Finance Committee on March 28th, 2022

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you.

I have a question for ACORN Canada. There's a lot of regulation in the rental market, and it's usually provincial jurisdiction, but what do you think the role of the federal government could be in addressing rapid rent increases? I'm also interested in your views on the renoviction phenomenon.

[Sarah Lunney]

The first half I outlined in my first five minutes. There were precedents set back in the mid-1970s regarding the federal government's role in inciting rent control from the provinces, so you could look to mechanisms that have been used previously to help get a rent control regime across the country.

Moving to the renoviction phenomenon, this is something that is actually very near and dear to my province, New Brunswick, where we see tenants en masse being renovicted from buildings. The issue of renovation can be a tactic used by corporations to increase profits, so they're purchasing affordable units and affordable housing, then renovicting tenants to reposition the housing on the market for higher income levels. This is depleting the affordable housing that we have left, and it's been contributing to the housing crisis across the country.

Currently, in most jurisdictions, there's a lack of regulation regarding rent control and renoviction. They go hand in hand—without rent control and vacancy control, it's an easier environment for large investors such as REITs to renovict tenants. They outline within their shareholder reports that they use renovations as a mechanism to increase their profits, therefore they're evicting tenants through those means.

Does that answer your question?

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much, indeed.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Chatel.

Members, we will not have enough time to do a full third round. We'll allocate up to four minutes for each party for your last set of questions, because we need five minutes at the end to go over our subcommittee report.

We'll start with the Conservatives, and I have Mr. Fast.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you very much.

My questions are addressed to Mr. MacBeth. You said that the difference in today's housing bubble is that, unlike in the seventies and eighties, an incredibly high rate of debt has been taken on by homeowners.

Am I reading you correctly? All right.

You also said that the central bank must raise interest rates, even if that creates a recession and bursts the housing bubble, which would result in a correction of up to 50%, perhaps more. Did I understand you correctly?

[Hilliard MacBeth]

Yes.

[Ed Fast, Conservative, Abbotsford, BC]

What rate of interest will be required to actually tame inflation and the current housing bubble?

[Hilliard MacBeth]

That's a great question. Nobody knows the answer to that question.

I can tell you that in the late seventies, when they brought in a new chair of the fed in the U.S., Paul Volcker started raising rates when they were at 11% and inflation was around 10%. For the next two and a half years, he raised rates until they hit 20%, and then the inflation started to come back down. For various reasons, as I mentioned in my statement and in answers to questions, raising rates does not have the initial effect of bringing inflation down. In fact, it pushes inflation even higher.

Do the central banks—the Bank of Canada, the Federal Reserve, the Bank of England and the European Central Bank—have the backbone to continue raising rates when house prices start falling, stock market prices start falling and inflation keeps going higher? We're going to find out, I think, and I don't know if they do.

[Ed Fast, Conservative, Abbotsford, BC]

Wow. You referred to the backbone that's required in order to use interest rates to tame inflation. I also wanted to ask you what the fallout from all of this is going to be. We have a housing bubble and rising interest rates. If the housing bubble bursts, who pays the price here?

[Hilliard MacBeth]

You know, it's interesting. Barack Obama, in 2007 or 2008, tried to bring in a program to help people who were losing their homes when the bubble burst in the U.S. The homeowners who didn't have a massive amount of debt freaked out and said, “I'm not going to pay for somebody else's problem because they took on too much debt and bought a house they can't afford.” It was a classic interview on CNBC with one of the regular contributors there. He concluded his rant by saying, “What we need is a new tea party,” referring to the Boston Tea Party in 1776.

That led to the formation of the Tea Party political movement in the United States. It was based on the idea that somehow we would help people who were facing foreclosure on their homes.

[Ed Fast, Conservative, Abbotsford, BC]

I'm not sure we're looking to establish a tea party here in Canada.

Let me ask you one final question. I think I'm one of the very few around this table, if not the only one, who remember both the 1970s and 1980s bubbles and the economic crisis of 2009. I remember how bad that was.

You mentioned the high rate of debt taken on by borrowers today. Could you just expand on that a little?

[The Chair, Liberal, Peter Fonseca]

I think I was there too, Mr. Fast.

Mr. MacBeth, please answer really quickly.

[Hilliard MacBeth]

The debt levels are extremely high, but one thing we haven't mentioned yet is that about 22% of all mortgages are variable-rate mortgages. The balance of five-year-term mortgages come due in the next one, two, three or four years. They will all be reset at much higher rates. That is going to be a very interesting challenge for the banking industry and for the people who have those mortgages.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Fast.

We're moving to the Liberals and Mr. Baker, for four minutes.

Go ahead, please.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Chair.

I'd like to come back to Ms. Keesmaat.

We spoke earlier, and you cited in your presentation the role that investors play in the market and in driving prices up. One of the things we've spent a lot of time discussing at this committee is the role that non-resident investors play. I've heard your recommendations, which you've spoken to, but is there anything specific that you would recommend the government do to deal with that aspect of things?

To me it's unconscionable that there are folks who don't contribute to the economy, don't live here and don't need a home to live here but who are really using the housing market as a mechanism to enrich themselves while not contributing to Canadian society. That is something I believe we need to address.

I'm just wondering if you believe that's the case, and if so, what specifically around these non-resident investors we should be doing.

[Jennifer Keesmaat]

I'll confirm that I believe that's the case.

I'll also clarify that I'm not a finance expert, although my partner at my development company, Jason Marks, is a finance expert. He has an M.B.A. from Harvard and was also a senior vice-president at TD Bank for many years. He does all of the pro forma and financial analysis on our projects and developments.

What I am is a housing expert. As the chief planner for the City of Toronto, I spent a tremendous amount of time doing something that planners have traditionally done in order to mitigate the high cost of housing, which is calibrate supply and demand. This is looking at population growth and identifying demand, and ensuring that we are delivering sufficient housing to meet the needs of the population.

This work has become futile, and it has become futile for a very simple reason. We're no longer in a situation where building a house is about housing a family. We are in a situation where building a house means you can purchase a home and that home can remain empty for several years. You don't even need to bother renting it. You can then, in turn, sell that house several years later and it will have generated a more significant return than you could have made in any mutual fund or any kind of fund in the government today.

What's happened is that housing has become a financial mechanism or a financial asset. The way to fix that is by treating it as a financial tool, so planning policy—my area of expertise—isn't going to help. I'm deeply passionate about housing Canadians. I'm deeply passionate about ensuring that every Canadian has access to a home that will meet their needs over the course of their lifetime, but that is currently confounded by financial policy.

Financial policy is a critical part of solving the problem. A disincentive to using housing as a financial tool is the only way it's going to be solved. It also needs to be tied to unlocking supply, because we have significant issues around the amount of supply we're generating.

I see these two things as needing to operate hand in glove. We need a disincentive to investors tying up housing as a financial tool and a way to make money. At the same time, we need to generate a significant amount of housing supply, in particular, affordable supply and housing that will stay affordable. These two things need to be linked together in our policy, and that is the purview of the federal government. Unlike other mechanisms, such as development charges, which are the purview of a municipality, these two things are the purview of the federal government.

I put one very specific recommendation on the table, which is increasing the taxation and recognizing the capital gains for investors on their housing, just as we recognize other employment income. Currently, the gains that you make in housing are taxed at only 50% of what would have been taxed if it were employment income.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Keesmaat.

That's the time, Mr. Baker.

We are moving to the Bloc and Mr. Ste-Marie for four minutes.

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

Thank you, Mr. Chair.

Mr. Telles, in your opening remarks, you mentioned that last year's poor harvests were due to the droughts we experienced, and you made a link between climate change and the current inflation.

Can you remind us why it is important for young people to support the energy transition to a more resilient environment?

[Simon Telles]

Thank you, sir, for giving me the opportunity to talk more about this recommendation.

In fact, there are several ways to deal with inflation. It can be dealt with directly, for example, by controlling the policy rate. But there are many other factors that affect the cost of living and the purchasing power of Canadians, and climate change is one of them. In order to find a comprehensive solution to inflation, this issue must also be addressed.

Last year, due to natural disasters, Ottawa had to provide significant additional funds to help the provinces deal with climate change. This assistance is likely to increase over the years as climate change evolves. This also has implications for the consumer price index and the cost of food.

If we want to act in a sustainable way to fight inflation, we must invest more in the fight against climate change. Above all, we must not reduce the investments we make in this area. For us, this is fundamental. This is a problem that is of great concern to young people across the country, and we must do more.

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

Thank you, that is very clear. Indeed, we are currently seeing an increase in costs, but you are telling us that, if we do nothing to stop climate change, the costs will be higher and higher in the future. That is well noted, thank you.

Also, you talked about single people or people without children. Over the last few decades, many programmes have been set up to support families. That's good, but people who are single or without children are often left out of social programs. And there is a lot of poverty on this side.

Could you tell us a bit about this and remind us of your requests in this regard?

[Simon Telles]

In fact, this is a request related to the Quebec shelter allowance program. It is highly desirable that assistance be provided for young families. However, we realize that single people who live without children face significant financial barriers, as they have no one to share the cost of rent with. They are left with a very high financial burden for housing.

We propose that extra help be given to single people without children so that they can cope with the increased rent. As they have no one to share the expenses with, an even greater burden sometimes falls on their shoulders. In our opinion, this is a flaw in the system and the government could correct it.

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

Is there any other element you would like to remind the committee of?

[Simon Telles]

In fact, I would simply like to mention that inflation does not affect all Canadians equally. So it's important that any assistance strategies that the committee puts forward target particularly vulnerable groups. I mentioned young people, but there are certainly others. To have one-size-fits-all strategies that don't take into account those particularities doesn't help the most disadvantaged people in the country.

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

That's very clear.

I thank you again for your participation.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

We're moving to the NDP, and this will be our last MP to ask questions.

Mr. Blaikie, you have the floor for four minutes.