Finance Committee on Jan. 17th, 2022

[Greg McLean, Conservative, Calgary Centre, AB]

We do, too, sir. With all due respect, this is a report put out by an organization that was contracted by the Canada Mortgage and Housing Corporation. Surely you've seen that report. Surely you can comment on the data about how much more Canadians are going to have to spend on housing because of an additional tax put forward by a group funded by the Canada Mortgage and Housing Corporation.

[Anil Arora]

I haven't actually seen that report. That question is probably better put to them to find out what they're using to arrive at it. When and if that ever becomes material, of course it will be part of our system of national accounts.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you. I'll move on, but “material” to Canadians means more money to be expected from this government for the ownership of their homes going forward.

One of my colleagues talked earlier about the mortgage interest cost and the homeowners' replacement cost. We know the mortgage interest cost is going down, because of this government's monetary policy. It is more than made up for by the actual increase in the homeowners' replacement cost. I'm sure you've seen that in your data.

The data I have says that you can take the mortgage interest cost down by about 6% for Canadians over the last couple of years, but that's caused an increase of about 15% in the homeowners' replacement cost. One does not balance the other. We always say that mortgagers don't buy houses; they buy payments. Their actual replacement cost is going up.

How is that reflected in your calculations? We're not seeing it. It's so different from everything else we're seeing compared to our neighbour, the U.S., for instance.

[Anil Arora]

Thank you for that question. I'll also ask my colleagues to jump in.

I'll say that you're absolutely right. What we've seen is the market interest cost year over year has gone down by 8.3%. I keep trying to clarify that the homeowners' replacement cost is not the cost to replace the entire home as you buy new ones and so on. It's actually a component of the shelter cost as consumers would feel it in the CPI.

Perhaps I could ask Greg or Heidi if they want to add to that answer.

[Greg Peterson]

Sure. Essentially in the CPI—

[The Chair, Liberal, Peter Fonseca]

We've lost Mr. Peterson. Are you there?

[Greg Peterson]

I've lost my camera.

[The Chair, Liberal, Peter Fonseca]

Okay. We can hear you.

[Greg Peterson]

Okay.

What we do in housing with the CPI is that we're measuring the price of consumption. CREA does excellent work. They're experts in their field. They do a super job, but they're measuring the value of the house as an asset. Like most other OECD countries, we don't include the entire value of that asset in the CPI because the CPI is an index of consumption, not of the growth of that asset. That is why we break down the cost of housing the way that we do.

There's no question that for people to get into the housing market, they're facing much higher costs than they have in the past. If I were to take the counterfactual and take a look at a house—

[The Chair, Liberal, Peter Fonseca]

Thank you. We're already at five and a half minutes.

We're going to move to Mr. Baker and the Liberals for five minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Mr. Peterson, did you want to finish your answer before I go to my first question?

[Greg Peterson]

Sure. Thank you.

If you think about the counterfactual, for sure somebody entering the housing market is going to pay a lot for a house. The value of that asset is quite large. If you think about a senior who is, perhaps, downsizing and moving out of that house, who is selling their asset, their cost of living isn't going to decline as a result of that. They're still facing the same costs of consumption that they were prior to the sale of the house. Their wealth, the cash assets change a lot, but the cost of living doesn't. The CPI really focuses on that cost of living, the cost of owning that asset, not of the value of the asset itself.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Mr. Peterson.

What I've heard from you and Mr. Arora in your responses to the last couple of questions are a couple of things. One is that, Mr. Peterson, you talked about the fact that when you're measuring inflation, you're measuring the increase in what Canadians are actually spending. Am I right in saying that?

[Greg Peterson]

That's what it represents, yes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Okay. In other words, you're not measuring the increase in asset values, but you're measuring the increase in the costs that people are incurring on the ground, that Canadians are incurring if they spend money.

[Greg Peterson]

Conceptually that's what the CPI is measuring, yes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I think that's an important clarification. We've had a number of members from the Conservative caucus who have tried to suggest...or have questioned the approach and the credibility of Statistics Canada and its approach in how it measures CPI, particularly around housing. I think it's important, therefore, to distinguish that what we have here—

[Greg McLean, Conservative, Calgary Centre, AB]

I have a point of order, Mr. Chair.

My colleague on the other side is impugning motive. We are questioning Stats Canada—

[The Chair, Liberal, Peter Fonseca]

That's not a point of order.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

This is a debate, Mr. McLean. It's not the time to—

[The Chair, Liberal, Peter Fonseca]

It's not a point of order, Mr. McLean.

Mr. Baker, you have the floor.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you, Mr. Chair.

What I hear from those members as they ask those questions is that they're citing increases in asset prices of houses. What you're measuring is the increase in the costs that Canadians are actually facing. Am I correct, Mr. Peterson?

[Greg Peterson]

Conceptually that's where we're at with the CPI.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you.

What I want to do, also on the housing front, is to speak about that report that Mr. Poilievre, Mr. McLean and others have referenced. The Canadian Real Estate Association report actually says that the actual, not seasonally adjusted, national average sales price posted a 17.7% year over year gain in December, which to me is very consistent with the kinds of figures we've been talking about here and not consistent with some of the high figures that have been cited by some of the members as they've been talking. I think it's important. Even on the CREA report, which is looking at asset price increases—as we've just clarified—it's actually 17.7% year over year. That's what [Technical difficulty—Editor].

I'll come back to you to clarify. You've spoken about this a few times, but I think it would be helpful to summarize this for us because one of the important aspects of the discussion we're having is about housing. Could you just speak to what the primary causes are right now, this year, for the increase in the price of housing?

[Anil Arora]

Certainly. First and foremost, it's the demand. We are seeing, because of COVID, a desire for people to have more open space, the kinds of facilities that allow them to combine a little bit of their leisure activities along with work and child care, and so on. Second, what we see are the interest rates. The mortgage rates are still at historic lows. I think that also gets people to.... All the components of our surveys are telling us this. Then we see the demand, in a sense, driving up a little bit of that price. Those are the main causes.

Again, I don't want to leave you with the fact that we don't capture asset price changes. We do. I think we've talked about the new housing price index and the resale price index. We calculate them on a slightly different basis from our colleagues in CREA and others. It's important to know that what we're talking about is an average price. What we're saying is that for a basket, if you like, of houses—single, multi-units, etc.—year over year, through the construction, the builders who are actually building them give us the information, and that's what the numbers are telling us.

It's slightly different, and it does feed into the CPI and the components that my colleagues have talked about. Again, you are shifting the concept, as has been mentioned, in terms of the asset or its replacement cost versus the cost to the consumer month over month. We do include the increased real estate prices, land transfers and insurance, and so on. They are included, but just from a consumption perspective.