You're very welcome. I'm in Vancouver, so I didn't even know where I was going. It worked out okay.
Thank you very much, Mr. Chair and members of the committee, for the opportunity to speak today.
As you likely already know, we are in a construction slowdown thanks to the interest rate increases of last year. As they rose, sales slowed to a trickle. As a result our CHBA housing market index now suggests that we could see as much as a 30% drop in housing starts, which corresponds to other data we're collecting, like 23% of members cancelling projects and some 59% expecting to build fewer homes this year.
This is the opposite of what is needed given the housing affordability crisis in Canada, driven in large part due to the severe housing shortage. CMHC analysis shows that to make up our housing deficit we would need to build 5.8 million homes over the next decade, which would require more than doubling our housing starts.
How do we get back on track?
Firstly, let me say there is no silver bullet. We need a comprehensive approach from all angles and from all levels of government. The focus should be on three key areas. We need to fix the mortgage system so well-qualified young people can buy new homes and, in response, industry can build more. We need to stop government policies that add costs to housing and find ways instead to reduce costs, and we need to address the labour shortage.
Regarding the mortgage system, Canada has been so worried about its financial system's stability that we have taken away the ability of young Canadians to buy homes. We've overcorrected at the cost of dropping home ownership rates from nearly 70% in 2011 down to about 66% in 2021. One would would expect this would all be to protect against what would be rising mortgage defaults, but instead the mortgage arrears rates have fallen to historic lows of about 0.15%. Furthermore, young Canadians have the lowest risk profile of any mortgage borrower.
As this budget looks at its oversight of OSFI, all government departments, regulators and agencies should be tasked to work together to balance risk with the need to build more homes, address affordability and return home ownership to being an attainable dream for more Canadians.
It's not time for OSFI to tighten mortgage rules still further. In fact, it's quite the opposite. It's time to find ways to relax the stress test on both insured and uninsured mortgages responsibly. It's also a time to allow mortgage insurers to return to 30-year amortization periods to enable well-qualified first-time buyers to be able to access the market. This will enable more housing to be built, thereby avoiding cost acceleration and enabling the home ownership rate to turn around as it should.
Governments also need to stop adding costs to homes and instead need to do their part to reduce the price of homes. The GST rebate on new homes hasn't changed since its inception in 1991. In the over 30 years since that time, the price of homes has more than doubled. It's time to double the GST rebate thresholds themselves. I would add that the first-time homebuyers plan, the tax-free home savings account and renovation tax credits are all good steps as well, given that every little bit helps.
Also, regarding the GST, we need to zero-rate purpose-built rental construction, as we do groceries, since GST cannot be collected on rent. Currently, the GST translates to higher construction costs and higher rent. Capital gains and capital costs allowance treatment also harm the business model of purpose-built rental. Developers are far better off building condos. Tax reform on rental is therefore needed to fix the broken business model of purpose-built rental and get the hundreds of thousands of units we need under construction.
Meanwhile, every code or standard change these days, and there are many, is increasing the cost of construction. It's time to make affordability a core objective of the national building code and only allow cost-neutral changes. If the change is important but it's more expensive, we need to invest in R and D to make it affordable before regulating.
Cities need to stop adding costs to construction by continually increasing development costs and taxes. They need to change their approach and accelerate development. The rollout of the housing accelerator fund is an important step in encouraging that change. The tying of infrastructure and transit investment dollars to housing supply outcomes also needs to move forward.
We also need to cut red tape that adds costs. Simply, industry needs to be exempted from the underused housing tax. Our members are filling out thousands of forms for nil returns for the underused housing tax for no reason.
Finally, and very importantly, there's the labour shortage. The Canadian apprenticeship service, the labour mobility deduction and the doubling of the deduction for tool expenses are all good steps, but we still need many more people. The plans of the government to focus immigration on skilled workers, especially for home construction, are critical to getting more homes built faster. Even with that, we will not have enough workers to double housing starts.
We need to increase productivity through factory-built solutions, but that will take investments and the volatility of the market makes that investment risky. CHBA is beginning an industry transition strategy that will outline the types of changes required, the risks involved and the way the federal government can help support that transition.
We recommend that the government prioritize and support investment in modular and other factory-built technologies, similar to the most recent federal budget's emphasis on clean technology investments through tax credits and strategic funding.
With that, I'll end it.
Thank you very much. I look forward to answering any questions you may have.