Finance Committee on March 21st, 2022

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

Thanks very much, Mr. Chair. It's always a pleasure to be at the finance committee. Although it's been quite a long time since I've been here, it's always a pleasure to be able to address the issues of housing in my riding.

Right now, our definition of affordability is that 30% of a household's before-tax income is affordable. We all know that. But if you look at my riding, the median household income is about $72,000, which means that what's affordable is $1,800 per month by that definition, except that's below the average cost of a one-bedroom apartment. So not only is it a strange way of figuring out what's affordable, it doesn't even meet the average costs if you're paying an “affordable” amount of rent in my riding.

I'm going to ask my first question of Mr. Yan. How do we as a committee and a Parliament address the gap between this affordability definition and the actual prices people have to pay to get housing.

[Andy Yan]

Fundamentally, it's about going into the inefficiencies of measuring unaffordability. You have to look at that, but if I put on another hat, some of this is really about expanding the idea that we also need to consider housing adequacy.

Some of the leadership that's being done in this field is by the statistics bureau in New Zealand, where they've begun to understand that there is an issue of housing adequacy as opposed to just housing affordability, and that how you deal with the issue of housing adequacy is by looking at the specifics. For instance, what are these units that people are able to purchase as opposed to just a raw unit itself, and what's the format? Are they one, two or three-bedroom units that are ready for families?

Part of this is also looking from the federal government's perspective not only at the funding and the acquisition of housing, but also fundamentally looking at infrastructure, looking at elements such as public transportation as the means of dealing with and controlling living costs. I think that is a way of understanding the full cost of living in the various communities in Canada.

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

Thanks very much.

We've seen the spectacle in my riding of landlords suggesting to people when they show up to look at a unit that if they're prepared to pay more than the advertised rent, they can be the successful bidder. In fact, we've got bidding going on, a kind of black market bidding to get housing.

The result is that those with double incomes and no kids, who of course need housing like everybody else, are able to pay a higher price, so they can secure those units. We have lots of people who are, in effect, excluded from the rental housing market in my riding.

My second question is about how investments in social housing both would help to house those people and how these investments might bring down costs in the housing market in a broader sense.

[Andy Yan]

Fundamentally there is another element of the deficit. There is a non-market housing deficit, which has not been paid off for almost 20 years and which we've only now slowly begun meeting, but nowhere at the pace at which that needs to happen.

That is really where direct investment in construction as well as acquisition of housing for the non-market sector offers the greatest solutions in the fastest, most expeditious time.

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

Mr. Yan, would you say that CMHC is capable of doing that as it's now constituted, or are they going to have to make some fundamental changes in their approach?

[Andy Yan]

It's about enabling CMHC to expand its programming not only towards construction costs, but then also really in looking at the role of unit acquisition, of having the right for first purchase. There is the role in government to enter the realm of offering stable, affordable housing at local cost. That is one of the ongoing challenges—really the role of providing non-market housing across the spectrum, not only in terms of supportive housing, but then into elements and alternative market arrangements like co-op housing.

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

Thanks for raising co-op housing. We have a lot of co-op housing units in my riding in Victoria that were built 30 years ago. They're relatively low density. There are some creative co-op boards who have been looking at trying to leverage the low density by building a higher density on their current sites and offering some more one-bedroom units, for instance, when there are mostly three-bedroom units. But they're finding difficulty in financing that change, to finance that kind of redevelopment.

Is there anything CMHC could do to help finance those innovative ways of renewing co-op housing?

[Andy Yan]

That's a similar type of process where you enable, as well as empower, CMHC to allow for that type of development, for that redevelopment as well as long-term supports for developments like co-ops. You'll find that in False Creek South, there is a very active citizens group that is looking very much toward the role of densification of redevelopment that really does enable and extend the amount of non-market housing in Vancouver.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Garrison.

Members, we are moving into our second round of questions. In this round, members will have five minutes, and some two and a half minutes.

We're starting with the Conservatives and MP Stewart for five minutes.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you, Mr. Chair.

My questions are for associate professor of economics and philosophy at Carleton, Professor Dehejia.

Professor, do you think the inflation that Canadians are facing today is transitory?

[Vivek Dehejia]

No, I don't think it's transitory [Technical difficulty—Editor]

[The Chair, Liberal, Peter Fonseca]

Mr. Dehejia, can you repeat the answer, please? We lost you for about 20 seconds.

[Vivek Dehejia]

Sure. I think I heard an echo, but I think that's stopped.

Mr. Chair, I certainly don't think that our inflation problem now is driven by transitory factors. I think when you look at the reality of it.... In fact, Mr. Robson mentioned correctly that some three quarters or more of the basket in the CPI has gone up in price. That isn't just because of the war on Ukraine, or oil or supply disruptions from the pandemic. My back of the envelope calculation would be that maybe 1 percentage point of our current 5.7% inflation rate is caused by factors that may disappear, but when the money supply is growing at 14% to 20%, it is basically a monetary phenomenon. We're just printing too much money, so I'd say no, it's not transitory.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you, Professor.

Can you tell the committee why you think inflation won't go away any time soon?

[Vivek Dehejia]

I would say that we've seen this movie before, and it doesn't end well. Think back to the late 1980s and the early 1990s, when we were having similar conversations about whether the problems then were just going to be temporary and disappear. Then Governor John Crow really took charge and engineered maybe one of the most important disinflation experiences in the history of any modern country. He did succeed. He had the moral support of the then prime minister of Canada and his government, but it was very costly. Some of the side effects were that the dollar became more overvalued, which led to the recession, that had to occur. That correction was necessary and the tough medicine did work, but it was a painful process.

I think the more we kick the can down the road and say it's transitory and that it's something else, the worse the problem will get, Mr. Chair.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you, Professor.

Do you think that government overspending and lack of monetary policy has been a major contributor to inflation in Canada?

[Vivek Dehejia]

Mr. Chair, I would put it this way: Government spending, in a sense abetted by loose monetary loose policy, is worsening inflation. When government spending is monetized, when the Bank of Canada buys up all of that government debt and then pumps it back out into the economy into the financial sector, that monetizing of government spending absolutely is worsening inflation. There's a kind of symbiotic relationship between them that goes back to the financial crisis where, for better or worse, that wall between finance and the central bank broke down, as they coordinated in trying to fend off the crisis. However, that symbiosis has remained, unfortunately, Mr. Chair.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you, Professor.

Government is continuously insisting that everything with respect to inflation is related to the pandemic. Do you have any comments on that topic?

[Vivek Dehejia]

Mr. Chair, I certainly would strongly disagree with that view. It's very tempting to blame something that's beyond the control of the government of the day or the central bank, but, again, the facts speaks for themselves.

If you look at money supply growth, after being a steady for 5% to 6%—sort of where it should be—some aggregates have been growing at 40% or 50% until recently. That has nothing to do with the pandemic, Ukraine or supply disruptions. That is just excessively inflationary, loose monetary policy—also monetizing government spending. Really, that's 99% of the problem, Mr. Chair.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Professor, do you believe that oil prices will impact the prices we pay in the grocery aisles? If so, how?

[Vivek Dehejia]

Mr. Chair, there certainly will be a feed through effect of higher oil prices. It costs more to get stuff here. We have supply disruptions already through the pandemic, and the Russia-Ukraine conflict is not making that any better.

Again, if I were to parse the increase in prices, of the 5.7% year-on-year inflation we have now, I would [Technical difficulty—Editor] and the rest of it is really a bad monetary policy, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Stewart. That's your time.

We're moving to the Liberals, and MP Dzerowicz is up for five minutes, please.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I'd like to thank all of our panellists today for the excellent discussion and presentations. I appreciate your being here.

I would just start off by mentioning that there are a number of diverse opinions out there about our emergency measures and spending. If you hear from Stephen Poloz, who is now a special adviser at Osler and a former governor of the Bank of Canada, he would say that Canada's ability to navigate the pandemic should be very commended. He very much lauds the work that we have done with the emergency measures.

I do think it's important for everyone to note that since last summer—actually, it's been more than a summer—we have been tightening up our emergency measures funding. It's been far more targeted. We know that it needed to be targeted.

I think it's also important to note that, based on the learnings we have from the 2008 financial crisis, it was very important for our government to try to ensure that we create a foundation from which businesses could pivot. We wanted to make sure that we tied employees to their places of business. That was also a key concern. We tried to take some of the learning from 2008 and create that foundation. We've found that it has been very successful, when we look at how many jobs have actually come back and at GDP growth in Canada.

I think it's also important to note—because I believe we should always be tackling income inequality—that you get economic historians like Adam Tooze of Columbia University, who lauds Canada for doing a great job in a more equal distribution of our emergency funds.

It should be noted that at every point our government tried to do its best in a very unpredictable economic environment and an unpredictable pandemic. Of course, there are going to be some unintended consequences. I think we are talking about one of them. Housing is a huge issue for our government. It's important to note that we all believe it should be addressed.

There have been a lot of dollars and resources—appropriately so—allocated to tackling the housing crisis that we have now in Canada, and the affordability crisis, with $4 billion allocated for the housing accelerator fund and $2.5 billion for a rapid housing strategy. There's lots of money in terms of renewing co-op agreements and paying for current Toronto community housing maintenance and a few other things.

I think my first question is going to go to Ms. Farha.

Ms. Farha, I fundamentally also believe that every Canadian should have a right to affordable, safe, accessible housing. How would you suggest that we proceed with that in Canada, given the fact that all three levels of government have different tools to be able to address the housing crisis? Could you provide advice on how to proceed on that?

[Leilani Farha]

The federal nature of this country does make housing complicated at times. There isn't always a really good synergy between the different levels of government. I work a lot with city governments in this country, and I hear a lot from them about the lack of synergy.

I would say that it is the federal government's role to show leadership. Even though they don't have constitutional jurisdiction over housing, they certainly have constitutional jurisdiction over the spending power. Even though those numbers you gave us were somewhat impressive compared to yesteryear's, I still don't find the quality of conversation and policy moves to be as ambitious as they need to be to solve this crisis, to be perfectly honest.

One thing that hasn't been discussed at all is the role of real estate investment trusts and how they are driving up the cost of housing and, in particular, of rental accommodation that is in fact somewhat affordable for people across the country. That's a direct result of preferential tax treatment. It's pretty much the only kind of trust in this country that doesn't actually have to pay income tax. That gives them a leg-up, coupled with all of the conversation we've already had about low interest rates and free and cheap money.

The combination of those, supported by the CMHC, which is giving mortgage insurance for these acquisitions by these investors, is creating incredible pressure on tenants. I do see the need for the CMHC to look at this when they're giving mortgage insurance and to attach some conditions to that mortgage insurance. Also, the federal government could change the tax regime around real estate investment trusts. Those would be two big moves that could really move the country forward.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.