 basis points below in the 10-year sector.

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

When the federal government wants to finance the construction of new housing, what is it getting for that differential between the two rates? If it's ultimately paying more interest out on the CMHC bonds, what is the advantage to the government or to the taxpayer for paying that extra, as opposed to issuing a Government of Canada bond at a slightly lower rate?

[Nicolas Moreau]

Basically, the way the CMB program, the Canada mortgage bonds program, works right now is that CMHC manages the program. They issue Canadian mortgage bonds to the market at a rate of 30 or 40 basis points above the GOC rate, but they go on the market and buy what we call NHA MBS, National Housing Act mortgage-backed securities They are pools of mortgages that are basically bought back from the issuers, the banks. By doing that, they are increasing the liquidity in the market. Increasing the liquidity means those banks are able to provide lower rates to homeowners, basically. This is an implicit subsidy that's being provided by CMHC to that program.

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

CMHC recently announced that it would be issuing another $20 billion of bonds annually in order to be able to provide low-cost financing for multi-unit rental construction.

I'm curious to know if there are any affordability conditions attached to that low-cost financing, or is that $20 billion of low-cost financing being made available to developers who would be charging market rent?

[Nicolas Moreau]

I'll take that question. I'm Nicolas Moreau from the Department of Finance.

Basically that $20 billion will be focused exclusively on multi-units. A builder could build an apartment building, a student apartment or an old age residence.

There are two phases to this program. There's one that is the normal stream, and any builder could apply. The other one is what we already talked about, the MLI Select program. If you meet specific criteria on affordability or on whether it's a green initiative, you'll be able to get specific points that will reduce the cost of that financing to CMHC. There's more benefit—

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

Okay, affordability isn't a hard condition of that stream; it's just one of the factors for scoring. Is that correct?

[Nicolas Moreau]

That's correct.

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

Okay, thank you.

My understanding is that beyond the current rapid housing initiative offering, there's no commitment by government to a subsequent offering. I understand that the co-investment fund has been depleted and that these are the two funds under the national housing strategy that non-profits can access if they want to build social or affordable housing.

If I'm a non-profit today with the wherewithal and the ambition to build affordable or social housing, what current pots of funding are available to me to apply for at the present moment?

[Chris Woodcock]

This is Chris Woodcock from CMHC housing programs.

At this time, the rapid housing initiative has gone through three phases. Phase three is fully awarded, so there are no further funds available at this time. We are continuing to accept applications through the national housing co-investment fund. We continue to work with non-profits across the country. We are looking towards the end of those funds, and we are certainly optimistic that we'll see further availability of funds in that space over the long term. Right now we have low-interest loans and grants that continue to be available through the co-investment fund.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Blaikie. That's the time.

We are moving, members, into our second round of questions. We're starting off with MP Chambers for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Welcome. Thank you for coming.

I want to follow up on a couple of my colleagues' questions, but first with Mr. Ste-Marie's questions about demand.

Most people aren't willing to admit that closing the supply gap is almost fantasyland. We have to think about demand. You were talking about population growth, but how about the uses of property? How many properties in Canada today are now used as short-term rentals? Does CMHC track that data? Does it have access to that data? Is that something CMHC wishes it had?

[Bob Dugan]

With respect to short-term rental, of course, those are units that are not available for long-term residential uses. The counter side to that, though, is that these are maybe units that wouldn't be built if the availability of short-term rental wasn't there in the first place. The higher returns to putting out a unit for short-term rental probably incentivized a lot of purchases of units that then maybe wouldn't have been built had that demand not been there for those units.

At this point in time, there's maybe a potential windfall. If you were to take those units and say that we're going to get rid of short-term rental, that could increase supply to the rental market as a one-off, but it wouldn't necessarily lead to continued growth and supply in the long run. The rules have changed, and now the incentive to invest in those units is gone.

[Adam Chambers, Conservative, Simcoe North, ON]

Indeed. I totally agree with you, but I think we're at a point in time where everyone's acknowledging a crisis and a one-off release.... I mean, there are some studies that suggest that in the city of Toronto alone—because the city started to actually regulate short-term rentals—10,000 units have been released to the market.

If you're telling me that the government doesn't have that information and would like that information, maybe that's something the committee could request. I'd like to hear from some short-term rental operators. These are individuals who are sometimes operating out of single-family detached dwellings. They're not all just condos. Yes, that's a part of it, and I'm sure it's a big piece.

I'll stay with you, Mr. Dugan, if that's fine.

The second question is this: Does CMHC have any analysis on the recent changes to the building code or proposed changes to the building code from NRCan about how much additional cost per unit that adds to housing?

[Bob Dugan]

We don't have any analysis that I'm aware of. It's not done in the area that I'm responsible for.

[Adam Chambers, Conservative, Simcoe North, ON]

Can I make a suggestion?

We should want to know how much additional cost per unit is being loaded on because of government regulation. I'm not saying the regulation isn't needed, but we should understand and make the trade-off.

We're talking about reducing the GST on rentals, and that's going to be a monumental 5% change. Some studies suggest that the NRCan changes are going to add $30,000 per unit in additional cost. That's a significant amount that will all be borne by the purchaser. I would submit that it's a piece of analysis that would be very helpful for the committee.

I would like to follow up on Mr. Blaikie's questions about the CMB program, Mr. Moreau.

Does the Department of Finance have any analysis or any projection on what will happen to prices with the injection of liquidity into the market?

[Nicolas Moreau]

Thank you for the question.

Basically, we're adding $20 billion in liquidity in the CMB program. This is a program of $260 billion right now.

The Canadian market is a very liquid market, and these are AAA bonds—they are basically fully backed by the Government of Canada—so we don't believe this will have an impact, or any significant impact, on the yields that are offered right now.

[Adam Chambers, Conservative, Simcoe North, ON]

We are increasing liquidity, right?

[Nicolas Moreau]

Of course.

[Adam Chambers, Conservative, Simcoe North, ON]

You're also trying to wind down the CMB program at the same time. Is that not true?

[Nicolas Moreau]

As part of the last budget, we announced that we will be consulting the market on a potential consolidation of the CMB program on the Government of Canada bond program. Those consultations happened last summer. We're currently looking at the answers that we received. This is where we are right now.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

I don't have time for an answer, but I'd like to make a request.

Can the Department of Finance provide an explanation of what is going on between OSFI and FCAC? OSFI's September 13 bulletin says that you have to go through the B-20 rules if you want to refinance; FCAC says you can extend amortization. Those are complete opposite purposes. I'd just like to understand what's happening.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

Now we'll go to MP Weiler for five minutes, please.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you, Chair.

I really appreciate the testimony from our witnesses already today.

I want to pick up on a line of questioning from Mr. Baker. This is a question for Mr. Dugan from CMHC.

I was hoping you could share with this committee your estimates on the impact on new purpose-built rental projects that will be built if Bill C-56 passes and GST is eliminated on purpose-built rentals.