Finance Committee on Feb. 13th, 2024

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

This is meeting number 127 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, September 21, 2023, the committee is meeting to discuss the policy decisions and market forces that have led to increases in the cost of buying or renting a home in Canada.

Today's meeting is taking place in a hybrid format, pursuant to Standing Order 15.1. Members are attending in person in the room and remotely using the Zoom application.

I would like to make a few comments for the benefit of members.

Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to the interpreters and can cause serious injuries. The most common cause of sound feedback is an earpiece worn too close to the microphone. We therefore ask all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on. In order to prevent incidents and safeguard the hearing health of the interpreters, I invite participants to ensure that they speak into the microphone into which their headset is plugged and to avoid manipulating the earbuds by placing them on the table away from the microphone when they are not in use.

As a reminder, all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

Before I introduce the witnesses, I want to thank them for accommodating the time today, because we had a vote that ate into some of the time for our meeting. I understand you'll be with us until we transition to the second panel, which will be about 12:20 or 12:25. Thank you for that.

With us today, we have, from the Federation of Canadian Municipalities, its executive director of policy and public affairs, Mathieu Bélanger. Welcome.

From the Financial Consumer Agency of Canada, we have Commissioner Judith Robertson. Welcome, Commissioner.

We also have the deputy commissioner of supervision and enforcement, Frank Lofranco. Welcome.

At this time, you will have an opportunity for opening statements, and then members will have their opportunity to ask you questions.

Go ahead, Commissioner.

[Judith Robertson, Commissioner, Financial Consumer Agency of Canada]

Thank you very much for that introduction, Mr. Chair.

I would like to thank the committee for inviting us here today.

With me is Mr. Frank Lofranco, assistant commissioner responsible for oversight and enforcement at FCAC, the Financial Consumer Agency of Canada.

For those less familiar with our mandate, FCAC is an independent federal agency that was established in 2001 to protect the rights and interests of consumers of financial products and services.

We work in close collaboration with our federal partners, including the Office of the Superintendent of Financial Institutions, the Canada Deposit Insurance Corporation, the Bank of Canada and the Department of Finance. We coordinate our activities on matters relating to financial stability, systemic vulnerabilities and the supervision of federally regulated financial institutions.

FCAC carries out our mandate in two principal ways. First, as a regulator, we supervise the compliance of federally regulated financial entities—primarily banks—with consumer protection measures that are set out in legislation, public commitments and codes of conduct. Second, FCAC is mandated to strengthen the financial literacy of Canadians. We do this in various ways, including by educating Canadians about their rights and responsibilities when dealing with financial institutions. We also conduct research and monitor trends on emerging issues that affect financial consumers.

We welcome this opportunity to engage with the committee on our work in relation to the important topic of housing finance. The impact of housing costs on household finances and the vulnerability of mortgage holders in today's environment are issues that we're keenly aware of and relate to both sides of our mandate.

Unfortunately, when we were invited to appear last fall, we misunderstood that your focus was on housing pricing and availability. We now understand that the scope of your study encompasses areas that converge with our mandate, so we're particularly happy that you invited us back.

Before responding to questions, I'd just like to highlight a couple of areas of our work related to housing finances.

On the regulatory side, the consumer protection measures we oversee apply to a wide range of products and services, including residential mortgages that are offered by banks. These measures were strengthened in 2022, when the financial consumer protection framework regulations came into force. The new framework reflects a focus on outcomes, and it puts more onus on the industry to responsibly manage how and what they sell to consumers and how they respond when disputes occur.

One example of the framework in action is the “Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances”, which FCAC issued last July. We call it the “mortgage guideline” for short. Guidelines are a supervision tool that provide industry with clarity regarding FCAC's expectations for how they should comply with their regulatory obligations.

Specifically, this guideline sets out our expectation that in response to the current exceptional economic circumstances, financial institutions will adopt fair and consistent approaches when they offer relief measures to consumers who are at risk of defaulting on the mortgage on their principal residence. Importantly, the guideline is based on best practices in financial consumer protection and centred around the principles of fairness, appropriateness and accessibility, which are also reflected in the new framework. FCAC's guideline was informed by our internal research, and this demonstrates how the two sides of our mandate work together.

Since 2020, we've been conducting a monthly survey to track the financial well-being of Canadians. There is an abundance of great information in this data. We release it publicly, and we share the datasets with other researchers. We have added questions relating to housing finance in response to the challenges of the current environment. A key finding that drew our strong attention at the end of last year was that homeowners with a mortgage have been increasingly at risk of experiencing financial hardships, demonstrated by having to borrow for daily expenses or draw on savings. It was in response to these findings that FCAC acted and issued its mortgage guideline.

In addition, we continue to increase our educational efforts. We've developed new information relating to the mortgage relief measures and how consumers can make informed decisions. The theme of last November's Financial Literacy Month was focused on managing debt. FCAC recently launched a national, multimedia advertising campaign to promote FCAC's tools and resources related to renting or buying a home and choosing, renewing and paying for a mortgage.

That concludes my opening remarks. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Commissioner Robertson.

Now we'll hear from Mr. Bélanger, please.

[Mathieu Bélanger, Executive Director, Policy and Public Affairs, Federation of Canadian Municipalities]

Thank you very much, Mr. Chair.

Good morning to the committee.

My name is Mathieu Bélanger and I'm an urban planner. I'm also the executive director of Policy and Public Affairs at the Federation of Canadian Municipalities, or FCM.

FCM is the voice of local government in Canada. It brings together more than 2,100 municipalities in every province and territory, representing just over 92% of Canada's population.

I am pleased to speak today on issues related to housing affordability, a topic which, as you know, is crucial to the well-being of Canadians in every region of the country.

Municipalities are facing the challenges associated with the housing crisis, whether it's providing emergency accommodation for asylum seekers or refugees, finding innovative solutions to chronic homelessness or dealing with the growing number of urban encampments. Every day, municipalities act to support and accelerate the creation of new housing by improving and simplifying their administrative practices.

At the same time, municipalities are doing everything they can to ensure that new community and social housing is created quickly. For these reasons, it is important to recognize the need for urgent financial support from the federal, provincial and territorial governments.

As we know, the CMHC estimates that an additional 3.5 million new housing units are needed above the current trend if we are going to restore housing affordability by 2030. Considering the current unprecedented population growth that our country is experiencing, we must enable our municipalities to fully play their crucial roles in reaching that target.

Population growth is positive and transformative for Canada, and many of our communities are seeing accelerated housing construction. Metropolitan areas across the country, such as Halifax, Moncton, Kingston, Calgary and Victoria, had their highest numbers of new housing starts in 2023. All over Canada, cities and municipalities—urban and rural—are accelerating permitting, simplifying zoning rules and streamlining approvals to make sure that units can get built faster.

I'll just give you a few examples. As you probably know, Toronto now permits multiplexes city-wide, and since last year, new rules allow for up to four units on a single lot. In Edmonton, the city passed a density-boosting zoning bylaw, allowing three-storey apartments and row housing city-wide. Kelowna's laneway project has resulted in many new units through innovative infill development.

Also, many municipalities have recently accessed new funding through the housing accelerator fund. This program makes a real difference, as it facilitates the modernization of planning and approval tools and helps to fund actions to unlock housing development. It demonstrates the innovative and responsive nature of municipalities.

However—and I want to be very clear on this—in Canada, we don't just need new housing units. We also need complete neighbourhoods with good public services. We need buses running regularly and on time. We need communities where nobody is left behind without a roof at nighttime. New housing units are needed to improve affordability, but we also need the infrastructure that goes with them.

This infrastructure is mainly owned and maintained by municipalities. Here we're talking about the roads and the subway you are using to commute, the parks where you go for a walk, the facility where your trash is recycled or the shelters for homeless people. Growing the housing supply to restore affordability without thinking about the infrastructure that sustains it won't lead us to success.

In Brampton, Ontario, it was recently estimated that the infrastructure investment required to support the planned housing growth up to 2031 will come to approximately $2 billion, which is significant. This example shows how communities are facing very substantial funding shortfalls when it's time to grow the housing supply.

We need new infrastructure funding to grow the housing supply and, in the short term, address water and waste-water infrastructure and adaptation to climate change. This is the basic minimum. In the long term, in order to ensure that Canada's growth is successful, we need a new, more equitable way to fund local governments. It is high time that we equip municipalities with revenue tools that are linked to national population and economic growth. Local governments need to be able to count on diverse, adequate and predictable sources of revenue.

Accordingly, FCM is calling on the federal government to commit in budget 2024 to convening provinces, territories and municipalities to negotiate a new municipal growth framework. This will position Canada to enable long-term growth and prosperity and better respond to the need of a rapidly growing population. It will also help to provide the infrastructure that new housing needs and contribute to restoring affordability while moving toward ending homelessness.

Thank you, Mr. Chair.

[Le président, Liberal, Peter Fonseca]

Thank you, Mr. Bélanger, for your opening remarks.

Now we're going to members' questions in the first round. We won't get much more than a first round, but in this round, each party will have up to six minutes to ask questions.

We'll start with MP Chambers for the first six minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Welcome, Ms. Robertson. It's a pleasure to have you here. I appreciate your eventually accepting the invitation, so thank you for supporting our study.

I wanted to talk a bit about your mortgage guideline, which I think came out June or July of last year. In September, OSFI put out a very direct note saying B-20 guidelines had to be enforced. It seems to me that there's a bit of daylight between the expectations that FCAC has of organizations and what OSFI is putting on organizations. Is that a fair interpretation?

[Judith Robertson]

No. There is no contradiction or daylight. I believe we sent a letter to that effect in which we tried to explain that.

The purposes and targets are different. Our mortgage guideline is intended to address temporary measures to allow consumers who are at risk of default to make some adjustments or examine their options in order to return to compliance or not.

[Adam Chambers, Conservative, Simcoe North, ON]

Right, but you don't define “temporary”. Is that correct?

[Judith Robertson]

We don't specifically define “temporary”, but the expectation is quite clear in the guideline. The OSFI guideline, which they can explain better than I can, of course, is for new contracts or permanent changes.

[Adam Chambers, Conservative, Simcoe North, ON]

Okay.

Are you following or receiving data from the institutions you regulate about how they're dealing with requests for relief?

[Judith Robertson]

Yes. One of the aspects of the guideline is a reporting requirement—

[Adam Chambers, Conservative, Simcoe North, ON]

Is it possible for you to share some of that reporting with this committee?

[Judith Robertson]

Yes. It's still early days. Frank has some high-level—

[Adam Chambers, Conservative, Simcoe North, ON]

To be fair, I don't have a lot of time here, so I'm not interested in getting into that right now. However, I'm interested in the output. When you present it to the government—when it's ready—we would appreciate it being tabled with this committee.

[Judith Robertson]

Absolutely. We will also be publishing it publicly, but probably not until next summer.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

Who is paying for the relief that's being provided to consumers?

[Judith Robertson]

The relief would be in the form of banks forgoing something they might otherwise get, like a fee or an interest payment, so it would be the banks.

[Adam Chambers, Conservative, Simcoe North, ON]

I submit that it's not the banks. It's the other consumers who are paying for the relief.

I recommend that we examine what's been happening in banks for other products and other consumers. For example, let's examine chequing accounts that still provide 0% or 0.5% interest in some cases, NSF charges that have gone up and overdraft charges that have gone up. I submit that the banks are not doing this out of the goodness of their hearts and that it's other customers who are subsidizing this relief.

In fact, because OSFI is not allowing uninsured mortgage holders to shop a mortgage at renewal, that's also where some of this margin is being made up. Now, OSFI doesn't allow uninsured mortgagors to shop at renewal, but as part of the mortgage charter, if you're insured, you're allowed to shop at renewal and you don't have to do the stress test.

I don't understand. That is a definite contradiction. I don't know if you have any comments on that contradiction.

OSFI says if you're uninsured, you have to do the stress test at renewal. FCAC and the government say that if you're insured, you can shop and not do the stress test. Am I interpreting that correctly?

[Judith Robertson]

There's quite a lot in there.

I accept your concern around pricing and whether pricing in one area is cross-subsidizing another. I think that's why pricing is a challenging issue. There are provisions to protect consumers from unfair treatment. We put a provision specifically in the mortgage guideline that addresses the fact that banks are prohibited from taking advantage.

[Adam Chambers, Conservative, Simcoe North, ON]

Okay, but it still leaves a fair bit of daylight. If I have an insured mortgage, which by definition is more likely to default than an uninsured mortgage because the uninsured mortgage is greater than 20% down, why is the government allowing the insured mortgage holder to shop without doing the stress test but OSFI is forcing a stress test to be done for the uninsured? How is that a fair application of relief, if you will?

[Judith Robertson]

The relief measures do speak to whether it is insured or uninsured. There's no difference in the guideline between the relief measures that are expected and the behaviour that's expected towards insured or uninsured.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

Someone should tell OSFI that they should allow the uninsured the same kind of flexibility.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

Now we'll go to MP Thompson.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you to the witnesses.

If I could, I'll start with you, Ms. Robertson.

When banks reach out to borrowers four to six months before their mortgage is up as part of the mortgage charter through the FES, borrowers are obviously given the opportunity to engage with the lender and hopefully find a solution that works for both parties. For clarity, are banks independently deciding who is at risk and who isn't?

[Judith Robertson]

Yes, that is part of their obligation. Under the guideline, the expectation is that banks must first proactively identify the customers who are at risk and then proactively reach out to discuss options with them. They're essentially trying to get ahead of problems. The earlier that anticipated problems are tackled, the more options there are for a remedy.