Finance Committee on June 13th, 2024

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you. Just on coordination, we have been working very hard to try to better coordinate with our provincial and municipal counterparts. We have provided incentives at both levels.

Can you be specific about what you think you need to see improved that we're not doing right now in terms of coordination?

[Robin Griller]

Sure. Here's one of the fundamental things: What am I good at? My team is good at running supportive housing and affordable housing for low-income Canadians with disabilities. That's what we're good at.

We're not experts in housing development, so when we have to do all the work around development preparation—so architects' drawings, permit access, working with the city to eliminate fees associated with development and all that stuff—we have to hire external folks to work with us often, and we spend much of our senior management time on those development pieces. Ideally, there would be a government institution through which the three levels of government could work together on that, so we wouldn't have to.... When you think about it, when a private developer develops a building, that's what they do for a living, the development piece. Since their model generates a profit, it doesn't matter how much they put into it in resources in advance to develop it, as long as they make a profit in the end.

Since we're non-profits, all those resources—

[Julie Dzerowicz, Liberal, Davenport, ON]

Mr. Griller, thank you so much. I think I got your point, and I think it's an excellent one.

I'm going to end with Mr. Condon.

Thank you so much for your presentation. I'm sorry you didn't finish.

First of all, I really appreciate your indicating that the rising cost of housing is a global problem. It's happening right around the world.

You mentioned two very key recommendations to us, and I think you had many others. One recommendation was to stop incentivizing private investors. I think you also made a recommendation around land speculators. Would you able to elaborate a little on both of those in terms of what we need specifically to do?

Thank you.

[Prof. Patrick Condon]

Sure. As I mentioned in my presentation, land is the problem. For example, in Vancouver, land is sold by the buildable foot. It's between about $600 and $800 per buildable foot, while construction is between $300 and $400 per buildable foot. The problem, really, in my view, has to do with land and the out-of-control price of land.

In response to the previous speaker, there's a lot of information out there that if you have free land, you can build affordable housing. The rents will cover the amortization of the mortgage, maintenance costs and so forth. We don't have free land, though, so what do we do?

It can be done a couple of different ways. One way that I promote is what the City of Cambridge has done. They have said that they will allow double density in any part of the city above the existing zoning, but in return for 100% affordability. What that does is create a market for non-profit housing providers that is not in competition with the market providers, because that extra bonus in land value only goes to the non-profit provider.

Now, each different city would have to look at their own economics separately. Adding CMHC funding, as the previous speaker mentioned, would be a good way to support that, but the key point I'm making is that the problem here is not the cost of building. The building might have increased in cost by 30%, as was just mentioned, but the cost of the land has increased by 500%. Policy mechanisms are available, notably through zoning and development charges, to manage land price.

[The Chair, Liberal, Peter Fonseca]

Thank you, Professor Condon and MP Dzerowicz.

MP Ste-Marie, go ahead, please.

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

Thank you, Mr. Chair.

I would like to welcome all the witnesses and thank them for being here to give us their informative views. We certainly appreciate it.

My questions are for the representatives of the Corporation des propriétaires immobiliers du Québec, or CORPIQ.

Before I get to my questions, I would like to respond to Ms. Dzerowicz about coordination between levels of government. What we see in Quebec is that between the time the money is allocated through the budget and the time it is transferred and gets to people on the ground, two or three years have gone by. In light of the current housing emergency and the increase in costs, an expedited process and better coordination would do the greatest good.

On that note, I'll turn back to the CORPIQ representatives.

Thank you for all the points you raised in your presentation. If I understand correctly, we'll receive your PowerPoint presentation once it has been translated into both official languages. We will read it with great interest.

I want to start by going back to the change in the capital gains inclusion rate. I think it could lead to unfairness. There's a bill coming this summer, and we should be examining it this fall. We would certainly like to invite you back for that. The goal is to create a fairer tax environment for people like nurses and construction workers in relation to millionaires, who pay a lower tax rate thanks to capital gains deductions. We are in favour of the principle.

However, there is a negative impact, and your members are often affected, unfortunately. You said that 82% of the country's rental apartments in two- to five-unit buildings are in Quebec. That's the Quebec model. We're talking about a few small units. People very often use it as a pension fund. They pay for their multiplex their entire lives and then sell it when they retire. It's their pension fund. Now these people are being penalized.

I would like you to say a few more words about that and propose solutions that the government could consider this summer when drafting its upcoming bill.

[Paul Cardinal]

That's a very good question.

You're right, it penalizes people who own small rental buildings in Quebec. A very high percentage of them are middle class. Often, they live in the building and have tenants, whom they naturally have to manage.

When the change in the capital gains inclusion rate was announced, there were stories in the media about people who were earning very little, $60,000 or $70,000 a year, but still managed to buy a multiplex. However, that was 30 years ago, and they paid into it all their lives. Now that is what they are counting on for their retirement. The effects can be quite harmful.

You also opened the door to a number of solutions. I would like to tell you, first of all, that we are asking that an exception be made for small rental buildings of between two and five units. That is what we'd like to see. If not, there are other possibilities. In some OECD countries, when the capital gain is realized in the short term, the tax rate is much higher. When the building has been owned for many years, the tax rate becomes very low, if not zero. It also has the beneficial effect of preventing flipping and over-speculation.

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

Thank you.

Your first suggestion is to exempt owners of small rental units from the measure. Otherwise, you say that we could look to what is being done in other OECD countries, where the inclusion rate decreases depending on how long the building has been owned. People who use that income as a pension fund would be exempted. We will suggest these solutions to the government and try to bring it on board.

At the moment, there is a $250,000 threshold, below which the inclusion rate remains at 50%. You've clearly shown us that this is insufficient for most of these people. They can't claim the $250,000 deduction every year, but only when they retire. They get it only once.

If we wanted to adjust the $250,000 threshold for a once-in-a-lifetime sale, how much should we set it at to properly protect your members?

[Paul Cardinal]

We've certainly looked into it. It's still a bit arbitrary, but in our opinion, doubling that threshold to $500,000 would avoid a lot of these situations. Making a $250,000 gain on a building you bought 25 years ago isn't exceptional either. Again, if the measure is aimed at the ultra‑rich and not the middle class, one solution might be to increase the $250,000 threshold for multiplex owners.

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

Thank you.

In its communications, the government says this measure is aimed at the richest 0.13% of the population. I discussed this with tax expert Luc Godbout, who had studied the issue. He explained that, in the year a person sells his multiplex, he is part of the ultra‑rich, but only that year. When you look at the same person's income in previous or subsequent years, you see that it's very low. They're often below the median or average. That's their pension fund. The goal of tax fairness is really to make millionaires pay at an equivalent or fair rate compared to what middle‑class people pay, and to exclude them.

Could anything be done about the first disposal of a multiplex by an individual, for example? Do measures of this kind exist in other countries?

[The Chair, Liberal, Peter Fonseca]

We need a short answer, please.

[Paul Cardinal]

All right.

That's certainly a possibility. I haven't seen it in other countries, but by excluding the first transaction, again, we'd be targeting the small owner. Someone with 10 properties, at that point, would still be targeted, but they'd be considered a wealthy person.

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

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

We go now to MP Davies for the next six minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair, and thank you to all the witnesses.

Professor Condon, in your opening statement, you noted that increasing land prices is a global problem, affecting most of the world's major so-called global cities, like Vancouver and Toronto, as you identified.

Can you outline what factors you believe are driving that phenomenon?

[Prof. Patrick Condon]

It appears that the driving factor is the global increase in the asset value of all assets, particularly urban land. Globally, urban land is the asset that is now up to 45% of total fixed asset value. This is the underappreciated fact of the day, in my view. The driver appears to be, first of all, inexpensive money, which became incredibly inexpensive during the COVID experience.

Essentially, free money has been available to go into an asset that you can predictably assume is going to appreciate between 8% and 10% a year, steadily. You have to be stupid not to invest in urban land. It's not the building you're investing in, because a building out in the woods is worthless. It's the building on top of that land that is valuable.

This is why I'm suggesting that it's necessary to target this specifically. There are a variety of ways to do that during the development process. There's also a land tax strategy. Milton Friedman was mentioned by one of the earlier speakers. He is famous for having said that the best tax to use is essentially a land tax, because land is an unproductive part of the economy that is now absorbing way too much of the capital value. Capital is being put into something that is essentially unproductive. As it inflates, it increases the stresses for Canadians.

[Don Davies, NDP, Vancouver Kingsway, BC]

I'm going to focus a bit on Vancouver.

You wrote, in a May 2023 article, the following:

Vancouver-area wages have stayed stubbornly flat (inflation-adjusted) while housing prices (also inflation-adjusted) have climbed by 400 per cent.

You went on:

Part of the explanation is that average wages and home prices are now separating everywhere in most of the developed world. And it does not seem to matter how rapidly new supply is added.

Can you outline why average wages and home prices are separating across the developed world? What's causing that?

[Prof. Patrick Condon]

Basically, it's inequality. It's a 30-year trend globally, where the advantage has gone to, essentially, holders of capital or assets of one kind or another versus the people whose sustenance depends on their wages. There's been a huge separation.

One major manifestation of that inequality separation between wage earners and holders of capital is this consequence. The most important one for ordinary Canadians is the fact that housing has gone out of reach through this inequality problem.

[Don Davies, NDP, Vancouver Kingsway, BC]

Can I put a thesis to you?

If there's a complete disconnect between the local wages in a market and the price of an asset, is that not a sign that, by definition, extra-jurisdictional capital must be playing a significant role? If people here in Vancouver can't afford to buy the house for $5 million on the Westside because it's totally disconnected from what people are making, is that not a sign that there has to be capital coming from outside that market?

[Prof. Patrick Condon]

I like to use the phrase “global capital”, because some of that capital is coming from within Canada and some of that capital is coming from outside. Generally, it's just the assessment about the worth of a particular investment opportunity, be it a condominium or a piece of land. That assessment is based on what you think the return is going to be over time.

Canadians are investing, but people from other parts of the world are also investing in assets they see as favourable. Right now, Vancouver land is one of the most favoured assets to buy, globally. As I mentioned before, you have to be stupid not to buy Vancouver real estate, because it seems to be a dependable way to get 10% a year in appreciated capital value against other options that return only 4% or 5%.

[Don Davies, NDP, Vancouver Kingsway, BC]

Now, some people in this Parliament believe the problem began in 2015. I did some research. The Real Estate Board of Greater Vancouver charted the price of a single detached house from Whistler to White Rock and from Powell River to Maple Ridge—the entire Lower Mainland. Here are the prices: In 2000, it was $400,000. In 2005, it was $600,000. In 2010 it was $1 million. In 2015 it was $1.45 million. In 2024 it's $2 million.

Would you say that the housing crisis in affordable housing began in 2015, or has this been part of a longer-term trend over decades?

[Prof. Patrick Condon]

Well, globally, it looks like 2008. It seems that the recovery from 2008 after the real estate crash precipitated by the U.S. mortgage vehicles was the starting point. You get some ups and downs in various economies, but generally there has been this separation of the asset value of urban real estate versus the salaries of the people in those locations to manage those costs. That's been going on since 2010 or so in a very dramatic way.

I want to emphasize the point that it's almost the worst in the world in the Vancouver region, so we know a lot about it, but it's happening everywhere. Sydney and Auckland, New Zealand, and even Shanghai and places like that have a similar problem. It has to do with what they call the “financialization” of housing, which really means that it's assessed on its ability to appreciate over time rather than how much it's worth to me as a commodity.

[The Chair, Liberal, Peter Fonseca]

That's the time, MP Davies. We're well over.

We are moving into our second round. We don't have enough time for a full second round, but we did start a little late, so I'll allocate four minutes or so for each party with these witnesses.

We'll start with MP Chambers for the first four-plus minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thanks very much, Mr. Chair.

I appreciate the testimony from our witnesses today. I think it's been an excellent panel.

I did provide notice of a motion to the clerk, which has been distributed. I would like to move that motion now, Mr. Chair, as follows:

That the committee hold no fewer than four meetings devoted to a prestudy of the ways and means motion introduced in the House of Commons on June 10, 2024—

That is the capital gains ways and means motion.

—that at least one meeting be held prior to June 25, 2024, and that witnesses may be submitted by each party prior to Friday at 5:00 p.m.

Friday would be tomorrow.

Mr. Chair, we've heard from witnesses today some very important testimony about the impact of this on, in particular, landlords. There is obviously some misunderstanding of the impact of these new tax rules, such that the government, in an effort to start a class war, has made a mistake. They don't understand, actually, that it's landlords, self-employed individuals who incorporate and individuals of modest incomes who will actually be paying this tax or be affected by this tax.

In fact, StatsCan data indicates that for individuals who have $250,000 of capital gains or more in one year, it is almost always an event that is once or twice in a lifetime. That is, data shows that, for example, in 2011, of the individuals who claimed capital gains tax increases in excess of $250,000, two-thirds of those individuals never, ever were in that group again.

The government is correct, then, that 0.13% of tax filers are in this group. The problem is that it's almost a new 0.13% of tax filers every single year. Over 50 or even 75 years, the number of tax filers affected by this tax change are millions of Canadians. It is not the same 40,000 people each year who have capital gains in excess of $250,000.

I think the government's made a fairly large mistake. I think they recognize that. That's why it's a ways and means motion and not final legislation. I think they're considering making carve-outs. In an effort to help the government with its legislative agenda, Conservatives are willing to prestudy legislation.

I'll note that is not normally a practice of ours. We think, frankly, stakeholders deserve to have their voices heard. We know a number of them have come out publicly to say they have challenges with the current legislation.

If the government is considering amendments, perhaps this committee will be able to offer that opportunity to have witnesses provide their testimony.

On one other quick point, of those individuals who have in excess of $250,000 in capital gains in one year, almost 50% have an income of less than $120,000. These are modest incomes. In fact, 10% of those individuals have incomes of less than $20,000.

We think we should study this. We think we should give witnesses an opportunity, and we would like to take the time to do that on Tuesday next week, Mr. Chair.

Frankly, Conservatives would be open to amendments to this motion to increase the number of meetings before June 25. Of course, that's the date this is supposed to take effect. We would also be open to hearing from the minister herself for up to two hours.

I'll note that the motion as it stands right now does not include those things, but if someone would like to make an amendment to that effect, Conservatives would definitely support that amendment.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

I have a speaking order here. I have MP Lawrence, PS Turnbull, MP Hallan and MP Morantz.