Finance Committee on June 15th, 2023

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Okay.

You talked about the labour market being strong, incomes rising and people having strong balance sheets.

I have a financial background. I studied accounting, and I know what it means when people say, “I have a strong balance sheet,” but for folks at home who are watching this, when you say they have a strong balance sheet, what does that mean?

[Matthew Emde]

One of the things that I'd point to is net wealth—so assets minus debt. Household net wealth as a share of income is well above its prepandemic level. In particular, housing equity—your home value minus the debt you owe on your home—is at high levels as well, higher than in history, higher than prepandemic.

Other broader measures like debt-to-asset ratio, which is kind of a measure of leverage, is also lower than prepandemic levels. Those are the positives. It's kind of tempered by the fact that the debt-to-income ratio, which is an often cited metric, is slightly above prepandemic levels. It's been elevated for a number of years.

Those are some of the key metrics we look at in terms of balance sheets.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

How much time do I have, Mr. Chair?

[The Chair, Liberal, Peter Fonseca]

You have about 30 seconds.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I won't have time for another question. I'd love to ask more. I'm sure my colleagues will ask some great questions, but I think what I heard you say in your last response was that people's net wealth is higher on average. This doesn't apply to every individual but, on average, Canadians' net wealth is higher than it was prepandemic, and incomes are up compared to that time—the labour market is strong—so people are able to better withstand some of the higher interest rates than they would have if that hadn't been the case. Is that fair to say?

[Matthew Emde]

Yes, that's correct.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

That doesn't mean folks aren't struggling. That doesn't mean people aren't having a tough time. I know they are because they speak to me about it.

What it seems to indicate is that a lot of Canadians have built up the savings or higher incomes to be able to cope with higher interest rates. From my perspective, that means those folks who can't or who haven't had higher incomes and are struggling are the folks we need to focus on to help them get through this.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker.

Now we're moving to the Bloc and MP Ste-Marie, please.

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

Thank you, Mr. Chair.

I want to thank all four of you for being here.

As you can see, higher costs and interest rates are a topic of considerable concern to us.

Mr. Chambers raised the matter of mortgage loans that can be amortized over a period of more than 25 years. That troubles me greatly because my sense is that the main determinant in the purchase of a house is monthly payments. If people are allowed to amortize their mortgage over a period longer than 25, 30 or 35 years, for example, that provides minor short-term relief but exacerbates the problem in the medium and long terms. When I see what's happening in Japan, where you can pay off a mortgage over three generations, I don't think that's a society I want to live in.

I have a lot of questions for you. The first concerns the first-time home buyer incentive offered by the Canada Mortgage and Housing Corporation, or CMHC. I took advantage of it many years, even decades, ago. Have you observed an increase or a decrease in the number of people applying to this program as a result of increasing borrowing costs, or has that number remained stable? How is it changing?

[Robert Sample]

Thank you for your question.

I don't have any statistics for you today on changes in the use of that program, but it's probably a good question to ask CMHC.

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

Thank you.

We would appreciate it if you would send us any information you have on that. Otherwise, we'll invite some CMHC representatives in July.

The federal government has been making a lot of housing announcements. In your department, have you quantified the impact that the construction of all the housing units planned by the various federal housing programs would have on the market?

[Robert Sample]

Thank you for your question.

You'd probably have to clarify the programs you're referring to.

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

I'm actually talking about all the programs that the federal government has announced for the construction of more housing units, whether it be social housing, affordable housing or even private housing.

Based on your forecasts, will the construction of those housing units solve the problem of housing accessibility? Have you taken a comprehensive look at this?

[Julie Turcotte, Acting Associate Assistant Deputy Minister, Economic Policy Branch, Department of Finance]

That's very hard to do because the purpose of some policies, for example, is to improve regulations for increasing the housing supply. What the government said in the last budget is that it wanted to double the housing supply by 2035. Many policies are being introduced to address the problem in a comprehensive manner. We have to see how we can help people who are having trouble accessing housing. On the supply side, we have to accelerate housing starts and the construction of new housing units. We have a number of policies for that purpose.

So it's very hard to quantify the impact of these measures, but our objective is still to double the housing supply by 2035.

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

Very interesting, thank you. I'm going to pick up on that.

I'm also concerned about the labour shortage, particularly in the construction industry, and increased material costs.

Considering this new situation, will the policies announced to date be enough to double the housing supply by 2035, as has been announced?

[Julie Turcotte]

Once again, as I said, it's hard to quantify the impact of all the policies. It's true that the labour market is very tight right now and that it's hard to find workers. However, a lot of changes have been made to regulations in order to densify the housing stock. A lot of progress can be made in that area.

If you look at housing starts, recent levels have remained relatively strong compared to those before the pandemic. We've seen a bit of a slowdown recently, which is to be expected when the real estate market slows down.

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

Thank you very much.

This is very interesting. I've learned over the years to understand what's left unsaid in your answers. It's very edifying.

I'm going to move on to another topic now. People who have less flexibility in buying a house are the ones who suffer from rising variable rates. And from what we can see and hear, those who have variable rates, and therefore absorb interest rate increases, are mainly young people and first-time buyers.

Is that also what you are seeing?

[Matthew Emde]

We don't have the necessary data to answer that question. I think you should put it to the Bank of Canada or the Office of the Superintendent of Financial Institutions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

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

I have a lot more questions, Mr. Chair, but you're cutting me off once again.

[The Chair, Liberal, Peter Fonseca]

Thank you. We will have more rounds, MP Ste-Marie, but those were great questions and answers.

We're going now to the NDP and MP Blaikie, please.

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

Thank you very much, Mr. Chair.

I want to assess the extent to which we're in a bit of a structural quandary, because we've heard the Governor of the Bank of Canada say that his intention is to raise interest rates in part, at least, to try to cool off the housing market. I'm glad to see Canadians who really are struggling with the cost of housing see some relief and see some financial institutions trying to provide relief.

I guess the structural traps seem to be that, as long as financial institutions are mitigating the impact on Canadians who would struggle to pay their mortgages, like effectively increasing their amortization through fixed-interest or fixed-payment mortgages, essentially just extending the amortization to make up for the fact that the payment no longer covers any of the principal or even all the interest, then the conclusion that the Bank of Canada draws is that they need to increase interest rates further, because they're not seeing the cooling effect that they had anticipated in the absence of those measures.

As policy-makers, how should we try to understand that structural problem, and what do you think are some solutions to try to get out of that trap and support Canadians in maintaining their homes?

[Robert Sample]

What I can say is that monetary policy is an independent decision of the Governor of the Bank of Canada and the governing council. On all the other policies that are put in place, for example, decisions that the superintendent is taking around mortgage underwriting or capital requirements, or if the Minister of Finance were to adjust something or the Financial Consumer Agency of Canada were to adjust something, there's sharing of information among those agencies, so I would put the monetary policy decision to the side.

Generally speaking, adjustment to rules or analysis is prepared by the superintendent of financial institutions, and that's shared with all the regulatory agencies at the highest level in a body that's called the financial institutions supervisory committee, and the deputy minister of finance also chairs a senior advisory committee on financial policy matters, including the issues that are being discussed today, where the principals of those agencies are there.

These things are discussed.

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

I've no doubt that they're discussed, and I'm not suggesting that government should try to set monetary policy, but just as the bank forecasts things about government fiscal policy and takes an interest in government fiscal documents when setting its policy, surely government looks at what the Bank of Canada is saying and its own reporting on its own policy-making and the factors that influence its decisions, and then incorporates that, I would hope, into its own fiscal policy-making. It's not because the two are the same. It's not because it's the job of the government to set monetary policy, but because it has to create its fiscal policy with some awareness of what the monetary policy situation is.

In a context, which we seem to be in, where the Bank of Canada wants to reduce prices in the housing market, and we see banks moving to try to rightly help Canadians, but that has an effect of slowing price decreases in the housing market, what kind of fiscal policy could help Canadians who are stuck in this trap so that we don't see persistently climbing interest rates cause more Canadians to find that their mortgages are in jeopardy because interest rates have gone higher?

It seems to me that we're caught. We don't want more Canadians to be in a more difficult position than they already are, and we don't want the folks who are already in a difficult position to be sacrificed on the altar of getting Canada's housing bubble under control.

What are some fiscal policy ideas the government has looked at that might mitigate that difficult trap that we seem to find ourselves in?

[Robert Sample]

I have just one point to make before my colleague Julie will have more to say.

In terms of monitoring the situation of how actually these cases, these variable-rate mortgages...there will be an issue that is being managed with fixed-rate mortgages as well. With those mortgages that were taken out in 2021, if they're five-year fixed, there could be a payment increase five years down the road from that, so that is coming up as well.

It's early days, but OSFI is monitoring how financial institutions are managing these cases. Please direct your questions to OFSI on this, but there is some evidence that a number of borrowers are increasing their payments.

Some will be seeking hardship relief and other things, but there definitely seem to be some borrowers who are choosing to increase their monthly payments and are able to manage that. That draws on the points my colleague Matt was making about the financial position of Canadians. This is early days and something that requires further monitoring, but I just wanted to make that point.