Finance Committee on Jan. 21st, 2022

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

Thank you for your response.

Also related to inflation, are any other areas of the economy cause for concern right now due to the impact of rising interest rates on the financial system?

[Peter Routledge]

Mr. Chair, thank you for reminding me that I hadn't answered that part of the question.

In our world, we worry about financial services. To be candid, I don't spend a lot of time on other sectors, just to be clear.

Insofar as inflation might soak up the savings of Canadians who borrowed in order to own their homes, we have the margin of safety from the minimum qualifying rate, which should help with that, and in addition, the savings rates of Canadians have generally risen through the crisis. Although that's not the case for all Canadians and there is some disparity there, with folks who own homes we tend to have a little bit of additional absorptive cushion from the higher savings rates of recent quarters.

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

All right.

Does your office analyze stock price trends? Are current stock prices cause for concern with regard to the stability of the financial system? Is the level of risk for stock prices currently elevated? Is there a great deal of uncertainty? Can we expect a correction for the stock market in the coming months?

[Peter Routledge]

Mr. Chair, I used to be a stock market analyst. I'm not currently.

We at OSFI aren't stock market analysts. What we constantly ask ourselves is, if there is a market correction, do we have the buffers, the capital, the liquidity in the system, to absorb that?

We work hard at an institution-by-institution level. Sometimes they're a little irritated with the amount of safety that we oblige them to put in place. We are confident that the financial institutions we regulate can absorb market volatility and market uncertainty. We do it at the aggregate institutional level. We also spend a lot of time at the business unit level, the capital markets business unit level at major institutions.

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

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie. That's your time.

We're moving now to the NDP and Mr. Blaikie for six minutes.

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

Thank you very much to our witnesses for being here today.

Mr. Routledge, here's what I want to ask you about. At the beginning of the pandemic, hundreds of billions of dollars in liquidity was made available to the Canadian banking system, ostensibly to be able to provide mortgage relief to Canadians who had lost employment as a result of the pandemic and were going to have a hard time making their mortgage payments. As MPs, I think many of us heard anecdotally that they felt their banking institutions weren't there for them when they were in crisis and needed relief on those mortgage payments.

I'm just wondering if your organization has a way of quantifying the extent to which that extra fiscal room that was provided to banks was used for mortgage relief for Canadians who were having a hard time paying their mortgage, and to the extent that it wasn't used uniquely for that, how much of that money and fiscal room might have been used to finance real estate investment that's partly responsible for these extraordinary increases in housing prices during the pandemic.

[Peter Routledge]

Mr. Chair, there's a two-part answer. With regard to the first part on how we measured accommodative relief provided by the banks through the COVID shock, there were approximately 750,000 mortgagors or borrowers with mortgages who were given mortgage deferrals of six months. That was a very, very high number for accommodation. I recognize that it may not have gotten to every Canadian, but it did address 750,000 of them.

On the question of whether credit has been provided to folks who seek to invest in housing and maybe either buy a second home or buy a home to flip, the honest answer is yes, the banks have provided credit to those homebuyers. Investors, in a recent Bank of Canada study, were estimated to represent about 22% or 23% of home buyers in the last year. A more historic norm would be in the mid to high teens.

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

Thank you.

Does OSFI have a way of measuring the extent to which people who are putting up a down payment for a property beyond their primary residence are actually providing that capital themselves or the extent to which they're leveraging equity in existing properties in order to make a down payment on a subsequent property?

[Peter Routledge]

Mr. Chair, the underwriting decisions—and that is an underwriting decision—are decisions for the banks, but we're not disinterested in those. We have a principles-based regulation system. We do not assign the banks rules but we assign the principles and expectations we expect them to meet.

We do that primarily through something called guideline B-20, which sets out the principles we expect the banks to adhere to when they underwrite residential mortgages. The question you pose is the question we expect them to address when underwriting each and every mortgage, and then usually annually we have a special conversation with lenders and ask them how they are doing on those expectations.

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

We've seen a number of reports over the last number of years, but even as recently as this fall, by the Parliamentary Budget Officer saying that we're at a point now in Canada where 1% of the population owns and controls 25% of the wealth that is generated in the Canadian economy.

The reason I raise that is to ask, notwithstanding the liquidity provided to banks at the outset of the pandemic, what is your assessment of the amount of private capital and large savings on the part of a small, wealthy contingent that could be mobilized to drive a serious level of investment in the housing market? I'm referring to the wealth that existed prior to the pandemic. We know that housing inflation or costs were a problem pre-pandemic. We've seen an acceleration of an already vicious trend line, but to what extent are other forms of private capital out there providing the impetus for some of these massive housing price increases we're seeing?

[Peter Routledge]

Mr. Chair, our responsibility as the prudential, financial institutions regulator is to ensure that there is capital and other margins of safety so that credit quality remains high and available to Canadians when they need it.

We're not the office to do an in-depth study on sources of capital. There are other institutions within the federal safety net network that would focus on that.

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

Thank you.

If I have some time remaining, Mr. Chair, I'd like—

[The Chair, Liberal, Peter Fonseca]

You have 50 seconds.

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

All right, then very quickly to Ms. Bowers, I wonder if you have this information with you today and, if not, maybe you could follow up with the committee. Prior to the cancellation of the national housing strategy in the mid-1990s by the then-Liberal government, CMHC was very much involved in regularly delivering new social housing units regularly, every year. That predictability of funding made it easier for non-profits, co-operatives and others to acquire land and to do planning so they could develop proposals proactively rather than trying to react when land or buildings became available.

I'm wondering if you could give us a sense of the number of units that CMHC helped to create at that time versus their average number of units per year over the last 25 years or so.

[The Chair, Liberal, Peter Fonseca]

Could you do that with a very short answer, Ms. Bowers? Thanks.

[Romy Bowers]

The very short answer is that during the time you refer to, about 10% to 15% of the housing starts were social housing starts funded by the federal government, and the percentage right now is much lower. To give you a sense, 10% to 15% of say 200,000 is 20,000 to 30,000 units per year.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Members, we're moving into our second round of questions.

We'll start off with the Conservatives for five minutes.

Mr. McLean, you're up.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, Mr. Chair.

Welcome, Ms. Bowers. Thank you for coming here today.

I have some questions that follow on from the line of questioning I had on Monday, when this we met on this for the first time. It's regarding studies that you've been doing through your idea labs in your organization.

I did a little homework on this. You have 47 solutions that are in process right now. You're spending $30 million on these idea lab solutions. One of the ideas that came forth was from a gentleman named Paul Kershaw, of Generation Squeeze out of Vancouver, recycling more or less his own thesis and putting it forward as a solution for the Government of Canada to increase housing supply. Even though the objective and the goal of these idea labs is to increase housing supply, Mr. Kershaw of Generation Squeeze had no solutions that were going to increase housing supply. They were going to increase taxation of housing in Canada.

Can you tell me how something that's just going to increase taxation was vetted through a program that was supposed to look at increasing supply, please?

[Romy Bowers]

With respect to the solutions lab, you're absolutely right. The solutions lab is a program really to encourage stakeholders to look at innovative solutions to the housing problems we face in Canada. I do want to reiterate that there is no requirement by the Government of Canada or CMHC to adopt any of the proposals that come out of the lab's reports.

In terms of the Generation Squeeze report, one of the recommendations they put forward was tax-related, but it's my understanding that there were a number of other recommendations as well. The purpose of the Generation Squeeze report was to examine issues related to housing, wealth and intergenerational inequality. I think there was one tax-related item, but there was a whole host of other recommendations that were considered by that group.

[Greg McLean, Conservative, Calgary Centre, AB]

Okay. Thank you. He does talk about this intergenerational inequality. He does make an excuse for it, even though his thesis predated the ballooning of government debt: he said ballooning government debt is the reason we have to address this, because we're passing on a whole bunch of debt to a future generation.

This is one of those things.... Does CMHC recognize that by taxing primarily seniors when they sell their houses, they're actually taxing one of the main savings vehicles that senior citizens in this country have to abet their retirement at that point in time? Is that recognized at CMHC?

[Romy Bowers]

CMHC has done no work on the topic of the capital gains tax and the impact of taxation on housing. Unfortunately, I'm not in a position to answer this question. My apologies.

[Greg McLean, Conservative, Calgary Centre, AB]

Okay.

Can you tell me how much Generation Squeeze was paid—not once, but potentially twice—by your organization to advance these ideas through your organization?

[Romy Bowers]

The entire solutions lab is a $24.5-million program over 10 years. It's my understanding that for Generation Squeeze, I think, the amount of funding was in the range of $250,000.

[Greg McLean, Conservative, Calgary Centre, AB]

Was that once or twice?