Finance Committee on Nov. 6th, 2023

[Adam Chambers, Conservative, Simcoe North, ON]

I believe that's my time.

Thank you very much, Mr. Chair, and thank you, Mr. Butler.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

Now we go to MP Baker for six minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Mr. Chair.

Thank you to all the witnesses for being here today. I've learned a lot. I'm sure we'll learn a lot in the remaining time at our committee here.

One of the things I learned is that you can buy things on Reddit. I didn't even know you could do that. I wouldn't necessarily advise it, based on my experience on Reddit, but that's a good thing to know.

I'm going to direct my questions to Ms. Keesmaat to begin. I'm going to begin with the recent announcement by the federal government to remove the GST on rental construction. What do you think the impact of that will be on getting apartments built?

[Jennifer Keesmaat]

I can't speak for other developers, but I know that there have been some significant announcements in the city of Toronto whereby developers are re-evaluating condo projects and now looking at the viability of building rental projects instead, as we have done as well.

Probably the most significant impact has to do with financing and the allocation of capital. We had a meeting with one of our large capital backers last week. Whereas in the past that capital backer has primarily invested in condo projects, they said they're now interested only in rental projects.

That's for two reasons. One is that the forgiveness of the GST has now made many rental projects viable when they weren't viable. It's also a way of mitigating risk in a context where there is a challenge, given high interest rates, with selling condos in the first place.

There's a real opportunity. We're in a moment. Sometimes a moment happens, and you can seize that moment to fundamentally drive new kinds of housing supply. We're in a moment right now when the forgiveness of the GST is changing the way capital partners, large pension funds and banks are allocating their money to development projects.

That's a significant change.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

In summary, if I heard you correctly, project backers, people who finance the construction of homes, in this case rental buildings.... There are suddenly a number of projects that previously weren't financially viable for them that are financially viable, and therefore more rental apartments will get built. Is that correct?

[Jennifer Keesmaat]

That's absolutely correct.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Ms. Keesmaat, at finance committee we've been spending a lot of time hearing from very thoughtful folks about why housing prices are as high as they are. Witness after witness has basically come forward and said that the main reason housing prices are as high as they are is that there's a lack of supply across the country.

Do you agree with that?

[Jennifer Keesmaat]

Absolutely, yes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

This measure is designed to help build more homes—in other words, increase more supply—which is the critical measure we need to take to help reduce prices—rental rates—for folks.

[Jennifer Keesmaat]

That's correct. I think it's important to stress—and I think there were some other speakers who alluded to this—that we actually have a shortage of supply across the entire housing spectrum, and when you build affordable rentals, it means fewer people on social housing wait-lists, because they can now access affordable rentals.

When you build more rentals, you will see fewer people reaching for a mortgage they can't quite afford—which is a vulnerable thing to do—because they have access to a stable rental home in a good building that's well maintained. The outcome of this is actually injecting a significant amount of supply into an area where we have a really profound gap, which is rental housing.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

That's really helpful to understand.

I want to ask you about a private member's bill that's been introduced by Pierre Poilievre. What he's proposed to do is remove the GST only on below-market rental construction. Could you explain what would be the difference and impact between what he's proposing and what the government has announced?

[Jennifer Keesmaat]

Well, there are a couple of things.... One is that if the objective is to incentivize affordable rental housing specifically, there's a whole variety of measures that are required in order to make that achievable. For example, on our projects, not unlike what Maureen mentioned, there are incentives in the city of Toronto that make that viable. This means that in other jurisdictions—let's say we went to Guelph, Kitchener or Surrey, B.C.—the removal of the GST alone would not necessarily mean that it's viable to build that affordable rental housing.

One of the challenges with building housing is that you have the cost of land, which is absolutely a critical part of the overall pro forma. You have the cost of labour. You have the cost of borrowing. Some of those things are set. The cost of borrowing is set right now, but the cost of land is something that isn't. You have home builders who have land they purchased 20 years ago that they can now look at for building rental housing given the forgiveness of the GST, and it's viable.

We heard from Maureen that just the forgiveness of the GST, as well as the City of Toronto incentives, still do not create a viable project. The point of explaining it is that there are so many variables that go into the viability of any given project that one of the tensions in policy-making is that it has to be loose enough that it's going to capture enough projects.

For example, the project I mentioned that is 350 units is a tower building on a subway site. That project is only viable to do 30% at 100%—or 80% to 100%—of AMR in terms of the affordable, because of the cost of the land as one of the variables. My concern with the proposal you just mentioned is that it might be too specific. I'm not sure where it would work. I think you want to make sure that the policy is broad enough that it can capture a variety of scenarios and not so narrow that it doesn't become applicable.

On the criteria in the coinvestment fund, we haven't been able to make it work on a single project, because it's too specific. It's too rigid. That is a real tension in policy-making for housing: If the policy is too specific, I don't know how much it will capture and really drive supply.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker.

Now we'll go to MP Ste-Marie via video conference.

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

Thank you, Mr. Chair.

Greetings to the witnesses.

My questions are for the representatives of the UMQ, the Union des municipalités du Québec.

Ms. Fournier, the Chair introduced you as the chair of the UMQ housing committee. That's one of the hats that you wear, but you're also the mayor of Longueuil, one of the largest cities in Quebec. It's a magnificent city. Thank you for being here, and I'd also like to greet Ms. Fortin, the UMQ's policy adviser.

Ms. Fournier, you explained in your statement how significant the issues are. There is homelessness, and there are needs for social housing and housing in general, and, for the cities, there's the whole infrastructure issue.

In Ottawa, we saw the Prime Minister and the Conservative leader accuse the cities of delaying housing starts. Then the Conservative leader introduced Bill C‑356, which would require the cities to increase housing starts by 15% every year. If they fail to meet that target, he says that it will reduce their payments from the gas tax fund, which is used to finance infrastructure, and from public transit funding. He would reduce those payments in proportion to the amount by which the cities fail to meet the new housing target. However, in the past year, as a result of interest rates, housing starts have declined by 60% instead of increasing by 15%, as the bill would require. That would therefore amount to a difference of 75%. Consequently, the municipalities would have lost 75% of their infrastructure and transit funding.

Do you think that might be a solution to the problem?

[Catherine Fournier]

Thank you very much for your question.

For starters, I would note once again what I said in my opening remarks. Yes, the cities need to take responsibility for housing. It's true that we can do more, by expediting permitting, for example, but I can assure you the cities are fully engaged in this process.

At home in Longueuil, for example, we're conducting a regulatory review; we're in the process of revising all our municipal bylaws in order to improve efficiency and provide real estate promoters with more predictability within our city limits. However, the issue is far too complex for what the cities can do alone, and that's why all levels of government need to work together to address the housing crisis.

Even though some real estate developers have permits duly issued by the city, we're seeing that projects that are under way are experiencing slowdowns or have been completely halted for macroeconomic reasons and the fact that the numbers no longer make sense. Consequently, if a project isn't profitable any more, the promoter has no interest in completing it.

In addition, the cities have a responsibility for the development of our land. Cities can't be built on the urban spread model any more, as they used to be. Some witnesses noted that. You have to densify. That's especially true in large urban areas, such as the city of Longueuil, for example, and that involves additional infrastructure investment.

It's obviously costly to build new housing, but it costs just as much to adapt our existing infrastructure, which is aging and already requires significant efforts to maintain assets, so water can run through the taps of new housing units.

It seems silly, but it's actually as simple as that. We're going to need colossal investment, not only to meet public housing needs, but also to cope with the increased pressure on our infrastructure caused by climate change. The Union des municipalités du Québec estimates that the investments that will be necessary to adapt our infrastructure to climate change, particularly municipal water infrastructure, will amount to at least $2 billion.

So the problems are glaring, and, as you know, cities are funded in large part by property taxes. That's why we also need investment from other levels of government, including the federal level.

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

Infrastructure needs follow from real estate development. Consequently, Ottawa will have to start thinking about a plan to provide better support for the cities' infrastructure. You mentioned property taxes, which aren't enough to guarantee funding for all that. So there's a problem. It's very interesting. Thank you.

You also mentioned interest rates in your statement. As you just said, interest rates are currently delaying housing construction. However, we know that CMHC or the federal government can make loans at lower rates than entrepreneurs.

Are you asking that CMHC add new building programs for social housing units, or housing in general, at lower interest rates?

[Catherine Fournier]

From what promoters tell us on the ground, borrowing costs are really the main factor putting a brake on most pending projects. The problem with CMHC's currently available programs is that they lack predictability. It takes months to get a response. We all know it's all about the delays. Time is money for the promoters; not knowing whether they'll have access to the programs prevents them from closing their financial packages. Requirements are also too restrictive. So more flexible arrangements are needed to help the promoters.

Earlier I said that the banks should play a greater social role. We know that financial institutions currently lend approximately up to 70% of the total costs of rental projects. It would be false to say that they're risky projects in the present circumstances. Couldn't financial institutions lend a larger percentage of project values?

We also know that interest rates influence discount rates, which also restricts promoters' borrowing power. Once again, this has a major effect. You can't expect private projects to go ahead when the numbers don't add up. That's often what you hear on the ground from that promoters we cooperate with in our cities.

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

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

Madam Mayor, thank you.

Now it's over to MP Blaikie for six minutes.

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

Thank you very much, Mr. Chair. I, too, would like to thank all of our witnesses for being here today.

I think it's been well established that Canada needs more housing supply. We've heard here today and we've heard at other times in front of this committee that something has been happening on the demand side of the equation. Mr. Butler was talking about short-term rentals as a relatively recent phenomenon and the impact on the housing market. We've heard that homes are being used, in some cases, as a way to store cash. We've seen long-term investors get into the market, and they want to raise rents in order to get the most return on investment over the life of the asset. We've also heard that during the pandemic people wanted more space. They thought they were maybe going to be stuck in their homes forever—it certainly felt that way sometimes—and so they wanted bigger yards. There was a lot of movement in the real estate market.

I'll start with Ms. Fair, because she's with us virtually. You also talked about some of these phenomena. Do you want to add anything to that list of new demand pressures, or different demand pressures on the Canadian housing market?

[Maureen Fair]

I think others have spoken about the.... Is there something wrong with other savings vehicles that are making people turn to property as an investment? People seem to be leaving savings in the stock market behind, or they're doing both. I think there's a rush towards investing in property as a commodity that seems safer. Maybe there's something about income security that can be improved that would have people motivated to not be investing in housing as a profit-making piece.

I think there are lots of other things going on for people, as well, in terms of just figuring out where we can extract public benefit as opposed to creating profit, for the well-being of people, in a broader sense, that affects everybody. We're all in the same boat. We're all in the same country. If we have rental units in our homes, do we need to charge top dollar? Is there a way we can acknowledge landlords who don't charge top dollar? There are many stories of compassionate landlords, who see the person living in their house as a member of their family, in a sense. Promoting that sense of community instead of greed and profit is a bit of a pipe dream, a bit of rhetoric, but maybe there's something to it.

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

Thank you, Ms. Fair.

Ms. Farha, is there anything that you want to add to that list of demand pressures?

[Leilani Farha]

I think there are some new areas of investor demand that we would do well, in this country, to understand and be concerned with.

One area is student accommodation. We are learning that students are having a very difficult time both paying for tuition and paying rent. In many cities—Halifax is a really good example; I have a daughter there right now—it's the rent that's more unaffordable than the tuition.

What worries me is that the answer a lot of people give is to build more student accommodation—more supply. Again, I push back against doing that without regulated supply. I've seen in countries around the world—my expertise is international as well as domestic—investor companies building and buying units for students and then charging exorbitant rents. It means that student housing is available, but it ends up still being unaffordable—I mean, incredibly exorbitant.

Some of the buildings are amazing. They have ping pong tables, cafés, swimming pools and running tracks, etc., but they are unaffordable. This, of course, increases differences in learning outcomes for students who can't afford the exorbitant rents. They live further away from campus and they're often already working a job, so it makes it more difficult for them to achieve.

The other area—I won't go into any detail—is of course long-term care homes. Obviously, as we have an aging population, there's going to be a growing need. That is a huge investor area. Long-term care homes are both expensive and deplorable, as we learned at the beginning of the pandemic.

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

Thank you very much for that.

Mr. Butler, I'll come back to you on this question.

I'm curious to know if you have a sense of the size of inventory that might be put back on the market if the government were to do as you suggest and ban short-term rentals.

Do you have a sense of how many units or family homes we would be talking about?