Finance Committee on March 21st, 2022

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome, everybody, on this first full day of spring.

Welcome to meeting number 32 of the House of Commons Standing Committee on Finance. Pursuant to Standing Order 108(2) and the motion adopted in committee on January 12, 2022, the committee is meeting on 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 that 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 the webinar format. Webinars are for public committee meetings and are available to only 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 and can therefore only view the meeting in “gallery” view.

I'd like to take this opportunity to remind all participants in this meeting that taking screenshots or photos of your screen is not permitted.

Given the ongoing pandemic situation and in light of the recommendations from the health authorities as well as the directive of the Board of Internal Economy on 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 circulating in the room. As well, it is highly recommended that the mask be worn at all times including when someone is seated. Everyone must maintain proper hand hygiene by using the hand sanitizer provided at the room entrance.

As the chair, I'll 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 the floor, English or French. If interpretation is lost, please inform me immediately, and we will 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 alert the chair.

For members participating in person, proceed as you usually would when the whole committee is meeting in person in a 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 speaking, please speak slowly and clearly. When you are not speaking, your microphone should be on mute.

I remind everyone that all comments by members and witnesses should be addressed through the chair.

With regard to a speaking 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 has agreed that during these hearings, the chair will enforce the rule that the response by a witness to a question should take no longer than the time taken to ask the question. That being said, I request that members and witnesses treat each other with respect and decorum. If a member thinks the witness has gone beyond the time, it is the member's prerogative to interrupt or ask the next question and 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 be interrupting 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.

I'd now like to welcome today's witnesses.

Appearing as individuals are Vivek Dehejia, associate professor of Economics and Philosophy at Carleton University; and Andy Yan, director of the city program at Simon Fraser University. From Bâtir son quartier, we have Edith Cyr, general manager; from C.D. Howe Institute, William B.P. Robson, chief executive officer; from the Ottawa Community Land Trust, Ray Sullivan, executive director; and from the organization The Shift, we have Leilani Farha, the global director.

At this time witnesses will have the opportunity to provide us with five minutes of opening remarks. We will start with the individuals.

Mr. Vivek Dehejia, go ahead, please, for five minute.

[Vivek Dehejia, Associate Professor of Economics and Philosophy, Carleton University, As an Individual]

Thank you, Mr. Chair. It's a real pleasure to be here. Thank you for inviting me.

There's no doubt that consumer price inflation is a major concern in Canada today. When I wrote a warning back in the fall about the inflation problem, it was at about 4.7%, and now we're at 5.7%, the latest number from Stats Canada, which came out last week. These are the highest inflation rates we've seen since the early 1990s. They're rising. The issue is real, pressing and getting worse.

Now, we can all agree that inflation is a problem. I think where disputes arise is in trying to understand its causes and its roots. I'll just say very briefly that, in my judgment, the roots of the crisis go back to the very unconventional policies followed after the global financial crisis: QE, the large-scale asset purchases; interest rates at or near zero; and forward guidance, which is signalling about future policy. In layman's terms, central banks made credit available almost for free and flooded the financial system with cash.

Loose monetary policies had their own perverse effects, which were to distort the real economies of places like Canada and bloat the financial sectors, and, with assets like property in fixed supply, we've had huge asset price inflation bordering on bubble territory. In some places, we've had stock markets at record highs.

I contend that in fact we have two inflation problems: CPI inflation and the asset price inflation that makes, for example, even owning a home increasingly out of reach for poor and middle-class households, and for a big increase in wealth inequality.

Now, today's high CPI inflation is quite simply a response to the explosive growth from the Bank of Canada's money supply. To check the data, M1+, meaning currency in circulation plus chequing accounts, basically, is growing at 14% year on year. That's a jaw-dropping number, well above the 5% to 6% that would be consistent with low, stable inflation. The current interest rate, 0.5%, is well below the Bank of Canada's own estimate of the neutral rate that would keep inflation steady at about 1.75% to 2.75%, so the central bank's [Technical difficulty—Editor]

I would just say that the U.S. Fed has seen the danger signal south of the border. Mr. Powell said last week that he's acutely aware “of the need to return the economy to price stability and determined to use...tools to do exactly that”. Those are pretty strong words.

Governor Tiff Macklem did conclude his remarks here at this committee earlier this month by saying that the bank was going to “control inflation”, but it's hard to understand how the bank can do that in a case where its policy stance is highly inflationary by any measure.

I'll just conclude by saying that inflation is indeed a global problem, but our inflation problem is very much made at home here in Canada. The solution lies at home, and it can't be outsourced.

Thank you very much, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Dehejia.

We are now going to hear from Andy Yan, appearing as an individual, for up to five minutes.

[Andy Yan, Director, City Program, Simon Fraser University, As an Individual]

Thank you so much, Mr. Chair.

Good morning. Thank you for the opportunity to address the honourable members of the Standing Committee on Finance.

I would like to acknowledge that I am speaking to you from the traditional, ancestral and unceded territories of the Squamish, Tsleil-Waututh and Musqueam nations.

My name is Andy Yan. I'm the director of the city program at Simon Fraser University as well as an adjunct professor in urban studies and a registered professional planner.

Inflation in the current Canadian economy is an increasingly serious matter for Canadians. Wages for many have stagnated as the costs of living have continued to increase. This can be most vividly seen in housing. Income has become decoupled from housing prices and rents, not only in Vancouver but increasingly across the country. I will concentrate my comments on my research in housing policy and urban planning in British Columbia, but I think the sobering lessons for the rest of the country are pertinent to this conversation.

For a growing number of young and new Canadians, the dream of home ownership has been going out of reach. For renters, their housing tenure is increasingly precarious, if affordable and livable rent is available at all. Since March 2020, the pandemic has been a disruption in the lives of all Canadians, accelerating economic and urban trends and amplifying pre-existing economic vulnerabilities and inequalities between Canadians.

It's from this overall state that I'm focusing on three observations that I think frame my conversation today. The housing challenges faced by Canadians follow a specific timeline, with specific actions and inactions, and intended and unintended consequences, within the local, national and global actors and practices.

In 1990, relatively speaking, Canadian city regions were remarkably clustered together in terms of housing-to-income measures, largely ranging from between three to five times price-to-household income. Of course, today it's been widely extended. You'll find that a place like Vancouver, based upon the last census, was 11 times that multiple, and most likely with the next census it will be far higher. Underlying this is fundamentally beyond not only inflation but also how fundamentally housing values and rents have really outsped the role of income.

Canada's housing challenges are about not just the delivery of supply but also a combination of changes in behaviours and actors in supply, demand and finance. Outdated and inflexible zoning and land use practices are only part of the problem. The problem of housing and its solutions need to be grounded to the question and the answers around whom we are trying to house. It's clear that there are acute housing shortages for particular populations in Canada. In Vancouver, two-thirds of what gets approved to be built in the city is affordable to only 40% of incomes.

The additional demand types that we've seen emerge in the last 10 years have similarly added additional pressures towards the costs of housing in terms of rent and mortgages. We find that such activities as speculation, flipping and short-term rental—a.k.a. Airbnb—have eroded rental stocks and have made housing in urban, suburban and rural communities across the country go from a difficult situation to one that is worse.

Finance has itself been a major challenge, in terms of our really understanding that housing has increasingly become commodified and financialized. Really, the realm of homes now is having second, third or more homes, and we have Canadians who have no homes at all. Again, within this conversation, one has to note the role of global capital blending in with local lending practices. Within this environment, renters face the prospect of becoming a financial underclass in terms of credit and underfunded retirement.

Third, public policies have an effect. There are no panaceas, but tool boxes can offer instruments that need to be able to adapt to local conditions. While building will take years to achieve at the best of times, there are fundamental changes through which public policy can make a sizable difference.

British Columbia has been able to break a 40-year pattern of ever-increasing vacant and underoccupied units through a mix of provincial and municipal policies on vacant home taxes, speculation and school taxes. In terms of vacant and underoccupied homes, we find that those policies have led to a decline in that population by 8%, while in jurisdictions that don't have these policies—an example would be found in the city of Toronto—numbers have increased by 40%.

Fundamentally, this discussion about housing supply and dealing with the issue of affordability comes at the same time that British Columbia has been able to see starts and completions over the last three years higher than any previous 30 years in the province. Indeed, that is in the most recent set of data.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Yan. There will be a lot of time to inform the members more during question time.

We are moving to Bâtir son quartier with Edith Cyr for five minutes, please.

[Edith Cyr, General Manager, Bâtir son quartier]

Thank you, Mr. Chair.

Good morning, everyone.

I thank the members of the committee for inviting me to testify.

Bâtir son quartier is a social economy enterprise and a non-profit organization whose mission is to meet the housing needs of low and moderate income households through the construction of community housing. To date, we have completed 450 projects totalling 14,000 housing units.

The current context is a great source of concern. The last 20 years have been good for housing, due to low inflation and low interest rates. Despite this, there are currently more than 1.8 million Canadian renter households paying more than 30% of their income for housing, including nearly half a million in Quebec. We have entered a less favourable period that could last. This is therefore a great source of concern for the poorest in society, who are already struggling to find adequate housing and food.

Concretely, in the Montreal metropolitan community, we are talking about a 4.2% increase in rents, which is the highest increase since 2003. The vacancy rate for affordable housing and family housing is barely 1%, whereas the normal break-even rate is 3%. This is compounded by rising construction costs due to supply difficulties, high market activity and labour shortages.

In our projects in 2019, the average construction price was about $180 per square foot. Now, in 2022, it is over $270 per square foot. This means that for a two-bedroom unit, it costs just over $100,000 to build the same unit.

In addition, there is the increase in financing costs due to rising interest rates. For example, for a 1% increase in the interest rate, although there are many nuances in life, you will still have to increase the rent on a unit by $52 per month to not run a deficit, not to mention the increase in heating and insurance costs and other housing-related expenses.

There are therefore consequences for the development of real estate projects, but also for the organizations managing low-rent buildings. In Quebec, the mismatch between rising costs and government funding is paralyzing the delivery of 10,000 housing units, nearly half of which are in Montreal. We sincerely believe that low and modest income households are bearing the brunt of rising costs.

The national housing strategy is an achievement that we can count on, but the investments that flow from it require adjustments to allow us to act adequately and protect the most vulnerable households from a rising cost of living. It would be desirable to reallocate funds to target these households and adapt the design of some existing programs.

We believe that housing production must be accelerated and increased. We want a major housing project, and we believe that cohousing can play an important role as a bulwark against the precariousness of Canadian households by intervening in a sustainable manner.

Thank you for your attention.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Cyr.

We are moving now to the C.D. Howe Institute and William Robson for up to five minutes, please.

[William Robson, Chief Executive Officer, C.D. Howe Institute]

Thank you very much for the invitation to be with you. I hope my observations will be helpful to the committee in its work.

I'd like to say, by way of background, that monetary policy and inflation have been central to my work at the C.D. Howe Institute since I was a much younger person, all through the high-inflation eighties, to the tightening that reduced inflation in the 1990s, and the inflation targeting since then.

I chair the institute's monetary policy council, which offers advice on the Bank of Canada's interest rate settings. Over the period that I've been working on it, things improved. Inflation got lower and more stable. We had fewer episodes of tight and loose monetary policy, which also made the economy more stable. As last week's CPI report underlined—an unpleasant surprise—that achievement is now, at the very least, at risk.

To prepare for our discussion, I have three thoughts.

To start, people hate inflation. I start there, because we sometimes hear that inflation is not so bad. Some economists think people should accept it, and reject the tighter monetary policy that would reduce it. I think those arguments miss the basic fact that people want their money to have a predictable value.

If you ask people how money's value should change over time and how much inflation we should have, most people will say that it shouldn't change. They want it to be like other weights and measures. If we step on a scale, if we're measuring flour for a recipe, or checking the temperature before we decide what to wear, we take for granted that the kilograms, the cups and the degrees are going to mean the same thing today that they did yesterday. That's why governments regulate weights and measures; it's so we can rely on them. People want the same with money.

That's why the high inflation of the seventies and eighties became a political issue. The cure was painful, but the disease was worse. It's understandable that Canadians dislike inflation, and it should be lower.

My second opening comment is going to echo some of the things that Professor Dehejia said. The macro view is that inflation means that money is losing its value. If you have more growth in the supply of money than the demand for it, its value is going to fall relative to the things we spend it on, and that's what's happening right now.

I emphasize that because daily experience doesn't feel like that. We notice that gasoline costs more when we're filling up than it did last time. Go to the store and lettuce is the surprise; last week, it might have been milk. It feels like different products are taking differently sized bites out of our dollar, rather than the dollar shrinking over time.

I mention that because people often focus on what's up lately, as though that caused inflation and as though subsidies or price controls could fix it. We saw attempts like that in the 1970s, but monetary policy stayed loose and inflation stayed high.

I will underline that if you look at the CPI in the latest readings, about three-quarters of the items are up by more than 2% year over year. That's more than at any time in the last 30 years. It's not just specific products; it's a decline in the purchase power of the Canadian dollar.

My last comment before taking your questions is that many advanced economies have inflation rates similar to ours, not because it's inevitable, but because they did similar things in reacting to the pandemic. Choices about monetary policy and fiscal policy got us here, and we are in control of those choices in the future.

To elaborate the point, energy and food are expensive everywhere, supply chains are stretched everywhere, but inflation isn't the same everywhere. It's in double digits in some countries, with Argentina and Turkey as examples. It's above 1,000% in Venezuela, it's about 2% in Switzerland and it's less than 1% in Japan. Inflation is high where monetary policy has been inflationary, and it is low where it has not been.

We're seeing inflation now above our 2% target because our response to the pandemic overshot. I think we need tighter monetary policy to respond to it.

I look forward to any questions you have about that, or any complementary policies that would make it easier or harder, but my closing comment is that we can do it and I believe that we should.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Robson.

Now we'll hear from the Ottawa Community Land Trust and Ray Sullivan for up to five minutes, please.

[Ray Sullivan, Executive Director, Ottawa Community Land Trust]

Thank you very much, Mr. Chair.

I want to focus my statements on how the national housing strategy is impacted by inflation, and its companion, higher interest rates. These are forces that will compromise the goals of the national housing strategy unless the Government of Canada makes adjustments. These adjustments, in my view, will have to be made in the upcoming federal budget.

I'm speaking to you from the unceded territory of the Algonquin Anishinabe people. I'm grateful for the opportunity to live and work in this territory, which is also home to Inuit, Métis and first nations people from across the continent.

Since my comments focus on the national housing strategy, I also have to point out that the Government of Canada has yet to deliver on a non-distinctions-based urban indigenous housing strategy. The national housing strategy remains incomplete until that work is done. I and many others look forward to seeing a significant commitment on that in the upcoming federal budget.

I'm not a banker. I'm not an economist. I'm just a guy who has spent over two decades managing and building affordable non-profit housing. I'm currently the executive director of the Ottawa Community Land Trust. Most recently, I was executive director of a large non-profit housing company. I don't pretend to understand big finance and economic forces, but I do very much understand affordable rental housing. I know what it takes to create non-profit housing.

The programs under the national housing strategy were developed five years ago under historically low interest rates, and at a time when rates were stable or even declining. This has changed, and so the programs themselves must also change if we're to meet the goals of this strategy.

I have three specific recommendations.

First I want to begin by addressing affordability and inflation from a renter's perspective. Rents were already rising faster than wages before this period of rapid inflation: 40% of tenants across the country can't afford the rents they're paying now. When everyday costs are also rising, this leaves low-income renters in the position of having to choose between rent and groceries each month.

The national housing strategy created a national housing benefit, a modest allowance to help low-income households cover their rent. My first recommendation is that with rising inflation, this needs to be expanded to cover a greater number of households, and it needs to be strengthened to provide more assistance. It has to keep pace with the current need.

Secondly, when the national housing strategy returned CMHC to direct-lending, low-interest government loans to create new affordable housing, that was a big deal. These lending programs need to adjust to an environment of rising interest rates. Under the national housing co-investment fund, for example, a non-profit can lock in a 10-year interest rate at the time of its first advance, so after construction has started. Waiting as long as possible was an advantage when rates were stable or declining, but now that rates are rising, it transfers risk from the government to the little non-profits that are trying to create affordable housing. Government needs to commit and lock in borrowing rates much earlier, especially in the current context.

Higher interest rates and higher construction and operating costs are squeezing out affordability and limiting our ability to reduce rents. It now costs more to borrow the exact same amount of money as it did compared to two years ago, and it costs more to build at the same time. When the national housing co-investment fund was launched, government officials went through great efforts to stress it was primarily a loan program, even if modest grants were also available.

Well, when the cost to borrow rises and construction costs also rise, there's no cushion in affordable housing. Government will have to make up the gap with richer grants. My second recommendation is that lending programs need to be redesigned in reaction to the current climate of inflation and rising interest rates.

My third and final point is about a long-term strategy for countering rent inflation and about helping us transfer existing properties into non-profit ownership. In the Ottawa region, for every one new home built with assistance from the national housing strategy, we lose seven affordable homes in the private market. Creating new affordable housing is definitely important, but it doesn't help the majority of modest-income renters if the supply of affordable housing is dropping overall at the same time. If governments work with non-profits to purchase existing rental housing, which is already at modest rents, that allows us to stop the erosion of affordable housing in the marketplace.

Right now, CMHC lending programs aren't available for acquisitions, only for new construction, but acquisition is an effective and very efficient option that allows us to buy and preserve affordable housing in the marketplace right away. Ramping up inflation and interest rate increases are creating serious challenges for housing affordability.

I've made three recommendations focusing on the national housing strategy, all of which I hope can be included in upcoming budgets: one, expand the housing benefit program; two, rework CMHC direct lending to account for rising interest rates; and three, allow CMHC direct lending for non-profits to purchase existing affordable market housing.

Thank you very much for your time.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Sullivan.

Now we'll hear from The Shift, Leilani Farha, for up to five minutes, please.

[Leilani Farha, Global Director, The Shift]

Thank you for inviting me into this conversation.

In my capacity as the global director of The Shift, much of my work has focused on the financialization of housing or the nexus between housing, finance and human rights. I'm also the former United Nations special rapporteur on the right to housing, a position I held for six years between 2014 and 2020.

Let me start here. Canada, like most western developed nations, is characterized by a central contradiction. We have a relatively robust economy as a top 10 performing country in terms of GDP, with an impressive growth rate of about 6.7 per cent as we come out of the pandemic. With this kind of strong economic performance, we would expect to see the distribution of this growth across all social strata. That is, after all, the point of economic growth.

So it's counterintuitive that instead we have growing homelessness and increasing housing unaffordability for low-income renters and also for higher-income earners. This contradiction has deepened with pandemic-related inflation as captured perfectly through the recent celebration by Bank of Canada head Tiff Macklem, who noted the country's strong economic performance derived through real estate transactions and debt, which have caused housing prices to skyrocket.

This fundamental contradiction can be traced to the values embraced by successive governments in Canada, as articulated through laws and policies in the housing and finance sectors, which benefit institutional and other investors. As a result, Canada now has a housing system that has become overly financialized, operating separately from household incomes and housing need.

A financialized housing system is present when single- and multi-family homes become an extractive industry like mining, such that housing is used by domestic and global actors to extract wealth, mostly by those who already have an abundance of it, like pension funds and investment trusts.

The financialization of housing is rooted in the assertion that, given the right legislative and policy conditions, the market will provide what's necessary for the people of this country. The right conditions are things like low interest rates, preferential tax treatment for investors, no regulations on monopoly ownership, weak tenant protections and a seat at political tables for investors to advise governments.

Obviously the facts on the ground now prove that this has been a failed experiment. Value extraction has been confused with value creation, allowing investors to call themselves “value creators” and in the process extract value. Douglas Porter, the head of BMO, recently said—and I'm paraphrasing—that the supply narrative as a solution to the housing crisis that the industry continues to peddle is a myth, a myth that happens to benefit those propagating it.

So what's to be done? It seems obvious that when one set of values no longer produces reasonable outcomes, governments need to embrace another set that will achieve better outcomes. Human rights is the only framework that has as its goal housing equality, inclusion, affordability, adequacy and security. Human rights redefines value creation. It sees value in housing as home. It reorients finance and housing policies to focus on individuals experiencing housing need, not investor or shareholder interests, as is the case in a financialized system. It requires that supply-side solutions are led by and targeted by household demand, not by investors.

Across the world I've seen states grappling with the financialization of housing trying to curb the trend, recognizing that housing is a different sort of business. It's a human rights business that requires proactive measures by government.

Denmark enacted legislation that prevents investors from raising rents for five years. Singapore has introduced heavy taxation on multiple home purchases by a single investor. New Zealand has asked its central bank to consider housing in its setting of monetary policy. Spain has enacted national right to housing legislation, which penalizes owners who leave homes empty and imposes rent caps on landlords across the country. The city state of Berlin is contemplating the socialization of private market units.

I'll end by emphasizing this. If you embrace the human rights framework as articulated in the National Housing Strategy Act, and if you breathe life into it by committing to ensure that every fiscal and monetary policy or law has, as its end goal, ensuring adequate, affordable and secure housing for those in need, you cannot make a wrong step.

I look forward to taking your questions. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, Ms. Farha, and to all of the witnesses for your opening remarks.

Now we are moving into members' question time, the first round of questions. Each party will have up to six minutes to ask questions of our witnesses.

We're starting with the Conservative Party, MP Albas, for six minutes.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair, and thank you to all of our witnesses for making their time available for Canadians today.

I'm going to start with Professor Dehejia. Hopefully, I have your name right, sir, but I do appreciate the submission you made earlier on.

First of all, there's a recent research paper, “Not Your Parents Real Estate Market”, by TD Asset Management, which explains how low interest rates and quantitative easing are the two main reasons that house prices have significantly increased since the global financial crisis of 2008-09.

The paper also expressed the opinion that Canada's housing market was currently in a speculative state in which prices are derived from extrapolating recent trends rather than fundamentals.

Sir, do you believe that low interest rates and quantitative easing are the two main reasons that housing prices have significantly increased since the global financial crisis of 2008-09? If not, what do you believe are the main reasons for the state of the Canadian housing market today?

[Vivek Dehejia]

Thank you, Mr. Chair.

I absolutely do agree with that. In fact, in my submission I pointed to it in my brief remarks to unconventional monetary policies as drivers of asset price inflation. Quite simply, when you flood the financial system with all of that cash and you drive interest rates down almost to zero, and signal that they are going to stay at zero or low for a long time to come, it really dries up credible investment opportunities in the real economy, because basically money is free to borrow. What that does is drive all of that cash into different kinds of asset markets. Stock markets, even during the pandemic, were reaching record highs. Property prices are at record highs and in bubble territory.

When I hear the argument that low interest rates are good for homeowners, or good for those who want to buy a home, I find that quite strange, because, yes, it's true that for a given value of your home a lower rate is good for you, but lower rates have actually inflated property prices. So, yes, at the margin you benefit from a lower rate, but if your house has tripled in value, a new homeowner is just locked out of that market.

Indeed, I would point to those as principal drivers of.... We have distorted the real economy of Canada and many other countries. I think that unconventional policies were well intentioned. They made sense for the first couple of years, but they are now well past their sell-by date. They are a cure worse than the disease at this point, Mr. Chair.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you for that.

I appreciate how you've gone from the macro picture in terms of the overall money supply and into some of these policies like quantitative easing, and how that's changed it, and how it really affects particularly certain markets like housing.

Getting to housing, how is mortgage insurance contributing to the imbalance between housing supply and demand by encouraging banks and other financial institutions to offer households more mortgage credit without taking the limited housing supply into account?

[Vivek Dehejia]

That certainly contributes.

Sorry, Mr. Chair, I should speak through you.

I would say in my judgment at the margin that's certainly a factor. I think it has been noted by several of the speakers earlier that there's a serious mismatch between housing supply and housing demand. You can't blame that entirely on monetary policy, but my point again remains that when you have a relatively fixed stock of housing at a given point in time, and all of that cash is pouring into that market, it becomes a kind of self-fulfilling prophecy: Prices are going up, more cash comes into that market, people buy more property and it goes up even higher. The real paradox, Mr. Chair, is that it was a housing market bubble—the U.S. subprime mortgage crisis—that caused the financial crisis, and then our response to it paradoxically is again recreating the problem that we tried to fix. I find that very perplexing.

I would say, Mr. Chair, that at the margin there are a number of factors, and the way that mortgage insurance works certainly is part of that. Again, without sounding like a broken record, I would point to the real distortions that almost zero interest rates and flooding the market with all of this cash.... We have monetary aggregates just off the charts. Money is growing like crazy. That's going to distort the economy and make housing unaffordable, Mr. Chair.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you.

Just before I finish my round, Mr. Chair, I'd like to ask Mr. Robson a question in regard to the “Intelligence Memos” he has sent in.

One thing that inflation seems to do is reward those who are servicing high levels of debt, like those people who have gotten into the market or, in this case, a Liberal government that has gotten heavily into debt.

Would you agree with that?

[William Robson]

Yes, low interest rates certainly make it easier to borrow.

With respect to the housing issue particularly, when interest rates get very low, the effect on asset values becomes noticeably non-linear. It's geometric. I think that it's very realistic to say that low interest rates are responsible for some of the valuations we've seen in housing markets and have generated that momentum.

When interest rates go up even by modest amounts, I think we're going to see quite a marked charge in that area, for better or for worse. Much of the commentary here has been concerned about those high asset prices.

On the question about interest rate changes, they certainly do tempt people to borrow more. It makes saving less attractive. It makes consuming in the here and now a good deal more attractive. Part of the difficulty we are going to face as monetary policy tightens is that people are going to feel the pinch from those higher interest rates. That's why there will be concern among people generally who have floating rate mortgages or are otherwise exposed. The government is going to find that the cost of its financing is above what was predicted. It already is, with long bond rates where they are now.

There's going to be a certain amount of commentary saying that if only monetary policy would ease up, fiscal policy wouldn't have to be so tight. I don't look forward to that debate because it seems to me that inflation being low and stable really has to take priority. That's fundamental. You don't want to undermine that target because it makes it harder for the government to borrow.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Robson and MP Albas.

We're moving to the Liberals now with MP MacDonald for six minutes, please.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

Thank you to all the guests here today.

I'm going to start with Mr. Yan.

Relevant to your expertise and education in the field of planning, can you share with us any areas of the country where planning decisions have been taken in a manner that effectively preserves and expands affordable housing options?

[Andy Yan]

The examples that have occurred have very much occurred when multiple levels of government have worked together to produce affordable housing.

This is where we can find the kind of history where the federal government worked together with the provincial and local governments. One of the best examples is in the False Creek South neighbourhood of Vancouver.

You'll find that by working together and coordinating their policies towards development and land acquisitions, multiple levels of government have been able to produce a level of affordability and inclusion.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

Recently, you were quoted in a Globe and Mail article discussing wage inflation and labour market impacts of so many young Canadians leaving the large cities.

What can governments do to try to entice the demographic back to our cities? What may the risks be to the economy and labour force if we are unable to do so?

[Andy Yan]

You'll see an exodus of talent. I think part of this is understanding that there is tremendous diversity within this population of young people. Within this type of consequence is the inability to actually start your career and grow it in Canada and the exodus into countries that offer higher wages.

I think this is one of the biggest challenges we have in operating in a global economy.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

Can you speak to the phenomenon of foreign-owned property, particularly in Vancouver? What is it doing, basically, to that city and the housing products?