Finance Committee on May 18th, 2023

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Groceries...?

[Philip Cross]

As for groceries, that's one area where I think it's a reach. Food is determined more by supply factors than by demand. I think it's unique in that respect.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Fair enough. Thank you for that.

I want to go to Mr. Lee for a second.

[The Chair, Liberal, Peter Fonseca]

You have 30 seconds.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Okay. It will be a quick one.

Mr. Lee, you said that housing starts have dropped 30%. Have you ever seen that happen before in your career?

[Kevin Lee]

Yes. Over time, we have seen starts tail off, for sure. What I'm saying is that our housing market index is suggesting they could drop by 30% moving forward. We're seeing the slowdown now. We look at the lag of sale starts.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

What could government do to fix that?

[Kevin Lee]

It's pretty much everything I outlined. It has to come at it with a multipronged approach.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Morantz.

Now we'll go to the Liberals.

MP MacDonald, you have six minutes.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

I'll follow up with Mr. Lee again. For all the hard work you did to get here, we should accommodate you as much as possible.

You talked about the mortgage default question. Arrears are at an all-time low, which is very interesting. We've heard over the past couple of years what was going to happen to the housing market and the defaults that were going to take place. Hearing you say that is very interesting.

I'll let you expand on that a little bit, but I have a couple more questions for you.

[Kevin Lee]

You're absolutely right. There was the mortgage deferral cliff that the past-president of CMHC was warning about, and nobody was agreeing with that at the time either.

There's so much risk aversion right now with respect to the financial system writ large. We lost sight of the fact that housing is a good financial investment, and the debt that comes along with that servicing is actually creating financial wealth for Canadians. Houses aren't supposed to accelerate at the rate that they have been. That's another issue. That's not why people buy houses. People buy homes not to get rich but to put a roof over their heads. We really need to make that available to the next generation. All of the mortgage rule tightening has really locked out the next generation. We've overcorrected.

[Heath MacDonald, Liberal, Malpeque, PE]

I think we were in an unprecedented time, so it's very interesting to look back now as kind of a history lesson for us going forward.

You also mentioned the amortization period. Can you give me a couple of examples of how this could possibly stabilize young persons getting into their first-time homes?

[Kevin Lee]

About 12 years ago now, we made our final march down, from 30-year amortizations down to 25, coming down from 40, which was probably too high. That last hit, from 30 down to 25, really knocked thousands of potential buyers out of the market.

We suggest that it is time to return to 30-year amortizations for insured mortgages for first-time buyers. It gives them extra purchasing power. At this time, when we look to double housing starts, we can't just build houses with nobody able to buy them. The days of building spec homes are not really upon us. We're going to need to make sure we have qualified purchasers.

When you're looking at entry-level homes, getting first-time buyers into the market with 30-year amortizations would make a lot of sense. They're not going to drive the entire housing market crazy. In fact, it's a little bit of a chicken-and-egg.... You need more homes, but you can't have more homes unless people can afford them.

Let's enable those young people to get in. They're going to be in the mortgage market for more than 25 years anyway. They're going to get in, live in that house for a few years and then get a move-up home, at which point, ironically, they can get a 30-year amortization or a 35-year amortization on their next home. Somehow we're not allowing young people to get into the market in the first place.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

You talked a bit in your reaction to budget 2023 about ratcheting down the stress test. It was a somewhat controversial item at the time. Now that we look back and we have seen the interest rate crawl up to 4.25%—and the stress test was based, I believe, on 5% or 5.25%—I'm wondering if that was a good move at the time.

Can you provide any details on how quickly we should reduce that stress test level? Are there any statistics, or is there anything you have that you can provide me with?

[Kevin Lee]

When you look at it, certainly, if you are on the side that thinks the stress test is very good, you would say, “Look at the arrears rate.” Conversely, if you are on the side that thinks we need more Canadians able to buy homes, you'd say that the arrears rate is at a historical low. We've gone too far. It's finding that happy medium.

There's been a lot of talk, ever since it came in, saying that it was a little too strenuous and it should be adjusted. One of the ways we've always suggested it be adjusted is that it be ratcheted down with longer-term mortgages. Right now, a five-year fixed mortgage is the most common, and we don't see much of seven-year and 10-year mortgages.

However, if we were to ratchet down the stress test to around seven-year and 10-year terms, you could encourage people to lock in for longer. It creates more stability in the marketplace. By the time they're at seven or 10 years, household incomes have probably gone way up and you have much more equity in your home. You're in a much better financial position, and you've taken away a lot of the risk while creating stability in the market.

That would be one of our recommendations around the stress test.

[Heath MacDonald, Liberal, Malpeque, PE]

I'm going to touch on labour really quickly, because it's obviously an issue. In my home province, I'm starting to see the Construction Association of P.E.I. do some things we've never seen it do before. It's using virtual reality to train people, and programs set up for newcomers. You're going to start to see growth in that sector. It's going to take some time, obviously, with the government allowing the trades to be part of the immigration model and opening those doors up.

We all want it to be faster, for sure. However, it was almost like the housing market hit the perfect storm over the past few years, and COVID-19 really exposed that in some instances. Is there anything else? I listened very closely to your preamble, and I was very impressed with some of the ideas you had.

Is there any one idea that may stand out more so for getting more people—immigrants—into the workforce more quickly if you're not seeing that somewhere, like in Vancouver if that's where you are today?

[Kevin Lee]

I think what we really need to do is focus on the right people, and we need to listen to employers when it comes to immigration, as well, to bring in the right skills. Sometimes it's just the right disposition. In residential construction, we don't always need a Red Seal carpenter, for example. We can take labourers and turn them into framers, and they can do some great work. I think we need to focus on people who are going to be inspired to work in construction.

To your point, we need to do even more work to make sure we overcome the language barrier, and we're very good in the industry at taking care of health and safety. In no place is health and safety more important. You have to make sure you get the language stuff right, so we are doing much more work.

To your point on virtual reality, animation and all those things, where images and videos and everything can help people learn, this is going to be very important. As I was also saying, I think to build a lot more housing, we're going to need to change our—

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Lee.

Thank you, MP MacDonald.

Now we'll go to the Bloc and MP Ste-Marie, please.

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

Thank you, Mr. Chair.

First, hello to all the witnesses. Thank you for joining us on such short notice. This is a high-calibre group of witnesses.

Thank you, Mr. Leblanc.

Mr. Lukács, your presentations and all the work you do are always greatly appreciated.

I'd like to respond to our colleague Mr. Morantz. He had some very harsh words to say about economists. As an economist by training, I was greatly hurt. I would say to him that when economists are wrong, they always have excellent reasons to explain why the forecasts were off.

[Some hon. members]

Ha ha!

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

On that note, Ms. Brazeau, I offer my congratulations to Équiterre on its 30th anniversary. It's amazing how quickly time flies.

My first questions have to do with the Canada Growth Fund and investments in the green economy, namely the $80 billion to support the energy transition announced in the last budget in response to the U.S. Inflation Reduction Act.

I had asked a question of the department on March 30, and we received a reply on May 2 with a breakdown of sorts of the $80 billion amount. We learned that there was $12.5 billion for carbon capture, $17.7 billion for hydrogen production and $25.7 billion for electricity, which includes nuclear, including small power plants and modular reactors.

How do you react to this?

Before hearing your response, I'd like to remind you that, in Bill C-47, the transfer or disbursement of this $80 billion will not happen all at once. First and foremost, two institutions will be created to administer the sums the government plans to invest. As a result, these sums will no longer be under the control of parliament. We, the members of Parliament, the legislators, will no longer be able to vote on these sums.

I'd like to hear what you think about all this.

[Andréanne Brazeau]

Good afternoon, and thank you very much for those questions.

I'll start with hydrogen. It doesn't need to be repeated, but I'm going to anyway: clearly, the era of fossil fuels is over. This means we have to work on the development of the next sectors, the sectors of the future, namely clean energy. The only form of hydrogen that is truly clean is green hydrogen.

Yet government still plans to support investment in other types of hydrogen, such as grey hydrogen or blue hydrogen, and therefore maintain this dependence on fossil fuels. Certainly, if we want to sustainably transform of our economy, we have no choice but to focus solely on green hydrogen. This is what we're strongly recommending to the government. It would necessarily involve the government revising its hydrogen strategy.

Second, and I think you understood it from my presentation, carbon capture and storage are false solutions. Instead of investing in transitioning workers who drive the Canadian economy, we're locking them into a sector that's doomed to disappear anyway. Carbon capture and storage is unproven, extremely expensive, and leaves us with the false hope that we can continue to increase oil extraction in Canada. For Équiterre, this is tantamount to abandoning people. Last year, Quebec was very courageous when it passed a bill putting an end to oil exploration. This shows the way forward for many countries around the world, including Canada.

As for the last point, there are different parts to it. I haven't studied the fund's governance in detail. I could send you more specific comments. There are certainly advantages to depoliticizing and making independent the management of certain funds according to established scientific and rigorous criteria, which are compatible with getting rid of fossil fuels. On the other hand, not knowing all the details of this fund's governance, I can't say without a shadow of a doubt that I'm in favour of it either.

I'll stop here, but I'm curious to hear what you also think about it.

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

Thank you very much.

I have a few seconds left. I'd like to know what you think of the investments going to Volkswagen, which plans to manufacture electric vehicle batteries in St. Thomas, Ontario.

Do you support that? The energy used will come from hydrocarbons. What's your position on this type of development?

[Andréanne Brazeau]

We must transform the Canadian automotive industry if it is to remain competitive in the economy of tomorrow. That's clear. However, when it comes to the quantity, format and size of batteries or vehicles that we want to see built in the future, we need to focus on sobriety if we want to reduce our energy consumption. That's for sure. Furthermore, the fact that the energy used comes from fossil fuels is clearly incompatible with achieving net zero.

I feel we still have some thinking to do as a group about the vehicles we want to see on our roads in the future. If the trend continues, by 2028, all we'll have on our roads will be light trucks like pickup trucks or SUVs. We would like robust measures to be taken to ensure that compact vehicles remain within our reach, that we can still buy them. It's also a matter of social justice, since compact vehicles are more affordable.

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

Thank you very much.