Finance Committee on Sept. 28th, 2023

[Bob Dugan]

Thanks very much for that question.

This being very new, we haven't had much of an opportunity to produce any estimates on the impact. We don't have anything. All I have is anecdotal evidence that a lot of builders seem to be suggesting that this can move many projects from unprofitable to profitable. I've seen some announcements by some builders, in the same news that you probably read, that this change will result in more units, but we don't have an estimate right now of how many units that could produce.

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

Thank you.

I've seen some reporting out there—for instance, from the Smart Prosperity Institute—that it could be 200,000 to 300,000 more purpose-built rental units.

Maybe I'll ask the same question of the Department of Finance. They might be able to shed some light on that.

[Miodrag Jovanovic]

I think at this point I would not have anything to add to the answer already provided.

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

Okay.

Perhaps I'll continue on with the Department of Finance.

In your opening you mentioned some of the tax measures and other measures that have been brought in to deal with the financialization of housing, such as the tax on property flipping and the ban on foreign buying for two years. The other area, of course, is the tax on property assignments.

I was hoping you might be able to speak a bit more to the impact you foresee from that, and the existing experience so far, given that many of these measures went into effect as of January 1 of this year.

[Miodrag Jovanovic]

With respect to assignment sales, there are two measures in place that are affecting the tax treatment.

First, with respect to GST application, the government has clarified that the GST will apply in all assignment sales. That's one thing.

With respect to the income tax treatment, the tax treatment of assignment sales done within 12 months has also been clarified. In all situations, it would be deemed to be business income and fully taxed, as opposed to potentially benefiting eventually from capital gains treatment.

With respect to the effect of these measures on assignments, it is too early to say anything. As you suggested, they were put in place relatively recently, so we don't have data on them yet.

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

Thank you.

The one other area is change in the tax treatment for short-term rentals. Given that my colleague Mr. Chambers brought that up, I was hoping you could perhaps shed a little more light on that as well for this committee.

[Miodrag Jovanovic]

Thank you for your question.

With respect to short-term rental income, I'm not aware of a change in the tax treatment. Perhaps you could add a bit of clarity to your question. I'm sorry, but I'm not sure I can identify what you're suggesting.

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

Okay, I'll change course a bit here.

The department mentioned the first home savings account that was brought in. I was hoping you might be able to share with the committee the take-up we've seen on this new measure that was brought in.

[Miodrag Jovanovic]

It has been in effect since, I believe, April 1, and we've seen a reasonably good take-up so far. I believe about 14 institutions right now are offering it. Most of the big six also offer it. I believe two of them are in the process and are about to. It may not be available right now, but based on their communications, it seems it's coming shortly.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Weiler.

It's now over to MP Ste-Marie for two and a half minutes.

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

Thank you, Mr. Chair.

Mr. Dugan, I'm going to change the subject. I'm going to tell you about a specific case and then ask you a more general question.

In Joliette, social housing projects are currently under way. In one case, the building would be built on a landlocked site co-managed by the Société d'habitation du Québec, the SHQ, and CMHC. CMHC has orders to sell the land at market value, which, in the financial package, prevents the development of this project. This is currently one of the stumbling blocks. From what we've heard, the SHQ is prepared to donate the land. It's a landlocked site that can't be used for anything else under the circumstances.

As I said, my question is a general one. When you're ordered to sell land at market value, whether it's yours or not, can you, under the Financial Administration Act, sell the land or sell it below market value if the minister authorizes you to do so?

[Bob Dugan]

That's an excellent question, and I don't have an answer to it.

Mr. Woodcock, is that a question you can answer?

[Chris Woodcock]

I think we would have to respond in writing.

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

Okay. Thank you very much. We look forward to receiving your written reply.

The housing accelerator fund provides $900 million for Quebec, but it doesn't seem to be active yet.

What is the hold-up between Quebec City and Ottawa that's preventing people in Quebec accessing the $900 million to build more social housing?

[Chris Woodcock]

This is Chris Woodcock from CMHC housing programs.

We recently had a very positive experience with the province of Quebec. We have reached agreements to distribute federal funds to the province. We are working very closely with Quebec to find an agreement on the housing accelerator fund, or HAF. I'm confident we'll find a solution soon.

I think we're going to reach an agreement this year, hopefully soon, that gives Quebec an appropriate share of those federal dollars and achieves the kind of long-term improvements to systems and processes that accelerate housing in Quebec.

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

We look forward to that happening.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

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

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

Thank you very much.

I'll just make a quick callback to earlier discussions. I know a colleague asked about the number of rental units the government projects the GST exemption will help to create. Those numbers don't yet exist, but I wonder if either the department or CMHC could commit to preparing an estimate for the committee and delivering it in time for our study, which is projected to report back to the House in February. To be maximally useful, some kind of analysis would be welcome by the end of next month, let's say.

Is that a realistic request of either party at the table today?

[Miodrag Jovanovic]

I have to admit it's difficult for me to commit at this point on this request. What I would say is that this would be an extremely complex exercise that may take a while to arrive at assumptions that make sense. Given the complexity of the issue, there are so many factors at play.

We know for sure that we're going in the right direction in terms of reducing building costs. As I mentioned, it's between 3.2% and 5%; that's the GST value. Some provinces may also jump in. It would be an extremely difficult exercise. I wonder whether the number we would end up with, based on the quality or lack of quality of assumptions because of the lack of data, would really be informative.

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

What I'm hearing is that if we want to measure the opportunity costs of certain kinds of investments in housing, whether that's through tax policy or direct spending, the government's plan is to wait to have data and only be able to evaluate investments retroactively. Is that a fair understanding of the approach to evaluating value for money?

[Miodrag Jovanovic]

In the specific case of the GST rebate, we would need to determine whether we would be able to retroactively assess. Again, it suggests that you know retroactively what has been a determinant, and the increment. I think it goes back to my first response, which is that it is an awfully complicated exercise. That does not mean we cannot come up with estimates; the caveat here is that I have doubts about the quality and reliability of these estimates.

[The Chair, Liberal, Peter Fonseca]

MP Blaikie, that's the time.

Members, when you're hearing an answer from a witness, could you just put yourselves on mute? We've heard from the interpreters that otherwise it causes interference and some challenges.

We're off to MP Lawrence for five minutes.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you, Mr. Chair. Thank you for the witnesses who are appearing today.

I will read from the CMHC's mandate here: “to promote the efficient functioning and competitiveness of the housing finance market”.

While I'm pleased that we have acknowledged the issue, one that our party has been pointing out for some time, I'm not nearly as pleased—in fact, I'm profoundly disappointed—that we've come to this point. We are two million homes behind, and it's going to be 3.5 million homes.

Did the CMHC or did the Department of Finance advise the government eight years ago that this issue would be occurring?

[Bob Dugan]

Thank you very much for that question, and it's a fair one. I'm lucky I have my colleague Aled here, since he led a lot of this work.

In 2018 we published a fairly extensive study on house price escalation. To my knowledge, that is probably one of the first pieces of work that really identified supply, or the lack of supply, as a key determinant of the escalation in house prices.

Aled, I don't know if you wanted to say more about that.

[Aled ab Iorwerth]

Yes, Bob is right. The report was published in early 2018.

To summarize briefly, it said that the demand for housing is going up because of rising income, rising population growth and, at the time, lower interest rates. There were significant supply responsiveness challenges, particularly in the Vancouver and Toronto areas.