Finance Committee on March 28th, 2022

[Hilliard MacBeth]

Well, as I mentioned, obviously, I was early in bringing this to people's attention with the first edition of my book. My thesis is that the housing market has to correct back to the trend line.

Research done by Jeremy Grantham shows that all bubbles burst, and all bubbles correct back to the trend line, or lower.

The trend line in Canadian housing would be a pretty severe correction in the 50% range. When I say that, people gasp, obviously, but the correction in the U.S. in 2008-09 was 38%, and their bubble was much smaller than the Canadian bubble. It took four years. The peak in prices in the U.S. was in 2006, and the prices bottomed in 2010.

By the way, they have now recovered back to the original 2006 prices in the U.S., but that took, obviously, 12 years to accomplish.

That would be the model, the template, but I would also mention that the Canadian housing bubble is much more exaggerated than the U.S. bubble was in 2006.

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

Thank you, Mr. MacBeth.

I've always enjoyed history. I'm still a student of it each day, if I can be. One thing that is certain is that history often repeats itself.

Knowing that this isn't the first time in Canada that we have been in this situation, can you tell the committee about the similarities to and differences from the 1980s and 1990s housing crash, and what we can do to mitigate our damages as a country? Do you have any advice for the government?

[Hilliard MacBeth]

The most comparable period.... We talked about it. We're here to talk about inflation, and the most comparable period for inflation would be in the late seventies, which happens to be when I started working. In my first job, I didn't have my licence to sell stocks as a stockbroker, so all I could do was Canada savings bonds. In 1978, they were at 9.5%, and three years later, they topped out at around 19.5%. Volcker was appointed in August 1979, when inflation was at 11%, and he eventually raised rates to 20%.

I'm not saying that those numbers are going to be reached, but with inflation in Canada at 5% or 6% and inflation in the U.S. approaching 8%.... As I mentioned in my presentation, the rise in mortgage interest rates is going to push the inflation rate higher. We are in a comparable situation when it comes to that, with inflation and interest rates.

However, the difference today is that there is a tremendously large amount of debt that's been taken on by housing, and that was not the case in 1980. With interest rates at 11% eventually going up to 20%, the amount of money that the average person could borrow was tiny compared to the amount that people can borrow today.

[The Chair, Liberal, Peter Fonseca]

Mr. Stewart, that's the time.

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

Okay. Thank you, Mr. MacBeth.

[The Chair, Liberal, Peter Fonseca]

Thank you.

We are moving to the Liberals and MP Baker for six minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Chair, and thank you to all of our witnesses for being here today.

First, I'd like to address Mr. Telles from Force Jeunesse.

Mr. Telles, in your presentation, you spoke of the challenges that young people are facing. You touched on a number of things.

I have a question for you about access to property ownership. You said that many young people can't afford to buy a house, and I agree with you on that.

In your opinion, should the government take steps to ensure that young people can afford to buy their first home?

[Simon Telles]

Thanks so much for your question.

We absolutely believe that the government should provide additional assistance to young people so that they can purchase their first home. While we are on the topic, if I may I will provide a little more detail than I did in my presentation. We're seeing that current programs to foster access to property ownership are not necessarily adapted to young people's reality. I will give you a very basic example. Through the home buyers' plan (HBP), people can withdraw from their RRSPs to finance the purchase of their first home. The problem is that most young people have not yet accumulated anything in their RRSPs. So in theory, this measure fosters access to property ownership, but in practice on the ground, very few young people have access to it.

In its strategy, the federal government should be more mindful of young people's reality so it can find ways to make funds available and develop construction projects to enable young people to become homeowners. All kinds of existing initiatives cap or control the price of buildings, that is, newly constructed buildings are protected from rising market costs. That would give young people access to property without falling into the speculation trap. We believe it would be worthwhile for the federal government to finance a number of projects of this kind to assist young people.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Do you have any other project ideas or suggestions to make in this area?

[Simon Telles]

With respect to access to property ownership, of course, we're talking about financial measures. All kinds of general measures could be beneficial to everyone, including young people. One of them would be to control foreign speculation on real estate. Vacancy rates can be a concern too. Having said that, the best way to solve the issue is to give special assistance to young people, who are facing an unprecedented challenge.

We mustn't forget housing assistance either. Sometimes home ownership can be seen as a luxury. However, many young people are even struggling to find housing because of the price of rent, so they can't even consider owning a home. The federal government needs to be sensitive to the housing access issue as well and provide targeted assistance.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you very much.

I'd like to continue now to ask a question of Ms. Keesmaat. One of the things I heard you speak about in your presentation was the share of homebuyers that is represented by investors. Forgive me if I noted this down incorrectly. I think you said 20% of home purchases are made by investors.

Did I record that correctly?

[Jennifer Keesmaat]

You did record that correctly. That's actually an estimate of the number across the country. It's estimated to be significantly higher in large cities like Vancouver and Toronto.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Do you have recommendations as to what various levels of government could do to address that aspect of the problem?

[Jennifer Keesmaat]

One of the biggest issues that we face today, of course, is that you can make a tremendous amount of money in the housing market. Anyone with eyes to see knows this. There was, in fact, a 60 Minutes piece on a Toronto-based company that is buying up single-family homes in America and now owns over 30,000 single-family homes, precisely because they are an asset class. They're a significant way to generate profit.

We need mechanisms in place that turn housing back into homes. The suggestion that I have put on the table is that for investors who own homes, we tax the revenue they generate as income, which we do not do today. Take, for example, a rental company that owns an entire rental building. The revenue it generates is taxed as income, but an investor who may own an entire floor in a condo building is taxed 50% less in our current taxation system.

We have an opportunity to put a fairer taxation system in place that will also act as a disincentive to investors buying up floors. That's literally what happens. They're even marketed that way in Toronto and Vancouver. They buy up an entire floor of homes in a condo building and turn them into investment units. There's a real opportunity to take the taxation tools we have today and create some fairness, but also turn down the heat on treating housing as an asset.

The second piece is with respect to incentivizing affordable housing and incentivizing the building of affordable housing by taking away the HST on affordable housing. At Markee Developments, we currently have over 2,000 homes under development in Toronto, and we try to put together projects in which we can either create a cross-subsidization or, in partnership with the landowner, maximize the amount of affordable housing. We've found that HST is often the difference between being able to make a unit affordable and needing to make a market unit viable.

Those are two ways.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you. My time is up.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Baker. Yes, that is your time.

We are moving to the Bloc, with Mr. Ste-Marie, for six minutes, please.

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

Thank you, Mr. Chair.

First, I'd like to say hello to all the witnesses. We've had some fascinating discussions and presentations today. Thank you all for being here.

My questions will be for Mr. Telles from Force Jeunesse.

Mr. Telles, thank you for your presentation and for being here.

I was troubled by the statistics you presented. In particular, you said that the average wage among 15- to 24-year-olds has declined in the past year, while we're facing historically high levels of inflation. So it makes sense that purchasing power is declining, particularly among young people.

Is that correct?

[Simon Telles]

That's exactly right.

We got the numbers from Statistics Canada. What you need to know is that the annual figures for 2021 were not yet available, so we took the average for each month to come up with an annual average. The actual final numbers may vary somewhat. We do, however, have one unequivocal observation: Young people's purchasing power has significantly declined, more than other Canadians. The decline in Canadians' purchasing power is already a concern, but young people's purchasing power has almost been cut in half. What worries us is that young people are in a more precarious situation. We absolutely must find solutions targeting young people, a more vulnerable group.

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

Therefore, inflation has had an impact on everyone, but it affects young people more, and the government needs to take that into account when developing policy.

We've talked at length about housing and home ownership. Of course, when you already own a property and prices go up, you can sell your property to buy another one. You can do that when you're already in the system. Young people who are starting from scratch, however, are faced with astronomical prices. In your response to Mr. Baker, you recommended some potential solutions to this.

People understand that home ownership is about supply, including the supply of social housing, which drives down overall prices. For first-time buyers, however, they do have a tax credit, but they may not have the cash flow.

Can you tell us about that?

[Simon Telles]

Yes, absolutely. It's interesting, sir, because you just gave another example of a measure that's available, but in reality it's not very effective and it doesn't work on the ground. People often get tax credits for buying their first property, but they only get them once they file their tax return. That's often several months or even a year after they purchase the property. They need the funds when they are purchasing the property. Young people are having a hard time saving up money for their down payment. The government needs to find solutions to help young people become homeowners, rather than giving them grants or tax credits after the fact.

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

Therefore, having cash flow as a first-time buyer of property is a very fundamental issue. I hope your suggestion is heard.

I'd like to talk about employment insurance for a few minutes. The mandate letter that the Prime Minister sent to his minister includes a commitment to reform employment insurance by June. We'll see if it gets done. Here too, the statistics are troubling. It feels like we have full employment and all that, but you reminded us that, according to the statistics, the unemployment rate among 15- to 24-year-olds is twice as high as in the general population. The statistics also tell us that of the young people who are employed, half are working part-time and over 60% have non-standard jobs.

Please explain to us how it is that someone who has a part-time or non-standard job isn't eligible for insurance they should be entitled to if they lose their job. Could you also refresh our memory and tell us what a non-standard job is?

[Simon Telles]

Yes, since the beginning of the pandemic, we've seen young people working in more vulnerable sectors, including the restaurant industry, which shut down across Canada during the pandemic. Many youth are also working in the tourism sector or in seasonal jobs. These sectors are always likely to shut down when we go through a crisis like this. Therefore, more young people lost their jobs.

The reason young people don't qualify for employment insurance is that you need to have worked a certain number of hours in the past 12 months to be eligible for EI benefits. As you can imagine, young people who are going to school, are working part-time or have seasonal employment often have more trouble accumulating those hours of insurable employment and aren't eligible for benefits.

We believe that the government should find a way to recognize the status of these young people who have more trouble accumulating insurable hours and make them eligible for benefits. By resolving this issue disproportionately affecting young people, we can keep them from being challenged. We hope the government will quickly address this issue as part of EI reform.

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

To sum up your way of thinking, let's take the example of a young person who works in the tourism of restaurant industry and wants to continue working when the business they were working for shuts down. Based on the current EI criteria, they aren't eligible for this stabilizer while they look for a new job, whereas the spirit of employment insurance says they should be eligible. The government needs to consider that and introduce a real insurance program, not one that addresses the labour market as it was some fifty years ago.

You also mentioned the—

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie. That is your time.

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

I have plenty more questions to ask. I'll wait for my next turn.

Thank you.