Finance Committee on Jan. 24th, 2022

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 14 of the House of Commons Standing Committee on Finance. Pursuant to the motion adopted in committee on January 12, 2022, the committee is meeting to study inflation in the current Canadian economy.

Today's meeting is taking place in a hybrid format, pursuant to the House order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application. The proceedings will be made available via the House of Commons website. Just so you are aware, the webcast will always show the person speaking rather than the entirety of the committee.

Today's meeting is also taking place in a webinar format. Webinars are for public committee meetings and are available only to members, their staff and witnesses. Members enter immediately as active participants. All functionalities for active participants remain the same. Staff will be non-active participants. They can therefore view the meetings only in gallery view. I'd like to take this opportunity to remind all participants in this meeting that screenshots or taking photos of your screen will not be permitted.

Given the ongoing pandemic situation and in light of the recommendations from health authorities, as well as the directive of the Board of Internal Economy of October 19, 2021, to remain healthy and safe, all those attending the meeting in person are to maintain two-metre physical distancing and must wear a non-medical mask when they are circulating in the room. It is highly recommended that the mask be worn at all times, including when people are seated. Participants must maintain proper hand hygiene by using the provided hand sanitizer at the room entrance. As the chair, I will be enforcing these measures for the duration of the meeting. I thank members in advance for their co-operation.

To ensure an orderly meeting, I'd like to outline a few rules to follow. Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. You have the choice, at the bottom of your screen, of floor, English or French. If interpretation is lost, please let me know immediately so that I can ensure that interpretation is properly restored before resuming the proceedings. The “raise hand” feature at the bottom of the screen can be used at any time if you wish to speak or to alert the chair.

For members participating in person, proceed as you usually would when the whole committee is meeting in person in the committee room. Keep in mind the Board of Internal Economy's guidelines for mask use and health protocols.

Before speaking, please wait until I recognize you by name. If you are on the video conference, please click on the microphone icon to unmute yourself. For those in the room, your microphone will be controlled as normal by the proceedings and verification officer. When you're speaking, please speak slowly and clearly. When you're not speaking, your mike should be on mute. I will remind you that all comments by members and witnesses should be addressed through the chair.

With regard to a speakers list, the committee clerk and I will do the best we can to maintain a consolidated order of speaking for all members, whether they are participating virtually or in person.

The committee agreed that during these hearings, the chair enforces the rule that the response by a witness to a question take no longer than the time taken to ask the question. That being said, I request that members and witnesses treat each other with mutual respect and decorum. If you think the witness has gone beyond the time, it is the member's prerogative to interrupt or ask the next question. To be mindful of other members' time allocation during the meeting, I also request that members not go much over their allotted question time. Though we will not interrupt during a member's allotted time, I'd like to keep you informed that our clerk has two clocks, to time our members and witnesses.

This meeting is scheduled for a longer duration. In consideration of the fact that our witnesses may not get an opportunity to leave their virtual set-up, at around the halfway duration mark I will be suspending the meeting for a five-minute health break.

I would now like to take this opportunity to welcome our witnesses. We have a number who are with us today.

From the Front d’action populaire en réaménagement urbain, we have Véronique Laflamme, organizer and spokesperson. Welcome.

From the Haider-Moranis Bulletin, we have Murtaza Haider, professor, and Stephen Moranis, real estate strategist and columnist.

From the Macdonald-Laurier Institute, we have Philip Cross, senior fellow.

From the National Right to Housing Network, we have Sahar Raza, project manager.

From Scotiabank, we have Jean-François Perrault, senior vice-president and chief economist.

Each organization will have five minutes for opening remarks before we move to members' questions. We are going to start in the order that I just ran through from our list of witnesses.

The Front d’action populaire en réaménagement urbain is first. Véronique Laflamme, you have five minutes.

[Véronique Laflamme, Organizer and Spokesperson, Front d'action populaire en réaménagement urbain]

Good afternoon, everyone. I will be giving my presentation in French.

Thank you for inviting me to appear before the committee.

We know that the increase in housing costs is an important component of current inflation. We are particularly concerned about the plight of renters, who are the most heavily represented among households already spending too much of their income on housing. In the last census before the pandemic, 795,000 renter households in Canada were spending more than 50% of their income on housing, far from the 30% standard. In Quebec, 195,000 renter households were in this situation.

Because the Front d'action populaire en réaménagement urbain, or FRAPRU, is a pan-Quebec grouping of 140 organizations supporting its mission to defend the right to housing, I'm going to talk about rising rents in Quebec, being well aware that tenants in other provinces are experiencing similar problems.

According to data from CMHC, Canada Mortgage and Housing Corporation reports, in 10 years, the average rent has risen by 31% in Quebec, and it has risen by 18.7% in the last five years. The increase in the average rent is therefore meteoric. The shortage of rental units obviously has an impact on rental prices, but real estate speculation, which has increased in some regions during the pandemic, is also contributing to this significant increase.

Vacancy rates are plummeting in several regions. In several smaller cities outside of the major centres, rents have been cheaper until now, but in recent months there have been significant increases in rental costs. These include Rimouski, Drummondville, St‑Hyacinthe, Trois-Rivières and Sherbrooke, to name just a few. Available housing in these areas is extremely expensive.

One figure is very striking. In its latest report on the rental market, CMHC noted a 46% gap between a rented two-bedroom unit and an equivalent available unit. So available housing is 46% more expensive, leaving very few alternatives for tenant households who are forced to move, for example because of separation or because women are fleeing domestic violence, or because tenants are being driven out by often fraudulent evictions, which I will discuss again. This has particular consequences for low and moderate-income households, who are predominantly tenants.

According to Statistics Canada, the median income of these renter households, who are in core housing need, was only $18,000 in Quebec at the last census, and $24,775 in the rest of Canada. This is the income of renter households in core housing need. There are 1.2 million of them in Canada. It is their plight that should be of primary concern when considering the rising cost of rent.

We must also be concerned about the impoverishment of lower middle class renters; their incomes also do not allow for home ownership, and they will increasingly be among the households that spend more than the standard 30% of their income on housing—they need alternatives.

However, first and foremost, we need to focus on those low and moderate-income households that have absolutely no room to manoeuvre and increasingly need to turn to food banks to make ends meet after paying their rent. With inflation and recent rent increases, which will certainly have worsened the situation and will add to the numbers in the next census, this is an issue that absolutely must be addressed.

Ottawa has an important role to play. The federal government has a central role to play in ensuring that there are alternatives for all of these households, which currently have none. In the past, the federal government has played a role in funding non-private-market social housing in the form of co‑ops, non-profits, and low-income housing we call HLMs. The government's withdrawal from long-term funding has left a significant hole. Unfortunately, the partial return of the federal government through the national housing strategy has not produced the desired results, because this strategy relies too heavily on the private sector, and the initiatives funded by this strategy focus too heavily on affordable housing without dedicating money exclusively to social housing, as had been the case in the past.

At this time, the housing funded by several national housing strategy initiatives results in housing that is absolutely unaffordable for those households in core housing need. This also contributes to the rise in housing costs.

In our view, it is not by subsidizing the construction of rental housing by the private market, whose mission is to make a profit, that the federal government will help to end the current inflationary spiral. This objective would be much better achieved by introducing social and community housing projects and by allocating the money currently spent on housing affordability exclusively to non-private-market housing.

According to the latest report of the Parliamentary Budget Officer, $3.3 billion per year is currently allocated to housing affordability. We believe that all of this money should be used to fund non-private-market initiatives and to fund social housing. Yet, at the moment, only one federal initiative is dedicated exclusively to non-private-market housing, the rapid housing initiative.

I thank you very much for your attention.

I would like to mention that we are members of the National Right to Housing Network. Finally, since I did not have time to speak about housing rights issues, I would like to say that I support what my colleague, Ms. Raza, will say later.

[The Chair, Liberal, Peter Fonseca]

Thank you, Madame Laflamme.

We will now move to the Haider-Moranis Bulletin for five minutes.

[Stephen Moranis, Real Estate Strategist and Columnist, Haider-Moranis Bulletin]

Thank you, Mr. Chairman and honourable members of the standing committee. My name is Stephen Moranis. I'm a former president of the Toronto real estate board and a former director of the Canadian Real Estate Association. I am here today with Dr. Murtaza Haider, a professor of real estate management at Ryerson University.

Together we write a weekly column for Postmedia, which is available as the Haider-Moranis Bulletin. The column appears weekly in the National Post and occasionally in newspapers across Canada, including the Ottawa Citizen. We are grateful for the opportunity to share our analysis and insights about the determinants of the rapid increase in housing prices since 2000 in Canada.

Housing prices have grown even more rapidly during the pandemic. The average housing price in Canada increased from $164,000 in 2000 to $502,000 in 2019. According to the data compiled by the Canadian Real Estate Association, the average housing price reached $567,000 in 2020 and $688,000 in 2021. While several factors have contributed to the rapid escalation of housing prices in Canada, including ultralow mortgage rates, we believe that the primary cause of the rapid house price escalation is the imbalance between demand and supply. In particular, the construction of new housing in Canada has not kept pace with the increase in the demand for housing.

The gap between the supply and demand for housing has not emerged overnight. We have traced data back to the early 1970s and found that the rate of construction, normalized by population, has declined considerably over the past five decades. To put things in perspective, in the early seventies, Canada was constructing over 10,000 new homes per million population each year. The rate of housing construction declined over the decades to nearly half—about 5,000 to 6,000 new homes built per million population in the past few years.

A temporary increase in housing starts might give a false impression that the housing supply is catching up. However, the housing deficit has accumulated over several decades, and a few thousand additional homes constructed in one year are certainly not sufficient to address the gap accumulated over decades. A recent research brief published by a major Canadian bank revealed that, if Canada were to have the same housing stock ratio relative to its population as is the average for G7 countries, Canada would require an additional 1,800,000 dwellings today. We estimated that if Canada had continued to build housing at the same rate as in the early seventies, over four million additional homes would have been built.

The predictable increase in housing demand, which is supported by a steady and predictable increase in population, requires a significant increase in the rate of housing construction to meet the housing needs of the growing population and address the housing deficit accumulated over the past few decades. Even in places, especially some large urban areas, where housing construction has strived to keep pace with the additional housing demand, the type of housing being built is essentially condominiums or small-sized dwellings that are not ideally suited to house growing families.

We would like to use this opportunity to highlight the need to accelerate the supply of new housing in Canada at rates far above the rates observed in the recent past. We recommend streamlining land development approval processes to consolidate decision-making under one roof, where all relevant stakeholders from local, provincial and national governments are represented, to reduce the approval processes that can take several years in some instances.

A national housing policy that brings together stakeholders from all tiers of government to increase the supply of housing, paired with an increase in combined-level government spending on affordable housing, financial guarantees and targeted support in regions of especially high demand, is a must to improve housing outcomes for all Canadians.

The construction of purpose-built rental housing took a nosedive in the early seventies when capital gains tax was first introduced. There is a need to reconsider the taxation regime, which might have served as a disincentive to constructing the purpose-built rental housing that is essential for the security of tenure and affordable rents of almost 30% of Canadians who live in rental housing.

We have submitted to the standing committee our report on the housing challenges published recently by the Macdonald-Laurier Institute. Again, we thank you for the opportunity and are available to answer any questions that you may have.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you very much, Mr. Moranis.

We'll now hear from the Macdonald-Laurier Institute. We have Mr. Cross with us.

[Philip Cross, Senior Fellow, Macdonald-Laurier Institute]

Thank you.

Most analysts discuss inflation with an air of precision and certainty. I would like to speak about the uncertainty and the unknown surrounding our understanding and measurement of inflation. I'm passing on note that I worked at Statistics Canada for 36 years, ending as its chief economic analyst.

For several reasons, we don't know what the current rate of inflation is, although it clearly is faster than before the pandemic. This is because, first, the coverage of the CPI is incomplete. For example, used cars are excluded from Canada's CPI but not the U.S. one, and shortages have raised used car prices substantially during the pandemic.

Second, more broadly, the CPI does not attempt to measure the impact of shortages, which are clearly a cost to consumers in terms of choice, convenience and price. The CPI was designed for an economy characterized by abundance and not shortages. For example, car companies will produce more expensive models due to chip shortage, but the CPI will miss this shift in production.

Third, statistical agencies measure the CPI differently. I just mentioned used cars. Housing, the largest part of the CPI, varies between countries and even within statistical agencies over time. The U.S. and Canada treat housing differently today, and both nations have changed their measure of housing prices since the 1980s. There is no wrong or right in this, but it reflects the—

[The Chair, Liberal, Peter Fonseca]

Mr. Cross, I apologize. Can you raise your mike a bit?

Mr. Clerk, is it better for the interpreters now? Okay.

Thank you. I apologize for the interruption.

[Philip Cross]

Thank you for the correction.

As I was saying, the U.S. and Canada treat housing differently, and both nations have changed their measure of housing prices since the 1980s. There's no right or wrong in this, but it reflects that a discretion of judgment is involved.

Fourth, the CPI itself is a limited measure of inflation. For years, the Bank for International Settlements has urged central banks to look at the price of financial assets and not just the CPI, partly because, rather mysteriously, much of the post-2008 stimulus appears mostly in the price of financial assets and not the CPI.

Statisticians don't know precisely what inflation is, nor can economists be sure where it is headed, although it seems likely to stay elevated for some time. Daniel Tarullo, former governor of the U.S. Federal Reserve board, wrote how economists don't have a working model of inflation. While inflation is clearly related to the money supply, defining the latter is difficult, and its relationship to inflation is imprecise and variable. The Phillips curve relating inflation to unemployment has been broken down for years, if not decades.

Finally, expectations have proven to usually react to and not predict inflation, although rising expectations today will help reinforce inflationary pressures as workers demand higher wages to compensate for lost purchasing power, making it harder to rein in inflation.

Kevin Warsh, also formerly with the U.S. Federal Reserve board, recently wrote in The Wall Street Journal that it is misleading to dismiss inflation as just “supply-chain bottlenecks”. Saying that consumer prices are higher because “prices are rising at the points of production, assembly and transportation” describes the manifestation of inflation but “not its source”, which is excessive fiscal and monetary stimulus. Monetary stimulus actually damages aggregate supply by discouraging investment.

Anyone who states they know precisely what inflation is and where it is heading is exaggerating. Unfortunately, economists routinely exaggerate or fail to acknowledge the limitations of their understanding of how the economy functions. This is especially true when it comes to price inflation.

I look forward to your questions.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Cross.

We're now moving to the National Right to Housing Network, with Ms. Raza for five minutes.

[Sahar Raza, Project Manager, National Right to Housing Network]

Thank you.

Good afternoon, Mr. Chair and members of the finance committee.

My name is Sahar Raza. I am the project manager of the National Right to Housing Network, a network of over 350 organizations and experts from across the housing and homelessness sector, including FRAPRU, which we heard from earlier today. We are all dedicated to seeing the meaningful implementation of the right to adequate housing, which Canada has committed to in both domestic and international law.

In fact, it was this very committee that adopted key amendments to the National Housing Strategy Act in 2019 in order to recognize adequate housing as a fundamental human right, so it really is an honour to be here today to discuss how we can turn that transformational human rights commitment into practical solutions that can actually address this housing crisis.

As we know, financialization is a major driver of the housing crisis, because housing is being treated as a profit-making commodity rather than a social good and human right. While increasing supply is certainly important, particularly in rural, remote and northern areas, supply alone will not get us out of this housing crisis. We are losing affordable housing stock at a faster rate than we can possibly produce it, and that means we need to revamp ineffective housing programs and policies to better utilize our current housing supply. We need to close tax loopholes and increase investments in non-market housing, for which our stock is about half that of other OECD and comparable countries.

For starters, we know that large corporate landlords, such as real estate investment trusts, are huge drivers of financialization. They are known for buying up affordable housing stock, “renovicting” low- and middle-income tenants, and then jacking up home prices, which makes housing even more unaffordable. Yet, in a recent study by ACORN Canada, it was estimated that just over the last 10 years these real estate investment trusts have benefited from more than $1.2 billion in tax exemptions, compared to if we were to just tax them like a normal corporation. If we look to international human rights guidelines, they actually tell us that we need to close these types of real estate loopholes and then reinvest that tax money in our national housing strategy. There's a huge opportunity here to simply use the tax money being left on the table to improve our housing supply, to repair our current homes and for programs for people in greatest housing need.

Along that vein, there's also an opportunity here to increase taxes on all private investments or investors who own multiple properties, because, as we've seen, existing homeowners and investors are seeing a major equity gain, which means that they are easily able to take that equity alongside low interest rates and buy even more investment properties or else pass that wealth on to their children, which makes it even more difficult for renters and first-time homebuyers to break into the market. We're even seeing disadvantaged groups experience that disadvantage multiplied generationally.

These are highly inequitable outcomes that violate the right to housing, but again, they can be easily addressed through regulatory and tax measures such as an incremental tax for each additional property beyond your primary residence, or through national speculation and vacancy taxes, all to disincentivize profit-hoarding in the housing market. Again, this money can be reinvested in our national housing strategy to improve supply and so on.

However, I will say now that our existing national housing strategy requires a major rights-based revamp, because its capital funds, like the rental construction financing initiative—which, by the way, holds the biggest price tag of all programs in the strategy—have extremely lenient and short-term affordability guidelines that simply do not target low-income households. Just to exemplify that, many NHS-funded projects are unaffordable for up to 90% of renters. This means that we are actually using government funds to drive the housing crisis instead of addressing the housing crisis.

This could easily be reformed if we just think of some new criteria for these capital funds. For example, we could require that a certain percentage of units be permanently affordable at rents geared to income for every new development. We can implement anti-displacement or anti-eviction regulations. We can implement rent controls. We can dedicate more funds from these capital initiatives to non-market housing.

I will end here, but these are just a few of the practical human rights-based solutions that we can implement today to ensure that every person in Canada has access to adequate and affordable housing, which I think is the goal that we all share here at this table.

Thank you for your time. I very much look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Raza.

Now we are moving to our last witness. We have Scotiabank, with Monsieur Perrault, for up to five minutes.

[Jean-François Perrault, Senior Vice-President and Chief Economist, Scotiabank]

Let me start by thanking members of the committee for the opportunity to share my views with you. Though I am now the chief economist at Scotiabank, I spent the entirety of my career before that working in the policy world. I have deep respect for the role of public policy and the institutions of democracy in our country. With that, I hope that my perspective can be of some use to you as you consider the inflation and housing situation.

There is no doubt in my mind that inflation and housing affordability are key challenges to navigate for policy-makers. The diagnosis on housing-related challenges is a bit more straightforward to assess, given that much of the issue is made in Canada.

There's no doubt that the pandemic and the associated policy responses have contributed to the strength of the housing market. Low interest rates, generous income support programs, and the desire for households to move away from some cities or to look for larger homes in light of the pandemic have all clearly contributed to some of the strength we've seen.

That being said, the overwhelming cause of the deterioration in affordability lies in a structural imbalance between the number of residents versus the number of dwellings to house them. The very rapid pace of population growth observed since 2015 has not been matched by a commensurate increase in the supply of homes, resulting in a decline in the number of homes per capita since 2016.

Canada, as has been noted by another speaker, has the lowest number of homes per capita of any G7 country. That is an admittedly simplistic way of looking at things, but it would take nearly two million additional dwellings in Canada for us to have the same number of homes per capita as our G7 peers.

The solutions to this challenge are clearly multi-faceted and cut across all levels of government. The federal government sets immigration targets and macroprudential policy governing housing finance, but provinces and municipalities ultimately control the pace at which supply is built. In our view, we will not reverse course on affordability unless housing supply becomes much more responsive to demographic pressures.

We take much comfort from the fact that there seems to be a broad understanding of this reality in the public sector, and we're hopeful that policies will be put in place to increase the elasticity of supply. However, the hard reality is that even within the best of scenarios, it is likely to take years before there is a better alignment between the population's needs and what is available to them.

This means that upward pressure is likely to remain in the housing market, which will add to inflation pressure in Canada. There is no question that inflation is well outside the Bank of Canada's inflation control range. The question with inflation, rather, is what is likely to happen with it from here.

Our understanding of inflation has changed over the year. For a time last year, the rise in inflation was largely viewed as temporary as we thought, along with other central bankers around the world, that a major driver of the inflation surge was supply bottlenecks. Simply put, demand for goods had surged, and that was straining the global economy's ability to meet that supply because COVID impacted key producers, or because of transportation bottlenecks and a range of other factors.

Based on the accumulation of evidence since these assessments were made, it appears to be pretty clear that global production and transportation systems have responded aggressively to the strength of demand and that demand is a more powerful driver of inflation than we thought earlier. In our view, that means the inflation pressures are likely to be more persistent. This is a global phenomenon. Canadian policies likely had little influence on that broad outcome. That, of course, is of little comfort to firms and households that are managing the impact of inflation on their lives.

There is, nevertheless, a Canadian angle to inflation. The record number of job vacancies will put sustained upward pressure on wages in the year to come. This will keep inflation pressures up. The cost of new construction will continue to rise, owing to these capacity pressures in the construction sector but also because the cost of raw materials has increased dramatically owing to the global factors noted above.

Perhaps most importantly, it is very clear that Canadian firms and households believe higher inflation will last and remain uncomfortably high, given the Bank of Canada's inflation control mandate. The December survey by the Canadian Federation of Independent Business, for example, finds that small and medium-sized enterprises now believe they need to raise prices by 4.6% over the next 12 months. Recent readings of this survey are the highest, by far, in relation to history.

Inflation control is a pressing challenge that should see the Bank of Canada tighten rates substantially this year. The simple reality is that its real policy rate became more stimulative as 2021 progressed, even if its actual policy rate has remained unchanged. This is because inflation and inflation expectations rose as policy rates remained stable. Those settings need to change.

Thank you for allowing me these brief opening remarks. I look forward to the discussion and to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Perrault.

Thank you, witnesses, for joining us and for your opening remarks and statements.

Now we're moving to questions from members. In our first round, each party has six minutes to have their questions answered. We're starting with the Conservatives and Mr. Poilievre for six minutes.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you, Chair.

My questions will be directed to former Statistics Canada chief economic analyst Philip Cross.

Mr. Cross, when Mr. Trudeau took office, you could buy the typical house for $434,000, according to the Canadian Real Estate Association. Now it's $811,000. That's 85% housing inflation in just six years. Last year, home inflation hit 25%, which the Canadian Real Estate Association chief economist called “the biggest gain of all time”.

Do you believe that the $400 billion of newly created cash that the government, through the central bank, pumped into the financial and mortgage markets and the resulting negative real interest rates on variable rate mortgages had an impact on the record-smashing housing inflation Canada witnessed last year?

[Philip Cross]

I don't think there's any question that it had a contributing and large role. I think Mr. Perrault put his finger on part of the problem. In this country, the federal government operates a lot of the levers that control housing demand, notably through interest rates and immigration quotas, yet the supply of housing is controlled at the provincial and local level. We've had an enormous amount of stimulus go into housing. We've seen a big shift in consumer spending from services to goods. Obviously that has created a lot of inflationary pressures.

[Pierre Poilievre, Conservative, Carleton, ON]

As Mr. Perrault said, housing inflation is homegrown. Bloomberg reports that Canada has the second-most inflated housing market in the world. Vancouver is the second-most unaffordable and Toronto the fifth-most unaffordable market on planet earth, according to Demographia. Obviously, this is bizarre, because Canada is among the countries with the most abundant supply of land on planet earth, so it's strange that we would have such difficulty housing our people or that we would be experiencing such inordinate house price inflation.

Can you blame the inflation in land prices, Mr. Cross, on supply chain bottlenecks?

[Philip Cross]

That's particularly a problem at the local level. It seems to be especially a problem in areas like Toronto and Vancouver, where land is constrained or contained to certain areas. The local governments have been reluctant to increase supply, but we've also seen demand increase sharply.

It's not just a matter of supply. We've seen demand increase sharply. This goes back to 2015, when the Bank of Canada first lowered interest rates. If you look at graphs of housing prices in Vancouver or in Toronto, they weren't doing anything exceptional before 2015. The minute we cut interest rates in 2015 and the oil boom stopped in Alberta, and immigrants coming to Canada stopped going through Toronto and Vancouver and then on to Calgary and just stayed in Toronto and Vancouver, we saw prices in those areas start to explode, and basically that's just continued ever since.

[Pierre Poilievre, Conservative, Carleton, ON]

Right now you can get a variable rate mortgage for 1.6%, which is three points below inflation. In other words, we have negative real rates. We're paying people to borrow big sums at variable rates with very low down payments. Is this contributing to inflating the housing prices?

[Philip Cross]

Again, I don't think there's any question. There's been an attempt to tighten those rules, to increase down payments, to impose stress tests to see if people can afford their mortgages at higher interest rates. People have been able to find other sources of finance, particularly the bank of mom and dad, to easily circumvent these attempted regulations.

[Pierre Poilievre, Conservative, Carleton, ON]

Right, and banking rules, mortgage insurance, monetary policy and money laundering are all federal. So is housing inflation; here and now, under this government, some people are calling it “Justinflation”.

I won't ask you to comment on that, but do you believe that the fact that we have discouraged energy development in Canada—and also meanwhile flooded the economy with extra cash—may have devalued what would otherwise have been a stronger Canadian exchange rate and therefore reduced what would have been stronger purchasing power for internationally priced goods?

[Philip Cross]

That's an interesting point. There was a lot of talk about Canada being a petrocurrency, particularly during the run-up of the dollar to parity in the 2000s. Over the last year, we've seen oil prices recover substantially, from record lows to $85 or $86 a barrel. Then you look at the dollar today, and it has sunk below 79¢ again. Clearly, the exchange rate has not demonstrated the linkage to commodity prices that we have seen in the past.

[Pierre Poilievre, Conservative, Carleton, ON]

On that point, it used to be that the Canadian dollar to the U.S. would be about a penny to the dollar of the oil price. If oil was at a hundred bucks, you'd have parity. If oil was at ninety bucks, Canada's dollar would be at 90¢. That linkage has been broken, and we're no longer increasing the value of our dollar as oil prices go up, which means, of course, that when we buy internationally priced goods that end up on our grocery shelves or in our living rooms, we have a weaker purchasing power with which to do it.

Do you agree that this might be one of the reasons why Canada has 30-year highs in its inflation?

[The Chair, Liberal, Peter Fonseca]

We need a very short answer, Mr. Cross. You have 20 seconds.

[Philip Cross]

Yes, unquestionably. There's something like one third of the CPI that's imported, so there's going to be a direct impact there, particularly in highly visible areas like food and energy.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you.