Evidence of meeting #32 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.
12:40 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Trudel.
We are moving to the NDP and MP Blaikie.
Welcome back. You have two and a half minutes.
March 21st, 2022 / 12:40 p.m.
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
Thank you very much.
I'm glad to be back.
Having just spoken in the House on a motion about imposing a surtax on banks, profitable oil companies and big box stores as a result of the pandemic, I feel compelled to say.... I know there has been some conversation around the table about getting the deficit under control, but of course the other side of that equation is the revenue side of the equation. It's one that is too often neglected in those conversations, particularly in light of the growing gap in wealth distribution between the top 1% in Canada and the bottom 40%, who are sharing just 1% of the wealth produced in Canada. Among those 40%, of course, are some of Canada's most vulnerable people.
At the end of her exchange with my colleague, Mr. Garrison, Ms. Farha was talking about how new initiatives need to be targeted to make sure they make sense and provide real and tangible help to some of those populations.
I wonder if she would like to pick up where she left off and talk about some of the ways good public policy might be able to target those groups. Does she have specific recommendations for this committee to pass on to government?
12:40 p.m.
Global Director, The Shift
To reconvene that idea, it indeed seems to me that there is not going to be a silver bullet to all of this. A multipronged approach is necessary.
I do want to reiterate something around investment in housing. I really think we have to take a big step back in this country and understand that the way investment in housing is working right now is not working for people who are low income or even for higher-income earners. In fact, what's happening is that only wealth is being extracted.
While I understand the concerns around foreign ownership, I want us to be very clear. There are many domestic actors here. We're talking about Canada's pension funds. We're talking about real estate investment trusts. We're talking about individual investors who are now able to own multiple properties—10 properties. All of this is decreasing affordability, decreasing affordable housing stock and making it much harder for low-income people to just eke out an existence. These are people who have played by the rules. They've gone to school. They have jobs. They just can't make ends meet.
I think there has to be a real pivot in approach. So many of the policies that exist right now benefit those investors. That needs to be looked at. I'd love to see a finance committee hearing focused on the financialization of housing or a HUMA committee hearing that really drills down on what we can do to curb the investment in housing. To me, that would be an important emphasis.
12:40 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you.
Thank you, MP Blaikie. That's the time.
Members, we have two more members who will ask questions. We'll go to the Conservatives and then to the Liberals. I just want to say that we will have to leave a few minutes just at the end because we have to adopt a couple of budgets for our committee.
Up next is the Conservative's MP Albas for five minutes.
12:45 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Thank you, Mr. Chair.
Earlier in today's testimony we heard a member opposite say that we are experiencing “a healthy housing market” in Canada.
We found out last week that the national housing data just released by the Canadian Real Estate Association shows that home prices are now up 29% from last year, which is the the fastest pace of increases on record. Once again, housing price inflation is widespread. In Toronto, home prices are up 36%. Montreal is up 20%. Vancouver is up 21%. Calgary is up 16% and Ottawa is up 16%. These are just some of the major municipalities that have seen this.
First of all, let's go to Professor Dehejia, please.
Does Canada have a healthy housing market, in your view?
12:45 p.m.
Associate Professor of Economics and Philosophy, Carleton University, As an Individual
Mr. Chair, the housing market, like a whole range of asset markets in Canada and around the world, has been distorted really beyond recognition by unconventional policy, by quantitative easing and by the zero-interest rate policy, so I would say no. Growth rates of property prices that are that high are pricing out middle-class people who, as someone said just now, earn an income, have gone to university and have graduate degrees.
Where I live now in downtown Ottawa, I bought in the fall of 2019 shortly before the pandemic. If I had to buy today, I couldn't afford to buy where I'm living right now, so something is wrong with the housing market.
I would again trace it to a generalized distortion in our financial system thanks to loose monetary policy, Mr. Chair.
12:45 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
As you know, there are so many people who make good money in this country, young people, who are living in their parents' basements. They're paying through the nose on rent right now, so to me it just seems to be out of touch that members of the government side would say that we have a healthy housing market.
Mr. Robson, the C.D. Howe Institute recently put out a report on the housing market and how it's displacing our productive economy, meaning that if an entrepreneur says they have $100,000 to invest and puts it into their business, the rate of return on it is not at the same rate that you would get with housing.
Would you say that Canada has a healthy housing market right now?
12:45 p.m.
Chief Executive Officer, C.D. Howe Institute
Well, we may have too much of a good thing. I don't mean to contradict anything that many of the housing experts in this group have been saying, but we have seen spectacular spending on residential investment over the last number of years, especially since the pandemic, and what concerns me is that it has eclipsed all other types of business investment for the first time in our history.
When I talked about the supply constraints of the economy, that was one of the things that was motivating my concern. We just are not seeing the investments in plants and equipment. We are not seeing the investments in intellectual property products that we need for future productivity growth, and I'm doubly concerned about that, because we are seeing those in other countries, especially in the United States. There's something else going on in Canada.
To try to square the circle, it seems to me that one of the reasons we want to focus on the supply side is that, on the supply side, many of the things that constraints apply to on the ground affect modest-income housing—less valuable in market terms—more than they do the big stuff. If you can build only a certain number of units, it's natural that you're going to be looking for the ones where you can make the most money. Some of the supply concerns that people talk about—for example, zoning bylaws and so on—probably add to that distortion. We have a lot of investment in housing, but not enough of the kind that many of my colleagues on this panel have been advocating.
12:45 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Professor Dehejia, do you feel that inflation is a made-in-Canada problem? Why or why not? Specifically, does this also relate to housing?
12:45 p.m.
Associate Professor of Economics and Philosophy, Carleton University, As an Individual
Mr. Chair, yes, it's very much a made-in-Canada problem. You just have to look at how rapid the growth of any kind of measure of money has been.
It's very much made in Canada. A large part of that, a sort of a parallel problem, is, again, housing price inflation. That doesn't show up fully in the CPI. These are asset prices that aren't fully captured in the bundle of spending. I would say that the housing problem, the housing price problem or the asset price problem, and the CPI, yes, are a product made in Canada by the Bank of Canada, for the most part.
12:45 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Who will be hit hardest by inflation?
12:50 p.m.
Associate Professor of Economics and Philosophy, Carleton University, As an Individual
I've been crying this from the rooftop for months. It's the working poor and the middle class who are hurt the most by inflation. The wealthy have ways to hedge against inflation: fancy financial instruments that they can put their money into. Inflation actually hurts the poor and the middle class the hardest, Mr. Chair.
12:50 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you.
Thank you, MP Albas. That's the time.
We're moving to the Liberals and our last questioner.
We have MP MacDonald for five minutes.
12:50 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
Thank you.
I have a question for Mr. Robson.
I think it was last week that you had a column in the Financial Post and you talked about how residential investment outpaced all other forms of business investment combined in Canada, and the size of the residential mortgages far outpaced the size of business loans. Can you expand on the impacts that such developments have on the Canadian economy?
12:50 p.m.
Chief Executive Officer, C.D. Howe Institute
Well, the concern that I have.... Housing is great, and we have a number of housing experts on this panel who've been emphasizing how important it is, so it feels funny to be complaining about how much residential investment there has been, but the concern expressed in that column has to do with the fact that we are now investing more in housing than we are in every other type of business investment, as I said earlier.
It's the other types of business investment that are underpinning our income growth over time. It is quite literally the tools that workers need to do their jobs. Business investment, outside housing, has been quite low for a long time, and the capital stock per worker has been falling. That's a very unusual thing historically; it certainly doesn't seem consistent with rising living standards over the long haul.
One of the things we say—because you referenced the credit market—is that the CMHC's mortgage insurance could be more risk based. The taxpayer is backstopping way too much at the moment, and it would make sense for the CMHC to look again at that system and for the government to look again at that system. If I'm a potential lender and I have in front of me an entrepreneur and a potential mortgage borrower, there's a guarantee on one side and not on the other, and that does skew the credit market towards lending to mortgages rather than to businesses.
12:50 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
Thank you.
I have another question. Even as house prices have increased, we've had several economists talk about a lack of upward pressure on inflation and the consumer price index. Can you just explain a little bit what they mean by that?
12:50 p.m.
Chief Executive Officer, C.D. Howe Institute
If there's an afterlife and I ever have a chance to ask God how you should measure housing costs in the consumer price index, I'll be intrigued at the answer, because no human has figured it out.
You can weight the value of new houses relatively heavily or you can go to more of a rental-equivalence measure, because it's not obvious. Housing isn't something that you use up all at once like a cup of coffee; but on the other hand, if you only look at it over the life of the housing stock, then you're going to miss some of that upfront cost. Every country has its own way of trying to deal with this.
What we can say, though, about the inflation numbers that we're seeing right now is this. The fact that housing has gone up so much means there will be continued upward pressure, and measured inflation for a long time as a result of it. That's one reason that we worry about inflation expectations becoming unanchored, because some of these things have a long tail; and the longer inflation stays above 2%, the likelier it is that people will say that they just don't believe the 2% target anymore.
12:50 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
I'm going to go back to my colleague's question that you never had an opportunity to answer, because it is important. It is on productivity, and it's been an issue that I think every government in the past few decades has been dealing with. I want to get your opinion on the productivity issue relevant to the question of my colleague earlier, if you wouldn't mind finishing that.
12:50 p.m.
Chief Executive Officer, C.D. Howe Institute
Business investment and productivity growth are very strongly correlated. If you look over time or across countries, you see that in countries where productivity growth is rapid, business investment is high, and in countries where productivity growth is slow, business investment is low. There are both cause and effect at work there. Businesses will invest more if the opportunities appear greater, and then putting new tools in the hands of workers—the most up-to-date software, the most up-to-date machinery—helps workers to be more productive.
You can argue the cause and effect side of it, and people do, but at the moment I'm seeing very low investment rates in Canada as a sign of concern. I mentioned that the capital stock per worker is dropping. That has never happened before over a period of years the way that it has lately, and that makes me concerned about future productivity growth and future income growth, including the incomes we'll need to get our fiscal house back in order.
At the moment, since we're talking about inflation, the concern is just that the supply side of the economy is now growing very rapidly, so as we're stimulating demand, we're getting more inflation than we want and not as much real growth as we want.
12:55 p.m.
Liberal
The Chair Liberal Peter Fonseca
That's the time, MP MacDonald. Thank you very much.
To our witnesses, on behalf of the Standing Committee on Finance, the members, the clerk, the analysts, the interpreters, the staff, we do want to thank them a great deal for their testimony, for their answers to the many questions, and for helping us inform our study on inflation in the current Canadian economy.
Have a great day.
12:55 p.m.
Liberal
The Chair Liberal Peter Fonseca
Members, I just need your time for a little bit longer.
On Friday, the clerk distributed two budgets that we need to adopt: one for the inflation study and one for the Emergencies Act study.
I'm looking to members. Could we adopt those?