Evidence of meeting #14 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was inflation.
A video is available from Parliament.
4:30 p.m.
Senior Fellow, Macdonald-Laurier Institute
Broadly speaking, yes. The problem is, though, that when we tried to apply strict monetarism—this idea of Milton Friedman's that we can replace the central banks by a computer and we'll just increase the money supply by 5%—it didn't work. It ended up with tears in the early eighties when we tried it.
The precise relationship isn't there, but there's certainly a broad association.
4:30 p.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
Speaking of Switzerland, which has incredibly low inflation—and by the way, a lot of people think that tight monetary policy runs against the job creation goal—Switzerland has an unemployment rate of 2.6%, a third of the rate of the broader eurozone. By keeping inflation down, they're actually creating more job opportunities for their people.
Switzerland has a lower inflation target than Canada. They target 1% instead of 2%. It's interesting that a country that has done that actually has avoided the worst of the 2008 financial crisis and has had pretty much the best economic results throughout the COVID crisis, certainly among its neighbours.
What do you think about a more strict and lower inflation target?
4:30 p.m.
Senior Fellow, Macdonald-Laurier Institute
Probably in the current situation it's an uncertainty. It's a newness that people don't need to deal with; I think that just getting back to 2%....
The other problem, though—and I would generally go back to my opening statement—is that I'm not at all convinced that.... In fact, I'm sure that the inflation rate in Canada is much higher than 4.8%. If you just added in used car inflation, you'd be approaching 6%, but if you started taking account of shortages, you'd be way north of that.
How are shortages in Canada compared to Europe and Switzerland? I don't know. I think they're probably comparable to the United States. I'd just caution against using the printed inflation rate from statistical agencies.
4:30 p.m.
Liberal
4:30 p.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thanks very much.
I wanted to come back to something that Mr. Poilievre was talking about. I think it's okay to have different points of view after we've interpreted the facts, but facts are facts. Mr. Poilievre was speaking about Singapore. I will read from Trading Economics here:
Singapore's annual inflation rate rose to 4.0% in December 2021 from 3.8% in November and above market consensus of 3.75%, pointing to the highest figure since February 2013. Main upward pressure largely came from cost of food...housing...accommodation...healthcare....
It goes on, so Mr. Poilievre's assertion that Singapore has somehow mastered and avoided inflationary pressures is obviously incorrect.
From BNN Bloomberg, about Switzerland, which Mr. Poilievre was also speaking about, there's the following:
Surging property prices mean Switzerland's residential property market is close to a bubble, according to a UBS Group AG gauge.
The UBS Swiss Real Estate Bubble Index rose to 1.90 points in the second quarter. The cost of residential housing shot up by the most in eight years during the period, the bank said. Mortgage growth also accelerated.
I just wanted to make sure that we're operating in fact here as we're making assertions about what's happening around the world and how it compares to what's happening here in Canada.
Mr. Moranis, I'd like to come back to you, if I could. I listened with interest to your opening statement. During that statement, you said that the primary cause of the increase in housing prices in Canada is the lack of supply. Did I understand that correctly?
4:30 p.m.
Real Estate Strategist and Columnist, Haider-Moranis Bulletin
Definitely we responded that one of the major contributing factors is lack of supply.
I would also like to add that the trading system of how Canadians buy and sell properties is completely contributing to inflationary prices. Last year, on the multiple listings services, which are run by, in essence, private clubs, provincially and/or locally, they are against.... The Prime Minister came out with a good point and said that he wanted to—and it may be extreme—criminalize blind bidding with multiple offers. Trading is legislated provincially, but just in Toronto this last week there was one property that had 65 offers. Over 70% of all properties are selling over asking price. You would not offer over asking price unless there were two or more bids on that particular property.
The industry and the multiple listings systems, and in fact the provincial associations, are against open bidding for multiple offers, which is in the consumer's best interest. Why should someone pay $50,000 or $100,000 more than the second-best offer on a property? It makes no sense.
Whether the industry is made into a Crown corporation or MLS is run by the regulator provincially.... The system is totally broken. It's contributing to inflationary price bidding on individual resale properties, which represent about 70% to 80% of all Canadian-owned residential properties that are sold annually.
4:35 p.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Okay. I appreciate that.
I think I have only about a minute left. A number of you have spoken about the fact that to address the increase in housing prices, multiple levels of government need to be working together. If you had to make a list of the things that need to be done at all three levels, what would be on that list?
4:35 p.m.
Real Estate Strategist and Columnist, Haider-Moranis Bulletin
Well, there are definitely all three levels. There's supply. There's demand. There's trading. Real estate trading is governed by the province. Supply is determined by both the provinces and the municipalities. The federal government has the overview and purview....
I just want to say that history repeats itself. You guys may all be too young to know this, but there was the Wartime Housing Limited corporation, which was the precursor of CMHC. During the war, it built all these houses.
I mean, for goodness' sake, we have one of the biggest countries by land size. The federal government is sitting on tens of millions of hectares of land. Put that land out into the system and figure out what the program is. You could build a million houses a year and create all these new communities that make sense to improve social housing, affordable housing, that was created around World War II.
4:35 p.m.
Liberal
4:35 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Baker. That is time.
We are moving into our fourth round. We have the Conservatives up for five minutes.
Mr. McLean, you have the floor.
4:35 p.m.
Conservative
Greg McLean Conservative Calgary Centre, AB
Thank you, Mr. Chair.
I will note in particular that in Canada—and I think we've heard this clearly from all of the witnesses here today—housing inflation is homegrown. Bloomberg reports that Canada has the second-most inflated housing bubble in the world. The average family must spend two-thirds of their gross income on monthly payments for the average home in Toronto or Vancouver, which, according to Demographia's calculations, are, respectively, the world's fifth and second most unaffordable housing markets.
I look at the papers we're getting. I have a deficit here as far as the actual numbers go. We're looking at the data here, which actually says we need 1.8 million more households in Canada.
Mr. Perrault, I'm going to ask you this question. I was at a housing conference you hosted some time ago, when you noted that 72% of Canadians own their homes. That was a very good thing, but then you jumped to the conclusion that we need more rental housing in Canada.
Well, let me give you a reality perspective on downtown Calgary, where we do have greater than 10% vacancy in our rental housing. We also have more towers going up, being funded by more money coming from we don't know where. This is part of what's building here. We do not have a shortage of housing; we have a shortage of certain kinds of housing, those being single-family homes.
If the solution is to build more houses and we're jamming a whole bunch of new construction costs and limited labour into building a product that is going to have to jump through a bunch of hoops here, including governmental hoops, are we not going to be contributing, in that case, to even more housing inflation?
4:40 p.m.
Senior Vice-President and Chief Economist, Scotiabank
It's a double-edged sword. We're caught between a rock and a hard place here. The simple reality, as you point out, is that there is at present.... Even if we could get municipalities and provinces, everybody, lined up and we said, “Build whatever you want and wherever you want”, the reality is that, even in that world, there's a shortage of workers and a shortage of materials. If, in that system, you throw in “Let's build 500,000 more homes a year”, currently doing that is inflationary. Sure, it would help over the long run.
The only way to restore some level of affordability, at the end of the day, is to have the right number of homes for the number of Canadians who are out there, and the right kinds of homes: rental or owned, it doesn't really matter. To get to that place—many years from now, probably—you're going to have an interim of stretched supply chains and a stretched construction industry that is going to create more problems.
4:40 p.m.
Conservative
Greg McLean Conservative Calgary Centre, AB
Let's look at the actual data that I have in front of me right now. The year-over-year change in the MLS home price index diverged between single-family homes and condos. Condos started to go down, in terms of the year-over-year increase, at the beginning of the pandemic. Single-family homes of course skyrocketed. We have a creation here of the wrong product on the market at the wrong time.
Does it mean we're short of housing units in Canada, when I have a 10% vacancy in condos in downtown Calgary?
4:40 p.m.
Senior Vice-President and Chief Economist, Scotiabank
We are. There's no way.... It is true that in certain markets supply and demand conditions are better met. That's true in Quebec, for instance. Quebec doesn't have nearly the same problem as some other provinces do on the housing side.
As a nation, there is clearly a deficit of supply relative to demand.
4:40 p.m.
Conservative
Greg McLean Conservative Calgary Centre, AB
To go back to that Vancouver and Toronto issue, where a single-family home costs more than $1 million—$1.1 million—you think that's really where the problem is focused in Canada. Are we looking at potentially the fact that every one of these sales that have happened during the pandemic...? Thirty per cent of these are actually second homes for families, so they're investing in these properties, as opposed to buying them to live in.
4:40 p.m.
Senior Vice-President and Chief Economist, Scotiabank
Presumably they're investing to rent. At the conference you're talking about.... One of the implications of decreasing affordability is that increasingly folks are going to have to rent as a living arrangement. If you can't afford to buy and you can afford to rent, you're going to rent.
In that world, unless you fix affordability, there will need to be de facto more investors in the marketplace, more people owning a number of units for them to be rented out.
4:40 p.m.
Conservative
Greg McLean Conservative Calgary Centre, AB
Exactly. If you drive up the cost of the affordability of a home, as the monetary and fiscal policies of the government over the last handful of years have done, you've effectively created a problem on your own.
This isn't something where you didn't see the lever ahead of time: “Let's spend a whole bunch of money and we won't create inflation.” I think most economists would say that the insertion of half a trillion dollars into the Canadian economy—a $2-trillion economy—is, by definition, going to create inflation. Would you agree?
4:40 p.m.
Senior Vice-President and Chief Economist, Scotiabank
That was by design, though. When you stimulate, you're doing that to try to raise economic activity and raise inflation.
4:40 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you.
We are moving to the Liberals and Ms. Chatel for five minutes.
4:40 p.m.
Liberal
Sophie Chatel Liberal Pontiac, QC
Thank you, Mr. Chair.
I have just a quick follow-up on Mr. McLean. I would like to hear Mrs. Raza's opinion on whether she believes the only shortage right now in housing is for single-family homes.
4:40 p.m.
Project Manager, National Right to Housing Network
Thank you for raising that.
As we have discussed, I think for social housing there's definitely a shortage. We are seeing shortages in single-family homes as well. I will say that the point made about how condos are being overdeveloped in place of single-family homes, that is a trend we're seeing. A lot of our community partners have mentioned that, for example, you'll see a family of new immigrants shoved into a one-bedroom condo—seven people living in one bedroom. You see that with folks who are renting and have to put over 30% of their income towards their rent and they're still sleeping in one-bedroom apartments.
I do think that the type of supply is a major issue that we're seeing. Again, that's why we tend to go to human rights guidelines. It sounds very airy-fairy, but it's all about looking at people's needs and then building housing according to those needs and creating guidelines and criteria for housing that address those needs directly.