Finance Committee on April 4th, 2022

[Stuart Levings]

That is correct, yes. We are required to have a stress-test interest rate—which currently is at 5.25%.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Okay.

It sounds as though what I'm hearing is that the risk of significant default due to interest rate changes—the way your group has characterized it today—is very low.

Is the risk of that very low?

[Stuart Levings]

The risk of default is lower due to interest rates rising than due to unemployment rising, yes. I think the bigger issue to do with interest rates is the impact they have on the affordability side, meaning the buying power of buyers, particularly first-time homebuyers.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

That's fair enough.

[Andrew Charles]

Mr. Baker, I would agree with that assessment. Borrowers don't default generally due to rising interest rates, although there's clearly a stress point. It really is unemployment that dictates and drives mortgage defaults.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Okay. I appreciate that.

You also explained earlier that there are tools that you have—and the lenders have—for individual borrowers, if they do run into trouble if interest rates rise. That's helpful.

I only have about a minute and a half left.

You asked for the raising of the $1-million cap on insured mortgages. Presumably that would open up access to homes for those who otherwise couldn't afford them, but at the same time, it would increase demand for that certain subset of homes over $1 million, which could have an impact on prices. In other words, it could drive them up.

Presumably that could price some folks out of that market. Is that correct?

As policy-makers who are concerned about ensuring that as many people as possible have access to the purchase of a home, which of those two effects are greater? In other words, if government were to do what you ask, would more people have access to a home or fewer people have access to a home?

[Andrew Charles]

We would take the view that more people would have access to a home, and I want to be clear on this, particularly in the larger markets in Canada: Vancouver, Hamilton, Toronto. We're not suggesting that this is a necessary metric or policy manoeuvre for Moncton or Fredericton. It really is for those housing markets where affordability is stretched. We view this as increasing accessibility.

It's quite possible today that those borrowers are going into the marketplace with a conventional mortgage with the assistance of the “bank of mom and dad”. It's difficult to get stats on that. However, I would strongly suggest that this is an accessibility play versus it being unduly stimulative in nature.

[Stuart Levings]

I would agree with that.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Charles and MP Baker. That is the time.

We are moving to the Bloc, and MP Ste-Marie, for four minutes, please.

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

Thank you, Mr. Chair.

I have a question again for Mr. Charles and Mr. Levings. We could change the order and have Mr. Levings answer first.

My question is about climate change.

Owing to climate change, we are seeing more extreme weather events, such as floods and forest fires. I would like to know how you take climate change into account in your fields of activity. How concerned are you about that? Can you determine the cost related to it?

[Stuart Levings]

I would say that there is absolutely a focus on climate change in our business and our industry. The focus relates to what it means for housing, naturally, and what it means for house values, because that is a clear driver of our businesses overall.

The issue that comes up is on insurability of homes. When you think about the frequency of events that have occurred, the nature of events that have occurred, it's not clear that there will always be property and casualty insurance coverage for these events, in particular going forward. I think that has ramifications on whether or not lenders are willing to lend in certain parts of the country. That's something that I think we are certainly vocal on, and we are in collaboration with lenders and insurers to think about what the options are, all of the implications, on what climate change means to having property coverage in the future.

It also factors into our stress testing. In terms of our overall financial strength and the amount of capital we hold, we run scenarios that look at significant natural disasters in certain areas of the country and what that would mean, from a loss payment or claim payment point of view, and what that means for our capital adequacy.

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

Thank you.

Do you want to add anything, Mr. Charles?

[Andrew Charles]

I would concur with the statements made by Mr. Levings.

I would also note that due to climate change, we're seeing, as an example, more flood zones created in Canada where lenders won't lend. As a tactical example, maybe 20 years ago those flood zones did not exist, but they exist now; lenders won't lend anymore, and we won't insure as a result of the implications from climate change.

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

Thank you.

I have no further questions, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

We are now moving to our final questioner, who will be from the NDP.

MP Blaikie, you have four minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

We touched on this issue a bit earlier in response to one of Ms. Chatel's questions, but I wanted to talk a little more about demand realignment in the housing market over the last couple of years.

We've heard a lot about quantitative easing at this table and the role that it may have played in increasing housing prices, but we've also seen what people want in a home change considerably with remote work. We've seen people feel free to live in places that before weren't practical because of where they work. Remote work has made more places available to Canadians to live in while maintaining their current employment.

I wonder if either of you have some thoughts about how some of those factors and the realignment of demand, whether it's for a larger space, a yard or living out of town—whatever it is—have had an impact on housing prices in the last two years.

[Stuart Levings]

I'll take a crack at that.

I think the quick answer is that absolutely it's had an impact. That is what we saw in this moving out into these farther-flung suburbs. It was really to acquire more space, to acquire a single detached type of home where one could have somebody—perhaps even a couple—working from home, and maybe even children at home while their school was virtual.

In these regions, that has put a pressure on house prices that they hadn't seen before. We do think that some of that effect is waning now. As the pandemic winds down, hopefully, and as we see some return back to offices, that should reverse a bit of it. Obviously we're not expecting any kind of major pullback or correction in prices in these sorts of communities, but we do think that the upward pressure on prices there will ease naturally over the next little while.

It is something that goes back to one of our comments around supply and the type of supply that is needed: It's the right type of supply. We're not looking for more 300-square-foot condominiums to be built, because that does not serve the market. That might serve a very narrow, niche, investor-type demand, but really, we need homes that families can live in, and that means more two- and three-bedroom types of units, which likely means larger condos or more townhouses and semi-detacheds to be built.

[Andrew Charles]

Mr. Blaikie, just to add to that, I think the unknown at this point in time is the work from home and the hybrid model. Is it sustainable and what does the future workforce look like? That will have an impact on pricing in these secondary markets that we've referenced.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Do either of you have any insights into.... We know that we have a national housing strategy, such as it is, and that there are provinces that are making attempts to try to build more units to increase supply at various points on the housing spectrum.

Given that some of these factors relating to demand for certain types of housing have been very dynamic in the last couple of years, do you have any insights into how you try to incorporate that into the public policy work that's attempting to address the supply side of the equation?

[Andrew Charles]

I don't have specific insights other than an opinion. It's going to require a significant amount of heavy lifting amongst all three governments to be able to create more high-density housing in Canada's urban centres. We feel that's where the issue is. It's your large urban centres, sir.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Mr. Levings, do you have any final thoughts on this matter?

[Stuart Levings]

I would agree. It's really around zoning and allowing for that break away from that single-detached family zoning only. That's at the heart of the matter, and that's understandably a challenging one, but it's what needs to happen.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thanks very much, both of you. It's much appreciated.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie.

I want to thank our witnesses for coming before our committee, and for your remarks, your testimony and your answers to the many questions. You are definitely experts in everything housing. It is a big national past-time here in Canada and will inform our inflation study that is before our committee.

Thank you again for coming before us and for providing us your time. That's on behalf of all the members of the committee, the clerk, the analysts, the interpreters and everyone here. Thank you very much. We want to wish you a great day, and we look forward to incorporating much of what you have said into our report.

Thank you.

Members, at this time we're going to proceed to committee business. For those who are attending virtually, as we're moving in camera you should have access to a new Zoom meeting link, and we'd ask that you go to that new link provided by the clerk and switch over. We'll wait until you come back.

[Adam Chambers, Conservative, Simcoe North, ON]

Mr. Chair, as that's happening, could I have a quick point of clarification from the clerk or you if we have a question that we would like clarified by a previous witness? I'm thinking in the context of an answer that these witnesses gave today about not insuring investor mortgages. I wanted to clarify CMHC's role in that market.

Is that question best put through the clerk to CMHC or is it something that everyone has to agree on? Is it something that comes from the committee or is it something that I should be reaching out for on my own?