Finance Committee on Jan. 24th, 2022

[Pierre Poilievre, Conservative, Carleton, ON]

Well, that's a pretty clear answer. We're not used to getting such unequivocal responses as that.

[Jean-François Perrault]

I can equivocate if you want, but....

[Voices]

Oh, oh!

[Pierre Poilievre, Conservative, Carleton, ON]

No. They say that economists have two hands for a reason—because they like to say “on the one hand” this and “on the other hand” that—but you were very direct, and it makes sense. When you have more dollars chasing fewer goods, it drives up prices.

Mr. Moranis, in the year leading up to fall 2021, there was an increase of $200 billion, or 80%, in the dollar volume of housing purchases. The dollar volume went from the normal $250 billion per year to suddenly, out of nowhere, $450 billion. Now, this was during a time period when the economy was actually weak. The GDP was still smaller than it had been in 2019. Real wages were down. Immigration was down. All of the things that normally drive inflation were actually down, yet from somewhere we got 200 billion extra dollars to spend on real estate.

Now, put aside the debate about the underlying causes for Canada's high real estate prices for a moment. We all agree, though, that money did transact. It actually did. People did move money from the buyer's account to the seller's account, so 200 billion extra dollars found their way into housing. From whence did that money magically appear?

[Stephen Moranis]

I'm going to defer to Professor Haider to help me with this answer.

Go ahead, Murtaza.

[Murtaza Haider]

Thank you.

Unlike coffee or groceries that you buy with cash, housing purchases are financed by debt, and the residential market constitutes the largest segment of household debt that we have. If there is additional money that you see, it's most likely the money that is borrowed for the purchase of housing.

[Pierre Poilievre, Conservative, Carleton, ON]

It was debt. Okay. Let's follow this back a little further and reverse-engineer this. We realize that the buyers got it by borrowing it, but everything comes from somewhere. Where did the banking system suddenly get an extra $200 billion that it could lend out for five-year periods? It can't have come from deposits, because those of course are short term, and even short-term bursts in deposits can't be relied on for long-term loans.

Where would that $200 billion have come from?

[Murtaza Haider]

I would defer to Mr. Perrault, who is the chief economist of a bank. He would know where that money came from.

[Jean-François Perrault]

I may be the chief economist, but I'm not the treasurer.

Listen, it comes from a number of sources. Banks borrow, just like everybody else. We borrow deposits, which have risen a tremendous amount during the pandemic. Both personal and non-personal deposits are up by several hundred billion dollars. We also borrow in credit markets and we use some of our own funds. That's, generally speaking, how that activity is financed.

[Pierre Poilievre, Conservative, Carleton, ON]

Right, but given that the GDP was smaller and money really represents the underlying goods and services in the economy and we were producing fewer of those goods and services, and given that you already lent out your basic $250 billion for mortgages, where did the extra $200 billion come from? That's the mystery. It's not a mystery that you would have the normal funds that banks have in a given year from their deposits, but there's an extra $200 billion that seemed to appear and to lead to inflating housing prices.

[Jean-François Perrault]

Yes, I'm sorry. I'm not 100% sure what you're getting at, and I'm not familiar enough with the bank's financing operations to be able to give you the right answer in conjunction with that—

[The Chair, Liberal, Peter Fonseca]

Thank you.

[Pierre Poilievre, Conservative, Carleton, ON]

If I could conclude—thank you, Mr. Chair—it's just that the massive increase in lendings appeared right after the Bank of Canada began its money-printing quantitative easing program and the house prices began rising as well right after that occurred. Would that be a coincidence?

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Poilievre. That's your time.

We are moving now to the Liberals and Ms. Dzerowicz for seven minutes.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I'm going to focus a bit more on solutions. The first question is for Mr. Moranis.

Mr. Moranis, we have announced a $4-billion housing accelerator fund. The idea, our goal, is to build 100,000 middle-class homes by 2025. That's in addition to everything else we've announced over the last few years. What we're trying to do is get the money to cities that are going to build more than what cities have historically planned, that are going to minimize approval times, that are going to tackle Nimbyism and establish inclusionary zoning.

How can it be designed to remove barriers for municipalities that want to create more housing stock more quickly? How do we design this fund so that we can get it to work right away?

[Stephen Moranis]

Well, let me refer to a couple of things. I'll start the answer and then I'm going to turn it over to Murtaza.

In 2014 and 2015 there was a pilot project in Ontario whereby when developers brought in proposed redevelopments. They had their architects and they had their engineers with their stamps, approvals and recommendations. The municipalities put in a pilot project, which was there and gone very quickly, and they would take the engineers' and architects' stamps as long as they got insurance and did not redo that work by municipal engineers and architects. There's been a complete bottleneck in the approval process at the municipal level.

In Ontario, it used to be that Tarion would give a home builder warranty. Now, as of February 2021, a new thing called an HCRA licence is required. This could delay builders by up to another nine months to a year. Everyone is trying to protect themselves, and we have these delays.

There's no simple solution, because we have three levels of government autonomously and independently operating. It's an incredible bottleneck and roadblock.

Murtaza, help me with the end of this answer, please.

[Murtaza Haider]

Thank you. I will if I may.

The challenge here is that the public anger is directed at the federal government and not at the local municipal governments. There is no Canadian housing market. They're all local housing markets, and your neighbourhood's prices go up and down. Nimbyism is local. People's reluctance and resistance to new development in their own neighbourhoods is a root cause.

We know about NIMBY—not in my backyard. There is also a thing called NIMTOO—not in my term of office. That is what happens with local governments when local councillors realize that their electorate is resisting new construction. They say, “It's a great plan to have a new building, but not in my term of office.” Put NIMBYs and NIMTOOs together and you are in this situation.

The challenge can be resolved only if the federal government and provincial governments—because municipalities are creatures of the provinces—take a bigger role in the land development approval processes. The federal government and provincial governments are taking all the blame for housing prices. If that is the case, then they should take a bigger role or ask for a bigger role in land development processes to get rid of the bottlenecks that are creating this humongous challenge of not building enough houses.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you to both of you. That's very helpful, just because we are trying to get to some solutions as to how we should design this program so it's most effective.

Professor Haider, I'm going to continue with you. I know we started talking a little bit about blind bidding. Can you maybe talk about the government's proposed plan on blind bidding? What impact will that have on the housing market? Do you think it will be a positive impact?

[Murtaza Haider]

There are two ways of looking at it. One is the element of fairness. I think that addressing blind bidding will improve fairness, because the real estate industry owes fairness both to sellers and to buyers.

As far as its impact on housing prices goes, I'm afraid it would have a limited impact, if any, on the overall housing prices nationally. It may have a local impact, but that impact would not aggregate into a bigger noticeable impact on housing prices Canada-wide.

The principle of fairness is at play here. For that purpose, I think blind bidding has to be structured in a different way.

[Julie Dzerowicz, Liberal, Davenport, ON]

So you do support our ban on blind bidding. You think that's a positive development moving forward.

[Murtaza Haider]

I'm not in favour of criminalizing it; I'm in favour of having stakeholders come together to address it, to look at the implications of continuing with it and to come up with a way to address it. I am in favour of eliminating it or reducing it, but not of criminalizing it.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay. That's great.

I'm not sure who to address this one to. I'm not sure if it's you, Mr. Perrault. I think everybody knows this. I wonder if we also need to have a little bit of a shift in thinking as well within the marketplace. I'm not quite sure how we go about doing it.

We do see a lot of people buying property just for investment purposes. We see many people use their homes or condos as RRSPs, as a way for them to save for retirement. I think there's a big bias within our country that we have to buy homes versus finding affordable places to live over a certain period of time.

Do you think we need to have some sort of shift in thinking around housing? As we're moving forward, do you think we should also be thinking about how to ensure that everybody has a safe, accessible, affordable place to live?

Mr. Perrault, I'll start with you and then see if anyone else wants to respond to that.

[Jean-François Perrault]

Sure. Thanks for that question.

Yes, I totally agree 100%. When we look at home ownership rates in Canada relative to other countries, we are on the high end of things, particularly when you compare them to more expensive places. For whatever reason, we have this mentality, this desire to own homes. One of the reasons may be the tax advantages of owning a home versus renting. You are accumulating assets in a sheltered tax environment, so there is an undeniable financial incentive to want to own rather than rent.

You can get around that by thinking about the tax code. I wouldn't be in favour of changing the treatment of owned homes, but you can think about tax advantages to renters to try to equilibrate the home owning versus rental decision because, in my mind, we are going to go into that world. The simple reality is that people are being priced out of owning a place, but they have to stay somewhere, so they have to rent.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, Ms. Dzerowicz. That is the time.

We are moving to the Bloc and Monsieur Trudel for about three-plus minutes.