Finance Committee on Oct. 23rd, 2023

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

Thank you very much.

With regard to people using existing equity, particularly in light of a quick appreciation in real estate assets, have you looked at jurisdictions that have had an escalating down payment model? You have one down payment requirement for your first property, but additional properties would require higher down payments.

Can you share some of your knowledge about that as a policy mechanism and whether it has seen success or not? How do you think it might be adapted to the Canadian context if it does show some promising signs?

[Steve Pomeroy]

Typically, when you buy a home yourself, with mortgage insurance, you can basically go as low as a 5% down payment. If you're buying as an investor, you have to provide the 20% down payment, and therefore you can save on CMHC or private mortgage insurance fees, so there already is a gradient that's in there.

I think the reality here is that if folks have had these massive equity gains, they're not necessarily highly leveraged. They're bringing 30% to 40% to the table, because they can use their existing equity through home equity lines of credit and that kind of stuff. I'm not sure that such a mechanism would necessarily be effective, because they can go around it with these bags of money.

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

I know you talked a bit about folks acquiring second properties as an investment. Can you speak to the difference between acquiring a second property as an investment for long-term rental versus short-term rental? What do you think is happening in that expanded investor space, whether it's predominantly short-term rental or long-term rental? What is the mix, and what are the implications for policy-makers who might like to see that inventory put to better use for housing Canadian families who need a home?

[Steve Pomeroy]

It's a very tricky situation. A number of municipalities have tried to put in place regulations to try to regulate the short-term rental market. Individual investors can collect $170 or $200 a night from short-term rentals versus $2,000 a month, perhaps, from long-term rentals. Do the math. For more than 20 days, you're better off.

Individual investors will make those kinds of decisions. The challenge with the short-term rental piece is that many municipalities now—and I don't know if Guelph has done this—have brought in regulation trying to restrict B&Bs to the traditional bedroom in your existing house within a principal residence, rather than an investment property. The challenge is enforcement. How do you actually enforce that regulation? There are things we might try to do, but it's tremendously difficult to try to enforce a regulation that stops people from doing that.

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

Mr. Guthrie, I saw some nodding there.

Do you have some experience you'd like to share with the committee from your hometown on the short-term rental question?

[Cam Guthrie]

Certainly.

Through you, Mr. Chair, we did pass a bylaw, and we're actually a little different from some others. We allow one, the principal residence, and one other within the city limits. We didn't want to completely restrict it to the principal residence, so it's one and then one other, but that's it.

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

Is that a relatively new policy? How long would you say that has been in place?

[Cam Guthrie]

Yes, it is a new policy, I would say, in the last seven or eight months.

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

Okay.

It's a little early for lessons learned on enforcement, but has anything come up in the enforcement of that policy that the municipality didn't anticipate? Have you found it's going relatively smoothly? What would you say to us on that front?

[Cam Guthrie]

Everything has been fine so far. The hotline to the mayor has not lit up yet on it, so it's pretty good.

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

How am I doing for time, Mr. Chair?

[The Chair, Liberal, Peter Fonseca]

You have about a minute and a bit.

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

On that, how does the city evaluate whether people are in compliance with the bylaw or not? How do you get the information that you would need in order to be able to find out if, say, somebody had several properties within the municipality of Guelph and was offside with the policy?

[Cam Guthrie]

We have licensing. People would have to do a licensing, and then we also will work on a complaint basis, of course. If we feel that there are issues coming in from people who are complaining about certain sites or whatever, then we would have inspections and whatnot to go out to verify. Through the licensing, we are able to validate two. Then we would—

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

Through licensing you have, essentially, a registry of anyone who's renting on a short-term basis within the municipality of Guelph.

Do you know if sister municipalities have similar registries? Is the data pretty spotty, depending on where you are in the country or even in your region? Is that data being tracked on an individual municipality basis, as opposed to a more policy-driven universal landlord registry?

[Cam Guthrie]

I'm unsure about a more universal basis. It is usually by municipality, depending on the type of regime that they set up.

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

Do you think it would be helpful to have either a provincial or perhaps even a federal registry of landlords that recorded which properties folks are renting out and whether they do that on a long-term lease basis or whether it's a short-term rental?

[Cam Guthrie]

I'm unsure. I also want to be careful not to create administration and bureaucracy just for the sake of it. I'm unsure how that would play out.

Some areas across Canada may have more need for that than other areas to try to limit somewhat the free market from being able to provide that type of housing. I wouldn't want to restrict it too much. It depends on the municipality. I think we've seen a lot of long-term rentals turn into short-term rentals, and that has caused some problems, which is why you're seeing many municipalities across Canada bringing in a licensing or regulatory framework to try to limit them within the municipalities.

[The Chair, Liberal, Peter Fonseca]

Thank you very much, MP Blaikie.

Members and witnesses, we're moving to our second round of questioning. Timing is a little bit different in this round.

We are starting with MP Hallan for five minutes, please.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Thanks, Chair.

I'd like to move my motion on notice at this time.

Last week, the Competition Bureau of Canada reported that competition is on the decline as concentrated industries become more concentrated and fewer businesses are attempting to enter already uncompetitive industries.

One of those industries is Canada's financial sector. Considering the RBC-HSBC merger, I move that the Standing Committee on Finance report the following to the House:

Given that,

(a) after eight years of Justin Trudeau, the Competition Bureau of Canada finds Canada’s competitive intensity is in decline, a measure that was reflected in all indicators measured by the bureau;

(b) there already are very few financial institutions in the Canadian banking sector, representing a lack of competition;

(c) removing competition in the financial sector could raise banking fees for Canadians who already pay more for financial services due to an already uncompetitive financial sector;

that the committee calls on the Minister of Finance to reject the merger of RBC and HSBC.

Canadians are paying some of the highest banking fees in the entire world after eight years of Justin Trudeau. Only competition delivers better prices and products, not less competition. The RBC-HSBC merger proves yet again that this Liberal government cannot protect Canadians from oligopolies and rising prices. In Canada's banking sector, there are very old, very large oligopolies that are government-protected. The Competition Bureau report on this merger says that financial services markets are concentrated. There are high barriers to entry and expansion, and conditions facilitate coordinated behaviour among competitors.

The Big Five banks—RBC, TD, BMO, Scotiabank and CIBC—as well as HSBC and National Bank control 93% of all banking assets in Canada and 87% of mortgages. If the biggest bank in Canada can simply gobble up the seventh-largest bank, then there's no hope of ever having more competition in the Canadian banking sector.

HSBC has been offering rate advantages relative to RBC. The Competition Bureau even acknowledged HSBC's unique position as a player in Canada's banking system and mortgage market. Almost all of HSBC's mortgages are in Vancouver and the GTA. Vancouver is the world's third most overpriced housing market. Toronto is the world's largest housing bubble.

Currently, 50% of the best posted uninsured mortgage rates in Canada are HSBC products. If HSBC is eliminated from the market, their rare position as an affordable outlier in mortgages, especially in Canada's two most expensive cities, will be lost, and there is no one to fill that void. There are about 800,000 HSBC customers who will be forced into RBC without being offered anything for their business or given a choice.

Eight years of Justin Trudeau's borrowing and adding more debt than all governments before him combined led to 40-year highs in inflation, and now Canadians have the most rapid mortgage interest rate hikes ever. Now the IMF is putting Canada as most at risk in the G7 for a mortgage default crisis.

As an example, there are around 70,000 mortgage renewals every month over the next 12 months. HSBC today is offering a rate of 6.4%, whereas RBC is offering their rate at 7.15%, which is a clear difference in people's monthly mortgage payments. If someone took out a mortgage five years ago, they can look to, at a minimum, a doubling of their mortgage rate. For some people that could mean up to $1,000 or more a month just on mortgage payments.

The removal of the HSBC from the mortgage market results in a loss of downward pressure on lending rates and will force those Canadian customers to pay even more.

Some of these HSBC customers are newcomers to Canada; actually, many of them are. As Conservatives, we believe big whales should compete with each other, not just swallow up the small fishes.

This finance minister has the power to stop this merger. The ball is in her court. We want to know if she will side with her Bay Street buddies or do what is right for Canadians and reject the merger so that banking fees don't go up and Canadians can have more product options.

After eight years of this Prime Minister, he's not worth the cost. I urge all members of this committee to do what is right for Canadians and join us in calling for Minister Freeland to stop the RBC-HSBC merger.

Thank you, Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Hallan.

We are on this motion now, members. For the witnesses' sake, so that they understand, this is something we have to deal with before we can get back to our witnesses on housing.

I do have a speaking order here. I have MP Williams, MP Morantz, MP Bendayan and MP Ste-Marie. That's my list right now.

Go ahead, MP Williams.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Chair.

I think it's in the vein of some of the witness testimony today, so I thank you, witnesses.

We are in a wrecking ball between a housing crisis and a competition crisis in Canada. We have a major competition problem. A Competition Bureau report released this week stated what we already knew for the last 25 years—competition has never been worse in Canada. Canadians pay some of the highest fees in the world for cellphone bills, for groceries, for airlines and for banking.

When it comes to banking, we have a highly consolidated industry and large oligopolies that control all the banking in Canada.

At the same time, we have a competition reform problem and a policy problem. That's evident because the federal government itself has just launched Bill C-56, which addresses competition reform, and there's a private member's bill by the leader of the NDP. There is a competition problem, and we have to address that.

At the same time, we have a merger right now. Canada's number one bank, with a 23% market share in mortgages, is trying to buy Canada's number seven bank, which represents 800,000 mortgages, mostly in Vancouver and Toronto.

To give an indication of that, HSBC has 10% of all the Vancouver mortgages on the books, and roughly 5% of Toronto's.

When we look at the difference between mortgages for a family in Vancouver or Toronto who had a half-million-dollar mortgage—and that's probably pretty low for most families—we see that the variable mortgage rate posted today from HSBC is 6.4%, and from RBC it's 7.15%. That's a difference of 75 basis points. That didn't really matter two years ago during the pandemic, but when interest rates have risen, 75 basis points is a lot for any family.

To give that context, for a family that's going to be over $300 more just on that basis point difference on a half-million-dollar mortgage. If you compare that to a family that right now is at 1.8% or 2% and has to refinance a mortgage—which 70,000 families are now doing every month—you can imagine the pain the families would have in trying to make that relevant to their family budgets and their lives. No wonder we're seeing a lot of families in all cities across Canada screaming that they simply can't afford that.

With regard to this merger itself, certainly HSBC is a scrappy competitor that offers competitive rates in the market. However, the Competition Bureau itself stated, in giving approval, that it's doing so under the current rules and that in competition reform, we have to change the Competition Act.

During the competition reform that the government started and that all parties have agreed to look at, when we're looking at a housing crisis—and borrowing from Mayor Guthrie, who said that the day of reckoning has come—we have to have an intervention by this government right now to ensure that a scrappy competitor can stay in the market and offer lower mortgage prices for Canadians. If that competitor is removed, there's nothing that's going to be worse than having higher mortgage fees and interest rates for consumers and Canadian families.

We're asking the finance minister to reject this deal and we're asking this committee to support this motion.

[The Chair, Liberal, Peter Fonseca]

Thank you.

We now move to MP Morantz, and then MP Bendayan, MP Ste-Marie and MP Blaikie.

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

Thank you, Mr. Chair.

The Competition Bureau recently reported that the lack of competition in this country is worse than it's been at any time in the last quarter of a century, leading to higher prices for consumers and higher profits for corporate oligarchs across the board, and that competitive intensity is on the decline.

Now, after eight long years, this Liberal government is considering allowing Canada's biggest bank to gobble up the seventh-biggest bank to eliminate competition in an industry that already lacks sufficient competition and force up mortgage rates for Canadians, who already can't afford to pay their bills.

Today I also searched mortgage rates for both HSBC and RBC. The two-year fixed rate at HSBC was 40 basis points lower than at RBC. The five-year fixed rate at HSBC was 35 basis points lower than at the Royal Bank.

Competition works. We need Canadian banks to compete for customers, not buy them, but if the biggest banks in Canada simply buy up growing players, there's no hope for there ever to be more competition in Canadian banking. There are already too few financial institutions in the banking sector as it is.

The Competition Bureau found that HSBC's mortgage business was a rate disrupter in the Canadian market. Removing this competition could raise banking fees when life is already unaffordable. If you have a smaller competitor pulling down rates, then we should want them to remain in place; instead, this merger lets the biggest bank in Canada gobble up 800,000 customers without having to offer those customers anything for their business. Worse, when those new customers, who will then be Royal Bank of Canada customers, go to renew their mortgages, they'll be stuck with the higher Royal Bank of Canada rates that I mentioned.

We have to ensure that if the government is protecting large domestic industries, those industries are forced to compete against each other to win over customers based on product and price, not consolidate power and bulldoze over customer interest.

Mr. Chair, if 70,000 mortgages are being renewed at higher rates every month in this country, as mortgage defaults creep up, people are starting to lose their homes. That's why competition to keep rates as low as possible is so important, and why Conservatives are calling on this merger to be denied. We call on the Minister of Finance to deny this anti-competitive merger.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Morantz.

We now go to PS Bendayan.