Finance Committee on March 28th, 2022

[The Chair, Liberal, Peter Fonseca]

I call the meeting to order.

Welcome to meeting number 34 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 the 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, and the webcast will always show the person speaking, rather than the entirety of the committee.

Today's meeting is also taking place in a webinar format. Webinars are for public committee meetings and are available only to 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, view the meeting only in “gallery” view. I would like to take this opportunity to remind all participants to this meeting that screenshots and taking photos of your screen are 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. They must wear a non-medical mask when circulating in the room, and it's highly recommended that the mask be worn at all times, including when seated. They must maintain proper hand hygiene by using the provided hand sanitizer at the room entrance. As the chair, I will be enforcing these measures for the duration of the meeting, and 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 floor, English or French audio. 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 to 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. If you are in the room, your microphone will be controlled as usual 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 would remind you 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 agreed that during these hearings, the chair would 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 mutually treat each other with respect and decorum. If you think 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 interrupt 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.

As an individual, we have Hilliard MacBeth, author and investment adviser. From ACORN Canada, we have Sarah Lunney, member for the New Brunswick chapter. From the Canadian Real Estate Association, we have Michael Bourque, chief executive officer, and Shaun Cathcart, director and senior economist of housing data and market analysis. From Force Jeunesse, we have Simon Telles, president. From Markee Developments, we have Jennifer Keesmaat, who is a partner there. From Maytree, we have Elizabeth McIsaac, who is president.

Before we go to opening remarks by witnesses, at the end of the meeting, members, we will leave five minutes or so for the adoption of the subcommittee report that was distributed on Friday at 4:34 p.m., along with a draft work plan. All members should have received that.

Now we will go to our first witness for opening remarks.

Mr. Hilliard MacBeth, go ahead for five minutes, please.

[Hilliard MacBeth, Author and Investment Advisor, As an Individual]

Thank you for this invitation to contribute to this very important work in tackling the question of what to do about inflation. I am here as a private individual and author of three books on finance. I also work as an investment adviser and portfolio manager with one of Canada's largest independent wealth management firms. I'm now in my 43rd year of doing that work.

My first book, called Investment Traps and How to Avoid Them, warned of the stock market bubble in 1999. The second and third publications came out in 2015 and 2018 as first and second editions of the book When the Bubble Bursts: Surviving the Canadian Real Estate Crash. People have noticed that it has been six years since the first edition was released and the housing bubble keeps getting bigger and bigger. Does that mean that the bubble will never burst and my thesis is wrong? I like to explain it this way: I am not going to be wrong about the housing bubble bursting, but I am very early.

I wrote books on housing bubbles because I kept hearing from my clients and others that housing prices will always go up. As an investment professional, I get nervous when people become so certain about an investment, especially one that involves borrowing so much money. Each year, more people were getting themselves and their children heavily invested in housing. By 2010, the housing bubble was well on its way, and since the brief COVID-19 recession in 2020, it has become a full-blown mania probably unsurpassed anywhere in the world.

I see parents and grandparents putting a secure retirement at risk by gifting large down payments to their offspring, co-signing huge mortgage loans and buying second and third properties, often used to provide housing for their children at little or no rent. While this will be fine if house prices never drop, it will be a disaster if we see a crash, as happened in the U.S., Ireland and Spain during the global financial crisis.

The topic today is inflation, not housing bubbles, but there is an important connection between the two. When people say “inflation”, they usually mean the consumer price index. In my research, I found there is a complicated relationship between the CPI and house prices.

House prices in Canada on average have grown at more than 7% per annum over 22 years. This means a fourfold to fivefold increase in total. In dollar terms, a $200,000 house in the year 2000 is now costing about $800,000 to $900,000, and even more in Toronto and Vancouver.

This is obviously inflation, and the CPI considers the cost of housing as its most important component. In the CPI, shelter costs, as housing costs are called, are weighted 31%, but while house prices increased at 7% or more per year, the shelter component of inflation increased by only 2.6% per annum.

It might be a surprise to learn that the CPI does not include house price purchases when calculating inflation. To illustrate this, I distributed a chart to members of the committee that shows seven indexes. It is a very busy chart. The chart shows house prices in Vancouver and Toronto and the Canadian average house price, as well as outstanding household debt. The chart also shows median after-tax income, CPI and shelter costs. All data series are rebased to start at index level 100 in the year 2000.

In 2022, house prices and household debt are all well over 400, with Vancouver over 500, but the shelter cost index has increased to only 175, while CPI and after-tax median income are both just under 200. Therefore, house prices have more than a fourfold increase and shelter costs have less than a twofold increase. If house prices followed the shelter component of CPI, that $800,000 or $900,000 house today would cost only $350,000. Now that would be nice, at least for the first-time buyer.

Instead of house purchase prices, the CPI uses a monthly payment approach to shelter costs. Since the interest cost in the monthly mortgage payment is usually the largest part of shelter costs, when interest rates are low or are pushed lower by central banks, the cost of shelter also remains low. Keeping interest rates low, and therefore the cost of shelter low in the CPI, allowed the central bank to ignore the housing bubble. However, if the Bank of Canada allows mortgage rates to rise above inflation, there will be a sharp increase in the monthly payment, causing the shelter component to rise faster than the CPI.

Before I wrap up my statement, I want to mention one other key issue that connects housing prices and inflation. That is the world-leading burden of private sector debt in Canada. Private sector debt is household debt plus corporate debt, not including the financial sector, usually as a ratio of GDP.

The need to borrow to keep up with house prices has led Canadians into a dangerous place when comparing our private sector debt to that of other countries. Research shows that any country that has a ratio of private sector debt to GDP over 150% and has experienced rapid growth in that ratio will endure a financial crisis eventually. Household debt alone is 110% of GDP. Of course, most of that is mortgage debt. Recently, corporate debt has grown rapidly also, to about 123% of GDP, so total private sector debt at 233% is well above the minimum threshold for a financial crisis.

Raising interest rates with such an elevated burden of private sector debt will be difficult, but inflation must be lowered, even if it means bursting the housing bubble and triggering a recession.

Thank you for your attention, and I look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. MacBeth.

Now we'll hear from ACORN Canada.

Sarah Lunney, you have up to five minutes, please.

[Sarah Lunney, Member, New Brunswick Chapter, ACORN Canada]

Thank you and good afternoon.

My name is Sarah Lunney. I am a member of ACORN's New Brunswick chapter. Thank you for inviting us to be at this committee hearing.

ACORN is a national, membership-based community organization of low- to moderate-income individuals fighting for social and economic justice. We started in 2004 in Weston, Toronto, and now have over 160,000 members.

Healthy and affordable homes are ACORN's core campaign. I'm here today to speak with you on some issues and policy recommendations that we would like to bring to your attention in relation to housing inflation.

First, we are deeply concerned that the federal government is currently investing billions of dollars into developing more unaffordable rentals. Recent reports from the parliamentary budget office and the National Housing Council have raised serious concerns regarding the delivery of the national housing strategy programs, the NHS. The housing supply created by the NHS programs do not meet the needs of those who are in core housing need, people who are living in unaffordable, unsuitable and uninhabitable housing. The programs are designed currently to cater to middle-income families.

The main issue is the way in which these programs define affordability. Rent in these developments is 30% of the median household income of the area where the development is taking place, which is often too high. Moreover, the period for affordability is to be kept for 10 years to a maximum of 21 years.

We need the federal government to build real affordable housing and target the people who need it most. A minimum of 1.2 million units of affordable housing is needed in the next decade. Housing built must target people in core housing need. That would be individuals with household incomes between $10,000 and $30,000 a year. The housing needs to be kept affordable in perpetuity.

The second issue that is contributing to the housing crisis is that the majority of funding is currently going to private developers and not to non-profits or co-ops. Fifty-seven per cent of total funding under the NHS has gone to private developers. We need a CMHC acquisitions fund to enable non-profits, co-op and land trust organizations to purchase at-risk rental buildings when they come onto the market.

The third issue in relation to housing inflation is the massive tax exemptions going to real estate investment trusts, also known as REITs. ACORN's “Rein in the REITs” campaign has shown how the federal government is losing billions of dollars by giving preferential tax treatment to REITs. At the same time, these corporate landlords are reinforcing renovictions and demovicting tenants, destroying affordable housing and forcing tenants to often live in uninhabitable housing.

ACORN's research with the Canadians for Tax Fairness shows that if REITs were taxed at the same rate as non-REIT Canadian corporations, they would have paid over $1.2 billion more in taxes since 2010. This was based on an analysis of seven REITs.

CMHC is helping REITs by giving them insured mortgage products to secure the financing required to acquire more and more apartments. ACORN's new research found that financialized landlords actually fare worse when it comes to maintenance of their buildings.

In Ontario, where landlords are allowed to do above-guideline rent increases, known as AGIs, 19% of tenants living in apartments owned by financialized landlords said that their landlord got their AGI.

From our perspective, the federal government should stop giving massive tax exemptions to REITs by closing the tax loophole in the Income Tax Act. Any CMHC-backed financing should include a “no displacement” guarantee as a condition to providing any insurance to entities such as REITs. The federal government also needs to regulate banks to not provide financing for acquisitions when the purchaser intends to increase rents beyond the guideline amount.

Lastly, the current lack of or inadequate rent control is another important issue on which we need federal leadership. Renting is becoming more and more unaffordable. CMHC shows that the average rent in Ontario for new housing built in 2021 was $2,222 per month. Lack of rent and vacancy control offer major incentives for landlords to evict tenants and/or displace them by not doing repairs or pursuing other means to evict tenants.

As stated in Steve Pomeroy's paper from 2020, as part of the anti-inflation measures in the mid-1970s, the federal government requested that all provinces enact rent control. We are in an unprecedented situation with a health and financial crisis, an ever-worsening housing crisis and inflation. The federal government has the power to mandate or incent rent control in all provinces to protect and promote the right to housing. Precedence for this has already been set at the federal level, as outlined in Pomeroy's paper.

There is mention in the mandate letter to the Minister of Housing regarding amendments in the Income Tax Act to discourage landlords from jacking up rents post renovation, but there's no mention of eviction for so many other reasons that are not related to renovation.

I'd like to close out by saying that there are still tens of thousands of tenants who have been evicted, or who are at risk of eviction, due to accumulated rental arrears during the pandemic. We have asked the federal government to implement a rent relief program for people who have been falling through the cracks since the pandemic began. We still believe the federal government needs to act on this.

Thank you very much for having us today. I look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Lunney.

Now we'll hear from the Canadian Real Estate Association, from Michael Bourque and Shaun Cathcart.

You have five minutes, please.

[Michael Bourque, Chief Executive Officer, Canadian Real Estate Association]

Good morning. Thank you for inviting the Canadian Real Estate Association today.

In a moment, you'll hear my colleague Shaun Cathcart provide some pretty clear evidence that the supply of new homes is not even close to keeping up with demographic changes and population growth, as it did in the late eighties and early nineties. Until we understand how significant the supply deficit is, how pernicious the problem is with respect to new construction, and how we need to take a radically different approach across the board, we will continue to see significant housing inflation.

It should come as no surprise that with housing becoming a scarce asset, prices will continue to increase. There are many reasons for the inadequate supply response. These have been discussed at length. Nimbyism, red tape, high fees and delays for permitting at the municipal level are the main ones.

I believe we need to focus on three areas. The first is federal, provincial and municipal collaboration, including conditions attached to infrastructure spending to encourage faster permitting, more open zoning, and reduced fees and other impediments to new construction.

Second, we must transform available land currently held by all levels of government into housing—housing that meets the needs of citizens across the housing spectrum.

Third, we need innovation. We need to accelerate efforts to build homes, using modern technology and tools to speed up the process. We also need innovative approaches, such as when the federal government created the town of Ajax after the war to accommodate returning servicemen and servicewomen.

My main message for the committee is that housing inflation will persist until there is the collective realization that we need to lend a great deal more urgency to the creation of new housing supply and start to take a radically different approach.

I'll hand it over to you, Shaun.

[Shaun Cathcart, Director and Senior Economist, Housing Data and Market Analysis, Canadian Real Estate Association]

Thanks very much, Michael, and thank you to the committee for this opportunity.

Now, I'm an economist and an analyst. I've been making the housing data that we're all talking about for 18 years from my desk, seasonally adjusting with StatCan. I'm a chart guy. I believe a picture is worth a thousand words.

To the chair or the clerk, I distributed a slide deck that I understand is not able to be shown. Is it okay if I take a bit of an analog approach and show it like this? Would that be okay?

[The Chair, Liberal, Peter Fonseca]

It has been circulated to members. They have received it. If we put it up on the screen, it won't be seen.

[Shaun Cathcart]

Okay. I'm just going to hold it up. Hopefully it works.

I know that Scotiabank appeared before this committee and talked about dwelling units per capita. It's such an easy, “meat and potatoes” starting point for this problem. The number of people who need somewhere to live and the places we have available for them—not necessarily available in the marketplace but just existing—is the logical starting point.

If you look at chart 2 of the slide deck I've shown, the distribution of Canada's population by age is very uneven. Fifty years ago, the median age in this country was 25, so half of the population were not likely to be homeowners or to have a place of their own, but as time has gone on....

When you look at 2021, you can see we are very much a middle-aged population. You have your boomers, your Gen-Xers and your millennials, who are all in or past their thirties, but not elderly. This creates a huge under-the-surface demand for what could be called “headship rate” I suppose, or having a place of your own, wherever that is on the housing continuum.

If you look at what we've been building over 50 years, as well—this is CMHC data, which hopefully you can see if you're following along at home—the yellow is apartment units. That's the majority of what we're building these days. There have been fewer single, low-density homes built in the last 20 years, which is fine, but for anyone following along in the slide show, in the middle of that chart, appropriately, are your townhomes and semi-detached homes—what's called “medium density” or “the missing middle”. That term was coined 10 years ago, and it's still as missing as it's ever been. We can't go around calling everything “units” and saying we're building enough units, when you have an increasingly middle-aged society and you're building more and more tiny condos.

What happens is that, with the data we track for the existing home market, the inventory all gets absorbed. To some extent, some subset of that inventory is available every year, and when you're getting five or 10 offers on some of these places, the demand is much stronger than the sales we're able to count. What happens is that the overall supply of listings.... If you were to go on realtor.ca today and look for a home for sale, there would be fewer pins on that map than there have ever been. That is the major supply issue we have, and it keeps falling.

That's out of a record housing—

[The Chair, Liberal, Peter Fonseca]

Mr. Cathcart, please wrap up.

[Shaun Cathcart]

I'll wrap it up.

Right now, we have the tightest market conditions and the strongest price growth we've ever seen in Canada, as of data published a week ago.

[The Chair, Liberal, Peter Fonseca]

Thank you. You'll have a lot of opportunity during question time to answer questions and give more colour to what you're saying.

Now, we have Simon Telles from Force Jeunesse for five minutes.

[Simon Telles, President, Force Jeunesse]

Thank you very much, Mr. Chair.

Members of the committee, it's a pleasure for me to be here with you today.

First, I'd like to introduce myself. My name is Simon Telles. I am a nonprofit lawyer, but I am here today as president of Force Jeunesse.

Force Jeunesse is a nonprofit organization made up of young volunteers from all walks of life. It is non-partisan and its mission is to advocate for young people's rights and interests, ensure intergenerational equity in public policy, and promote youth engagement and inclusion in decision-making.

We're here today primarily to talk to you about financial insecurity among youth. As the whole country is coping with a significant increase in the cost of living, we at Force Jeunesse have been looking at the impact of inflation on young people, who, as you will see, are a particularly vulnerable group due to a variety of factors.

Generally speaking, what we did was compare inflation data with data on changes in average wages. What we see very clearly is that Canadians' purchasing power has declined since last year. Over the past year, the inflation rate has been about 5.1%, while average wages have increased by only 3.4%. Therefore, wages in the general population have clearly not grown enough to offset the rising cost of living.

I'd like to draw your attention to the impact of this increase on 15‑ to 24‑year‑olds. In one year, wages for these young people actually decreased by 0.6%, so in addition to inflation, we must consider the fact that overall compensation for these young people has decreased, which places an even greater burden on them. Targeted measures are therefore needed to help this group of Canadians.

The situation is not much better with the unemployment rate, unfortunately. In the general population, the unemployment rate is about 5.5%, while it's twice that among 15‑ to 24‑year‑olds. In fact, the unemployment rate in this group is 10.9%, making them by far the age group with the highest unemployment rate.

Why have young people been hit harder by inflation and the current situation? It's because, according to Statistics Canada, half of them are employed part-time and 62.8% are in jobs considered to be non-standard. This has consequences on their job insecurity, in that the vast majority of young people can't collect employment insurance. For that, they must meet specific conditions. Significant assistance could be provided to young people, but that's not the case right now. Therefore, if the government wants to fight the effects of inflation on young people, it must reform the EI system to make it more accessible to them.

I'm talking about young people in the workforce, but obviously a lot of young people are in school and they are also being hit hard by inflation. So it's important that student grants be indexed for the rising cost of living as well. Special measures were taken during the pandemic. It's important to us that they be extended, once again so that the financial insecurity that young people in school are experiencing doesn't get any worse.

The impact of the crisis, if you will, or inflation, is also being felt in the labour market right now. One of our concerns is that the economic hardship resulting from the current situation is leading to the deterioration of working conditions for young people. One thing we're concerned about is orphan clauses. These clauses specifically target young people hired after more experienced workers, and they provide lower quality working conditions for them. Because clauses like these are more likely to crop up in situations like the one we are in now, we believe it's important that the government amend the Canada Labour Code to provide added protections for workers. Currently, employers can't offer two people a different wage for doing the same job. On the other hand, other working conditions could be modified and come to harm young people, which is a serious concern for us.

I've heard many other witnesses talk about the issue of housing and home ownership. I don't need to tell you that this concern affects young people especially, who are at the beginning of their lives and want to build a family and settle down. At the moment, they are unable to buy property. Even if they are renting, they now have to spend a very big chunk of their budget on housing. This puts a lot of pressure on young people, whose income is generally below the average salary because of the situation I've just described. Of course, one's wages are lower at the beginning of one's career, and young people have to deal with added pressures.

It's clear to us that the federal government has to increase the supply of social housing and create incentives in the private sector to get more housing built. In addition, the government needs to find ways to provide targeted financial support to households that need it most. In particular, we find that low-income households with no kids are currently falling between the cracks.

In closing, I absolutely cannot miss out on the opportunity to talk to you about climate change, which also has an impact on financial insecurity. We saw it in this country this year after various natural disasters disrupted the supply chains. If we want to reduce the overall consumer price index, inflation and youth insecurity, it's also important to continue our efforts to address climate change so we can mitigate its impact.

I will stop here. I look forward to answering your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Telles.

We'll now move on and hear from Markee Developments.

Jennifer Keesmaat, you have five minutes, please.

[Jennifer Keesmaat, Partner, Markee Developments]

Honourable members, I'm thrilled to be here with you today.

My presentation picks up on a series of themes that have been introduced by others in the context of their deputations.

I would like to put on the table a tangible solution to address the housing supply issue, as well as the cost of housing that we see in the Canadian context, by looking specifically at how we address taxation. We know that Canada's housing system is broken. You've heard that again and again this morning. We see it every day in the newspaper, but this is facilitated partly by government policy that this committee can address.

Just to put this in context, over the last 20 years in Toronto, where I live today, the average home price has increased by more than 440%. A home that you could have bought for about $230,000 in 1999 now costs $1.3 million in 2022.

If housing prices had risen by only the rate of inflation over the same period, that house would cost $368,000, just to put a fine point on the fact that our largest household expenditure by a long shot is housing. In fact, that is where we're seeing the most dire inflationary issues today.

Recent data shows that investors now account for one-fifth of all home purchases in Canada, with an even higher percentage in some cities. We should really ask the question, how can we prevent that dynamic? This isn't really surprising, because housing is a great place to make money. We have truly financialized housing.

The question is, how do we reverse that? Government policies, as I'm going to outline, can play a critical role in shifting housing from an asset class for investors to necessary infrastructure within Canadian cities. Just think about that as a framework change. Housing as an asset class for investors; that's what we have today. We can shift that to be housing as necessary infrastructure within Canadian cities and towns that is essential for sustainable and more equitable economic growth.

The undersupply issue has been already talked about quite a bit today, so I'm not going to speak to that significantly, but, for example, just in Toronto alone, we have a rental stock that must expand by more than 50,000 new rental units over a two-year time frame, and by more than 10,000 in Vancouver and Montreal, just to give you a sense of the magnitude of the gap. We are currently building approximately 4,000 units a year, so not only are we already in a deficit situation when it comes to housing supply, but it is getting worse. Over the decades that we've been talking about this problem, it is getting exponentially worse on an annual basis.

This chronic undersupply of housing, coupled with sustained population growth, which we know is expected to continue, means that the problem will get worse before it gets better, and we need substantial interventions.

I'm going to speak today about two specific interventions. High immigration levels are essential to economic growth, but will worsen the housing affordability crisis if we do not engage in a significant housing building boom, particularly affordable housing.

I'm putting on the table specific recommendations related to new supply and, in particular, affordable supply. We want to discourage housing from being used as a financial asset for investors, and we should differentiate this from owner-occupied housing as a financial asset. We also want to drive down the costs of construction by redirecting the construction industry to less expensive, market rate housing that is being used by investors, and more toward the delivery of affordable housing.

The first recommendation is that we need to create a tax that will tax capital gains in housing as you would employment income. As it stands today, we know that investors are not taxed on condos as for employment. This is why it's such an alluring business model, but we can fix that by shifting the way taxation takes place.

The revenue from this taxation could be used to incentivize and subsidize affordable housing. It would likely create a recalibration within the marketplace that would take a couple of years, but then our construction industry would be focused on building affordable housing as opposed to building an asset that is a financial tool that primarily delivers incredible returns rather than providing housing for Canadians.

This second critical recommendation is the establishing of a program or a suite of programs to incentivize the creation of a new affordable housing supply. In particular, a specific example of this would be HST forgiveness on affordable units.

I'll give you an example of a project we're working on where the project's pro forma is not viable. We would like to build 25% affordable housing. The project's pro forma included an estimated $18 million of HST revenue. A simple forgiveness of a portion of the HST on this project would tip the project back into viability.

Moreover, the fact that the project is not viable without some sort of incentive means that it will not move ahead as is, which means that it will not—

[The Chair, Liberal, Peter Fonseca]

Ms. Keesmaat, could you start to wrap up, please? You have 20 seconds.

[Jennifer Keesmaat]

It means that it will not kick off the $18 million of HST revenue modelled in the pro forma, and this in turn means that if the federal government were to forgive the HST or provide a grant in the amount of $8 million, it would actually be a revenue-positive scenario for the government in terms of tax revenue.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Keesmaat.

We're moving to hearing from the Maytree, and we have Elizabeth McIsaac with us.

You have five minutes, please.

[Elizabeth McIsaac, President, Maytree]

Thank you for the invitation to present here today.

I am speaking to you from Toronto, which is covered by Treaty 13 with the Mississaugas of the Credit and is the traditional territory of many other nations.

My name is Elizabeth McIsaac. I'm the president of Maytree. We're a private charitable foundation that works to advance systemic solutions to poverty and strengthen civic communities. We believe the most enduring way to fix the systems that create poverty is to ensure that economic and social rights are respected, protected and fulfilled for all people living in Canada.

At Maytree we've focused our policy and research efforts on income security and housing. As the committee undertakes its study of inflation in the current Canadian economy, I want to focus my remarks on two elements of that study: the rising cost of housing and the rising cost of food, and how they impact those who experience poverty.

For people who are living in deep poverty, by which I mean those whose income is less than 75% of what the Canadian government defines as the poverty line, the margins of a monthly budget are excruciatingly tight. Expenses to cover the basic essentials of food and shelter often exceed income. Even a slight cost increase can cause significant hardship and risk to life and dignity.

Results from a survey of food bank users tell us that food bank clients on average spend 53% of their monthly income on rent and 20% on food. As prices in these two categories soar, there will be no room to manoeuvre, particularly when the total monthly income is less than $1,000. When it's less than $1,000, you can imagine that every percentage point counts.

Welfare incomes in Canada, which include social assistance and income-tested tax credits, are inadequate and stagnating. In fact, the real value of social assistance and disability benefits has been falling steadily in some jurisdictions, like Ontario. While benefit rates increased slightly in 2020 as a result of pandemic-related benefits, these benefits were not extended into 2021, so it is likely that social assistance recipients will have had a decrease in their welfare incomes in 2021 and also as we go into 2022.

To be clear, though, the additional benefits that were available to people on social assistance were minimal. People receiving social assistance were still living well below the poverty line, in what is called “deep poverty”.

When we combine this reality with the current and projected inflation, without additional support the level of poverty people will experience will only deepen going forward.

As is common knowledge, and as you are hearing from across this panel and from others you have been listening to, we are in the midst of a housing crisis. For whom this is a crisis and at what cost depends on who you are and what your income is. The rising cost of rent is leading to significant housing insecurity. I would like to focus on the very affordable end of the housing spectrum, where we indeed have the most serious crisis.

According to analyses by Steve Pomeroy, between 2011 and 2016 the number of private rental units that were affordable to households earning less than $30,000 per year—that is, rents below $750—declined by 322,600 units, and this trend is continuing. At the same time, investment in the affordable housing program, together with unilateral provincial initiatives, mainly in B.C. and Quebec, have added fewer than 20,000 new affordable units.

The math is this: For every new affordable unit created, 15 existing private affordable units were lost. This is in the very deeply affordable category. For the record, when the average social assistance across Ontario is $1,000, $750 doesn't leave a lot of wiggle room.

The policy and program tools currently in use render our efforts to develop affordable housing moot. We're losing more affordable housing units than we're creating.

Deep affordability in the market requires government intervention. There is not a market-only solution for this. Enabling the development of affordable supply through programs like the co-investment fund is necessary, so that social housing providers and developers are able to leverage this opportunity. It must be adjusted to include greater grant support as part of that package, as well as rates, timing and access that make it doable.

People living in deep poverty are not contributing to what's driving inflation, but they will bear the brunt of it in the most personal and life-threatening ways.

As such, the Government of Canada must not use inflation as an excuse to forgo the government's duty to make income transfers to people living in deep poverty. In fact, the government needs to do the opposite. There remains a duty on the part of government to protect their right to life and to an adequate standard of living.

With respect to housing, this government has already expressed its intention to increase spending on that as part of its national housing strategy. This is essential. Within this investment, it will be imperative that deeply affordable housing and the human right to housing are prioritized. The lack of focus on developing deeply affordable supply has been acute and severely damaging.

Thank you for your time this morning. I'm happy to answer questions that the committee may have on the impact of inflation on people living in poverty and the opportunity for governments to address this.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. McIsaac, and to all witnesses for their opening remarks.

We are moving now to our first round of questions from members. In this round each party will have up to six minutes to ask questions of our witnesses.

We're starting with the Conservatives, and we have MP Stewart up for six minutes.

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

Thank you, Mr. Chair.

I'd like to thank all of our guests for being here today, with a special note to Ms. Lunney from New Brunswick, my home province. It's nice to have you here today as well.

My questions this morning will be for Mr. MacBeth.

Mr. MacBeth, do you think that Canada's housing market is currently in a healthy state, and why or why not?

[Hilliard MacBeth]

Well, obviously, it's not healthy when people can't afford to buy a house except with the help of parents, grandparents and co-signing of mortgages. We can just look at the burden of debt that Canadians are taking on, especially at the household level. It's probably the top three in the world in terms of a percentage of GDP.

That debt is going to buy house prices that are in a bubble, and it's going to be a very dangerous situation for Canadians if those house prices come down. The banks also will obviously be involved, and the government eventually will get involved as well.

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

Thank you, Mr. MacBeth. It's a pleasure to have your insight into this matter.

I have seen it in my constituency, and we have all heard the horror stories of the 30-year-old Canadians living in their parents' basements, who can't afford a home, because the typical home cost is now up to $868,000, just as an example.

Going back to this market itself, can you tell the committee what stage of Hyman Minsky's five stages of the bubble we are in now in Canada?

[Hilliard MacBeth]

Minsky was an unorthodox economist who didn't get much play, but when the global financial crisis hit, of course, people started calling what happened a “Minsky moment”. A “Minsky moment” happens when lenders discover that borrowers cannot repay their loans. In fact, they cannot even pay the interest on their loans.

Up until that point, the lenders are happy to continue to provide credit, in this case to the real estate market, but at some point they discover that many of their borrowers are about to default, and that brings on the crisis.

The stage that you are referring to is actually called the “Ponzi finance” stage, and it refers to when the lenders have to lend money, not just more money for purchases, but new money just so the borrowers can make the payments on their existing loans.

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

Thank you, Mr. MacBeth.

Can you explain what you expect will happen to the Canadian housing market and how this will impact our general economy?