Evidence of meeting #34 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was mortgage.
A video is available from Parliament.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
They are absent from your practice. How about in British Columbia?
Principal Broker, As an Individual
They were absent sooner in British Columbia.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
What about some of the other larger cities, such as Calgary and Edmonton, that are not in—
Principal Broker, As an Individual
Calgary may have caught the Toronto virus. We'll see what happens.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
Okay.
It's really impossible to talk about the debt crisis without talking about real estate in Canada. What's happening right now in the real estate market? What's the health of the real estate market in Canada right now?
Principal Broker, As an Individual
The health of the real estate market is that it's probably just starting to slow down in Quebec. It was a very buoyant market. Atlantic Canada is experiencing considerable run-ups in prices. That may turn out to be against their own interests, because Atlantic Canada has never been a hotbed of massive incomes, but again, this virus that comes from these big cities has gone across the country. I can only suspect that there will be more price reduction in Ontario and British Columbia this year, a slowdown in price appreciation in Quebec, and more powers of sale, with more people struggling to make their mortgage payments.
We reached a landmark in the GTA last quarter: There were absolutely no condominium starts of any description in the GTA in the last quarter.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Butler. That concludes the member's time.
Oh, I'm sorry, Mr. Kelly. You have another minute. Go ahead.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
Okay.
Perhaps you can continue there. We've continually heard that there will be housing supply and that the steps the government has taken will lead to housing supply. We've argued for years that, no, it's going to get worse before there's any sign of it getting better. What's the current health and situation of the housing starts in Toronto, the market you're most familiar with?
Principal Broker, As an Individual
In all of Ontario, with the minor exception of Ottawa, the housing starts—not just high-rise housing but even low-rise housing—have fallen off a cliff. That's reality. They are so low as to be dangerous to the health of the construction industry in the province of Ontario.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Kelly, and I apologize. I was eager there.
Mr. Leitão, you have six minutes.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Thank you very much.
Mr. MacKenzie, you were talking earlier about the three points on which you think that policy should focus. I agree with you that the debt service ratio should be the focus of our attention. Then there is cash flow insolvency versus balance sheet insolvency. However, you didn't have time to expand on the third point you were making: the move to mid-sized cities or encouraging the mid-sized cities. Could you perhaps elaborate a bit on that?
Senior Policy Analyst, C.D. Howe Institute
Yes, for sure. I'm happy to.
The third recommendation that I was making is that federal infrastructure and things such as immigration settlement should be geared towards growing mid-sized Canadian cities. I think that in Canada we need more alternatives to larger centres like Toronto and Vancouver, where you have insanely high housing prices relative to income. Canadians who move to these large cities like Toronto and Vancouver are more likely to take on an outsized mortgage to afford a home. Then they're sort of joining that highly leveraged segment of the population that I was talking about, where there is this debt crisis. Often the policies around affordability for housing focus on the demand side. However, if you make housing slightly cheaper in Toronto or Vancouver, then you just get migration in from smaller centres. We definitely have the ability to grow these alternatives, to grow the mid-sized cities in Canada. We have great cities with great, world-class universities. Growing these cities will help grow the Canadian economy and then, at the same time, also make it more affordable.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Thank you.
You would recommend, then, that policy encourage and promote investment in smaller cities, so that they can get better jobs and people will move to those areas.
Senior Policy Analyst, C.D. Howe Institute
Yes, exactly. I think a lot of the draw for larger cities is the incomes. You get higher incomes in Toronto, and people want to move there to work. If we can grow out some of these smaller cities.... We've seen it happen in the United States, like with Austin, for instance. Twenty years ago, it wasn't really considered a major centre. Now people are moving there, and it's having economic development. I think we can do the same, for example, in Ontario, maybe with Kingston. There are a lot of different options; Kingston just comes to mind. It has a world-class university, Queen's University. Being able to grow the economy there would give people an alternative to moving to Toronto, and it would just sort of increase the options that people have when they're not only looking for higher incomes but also not wanting to spend all their money and go into large debt to afford a home.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
In another meeting we had—I think it was not the last one but the previous meeting—one of your colleagues, another economist, pointed to the fact that we've had in Canada a period of excess borrowing. Households borrowed excessively, starting in the aftermath of the financial crisis of 2007-08, when interest rates went way down. Then the same thing happened again after the pandemic. What do you make of that, of the excessive borrowing? If that's the case, whose fault is it? We're not in the business of blaming anyone, but is access to credit too lenient in Canada? Did interest rates stay, perhaps, too low for too long? Could you address that?
Senior Policy Analyst, C.D. Howe Institute
It's a hard question to answer in some ways, because there are so many confounding factors involved in it. I would say there are certainly reasons that the federal government or governments in general may take on debt, like in response to the great financial crisis or to COVID-19. As for whether or not they took on too much debt, they probably did when you see deficits balloon the way they have. Governments were responding to a crisis, so in some ways it's understandable.
I would say that this debt increase, corresponding with a period of very low interest rates, also allowed households to take on more debt, because they didn't have to pay as much monthly to service it. When you have a low interest rate environment, it's natural to increase debt.
From a business lending perspective, I think the response to the great financial crisis and the Basel III capital requirements have actually made the banks draw back a bit from business lending, especially on the smaller end. That has probably contributed to our decreased productivity. On that end, I think it's important to have pathways for more business lending and maybe have OSFI decrease prudential business lending requirements.
That said, on the consumer side, as on the homeowner side, the low interest rate environment plus the heavy government spending did allow consumers to take on quite a bit of debt. Nonetheless, as we can see, they seem to be handling it okay—at least on average—when you look at the debt service ratio.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Okay. I guess I'm running out of time.
Mr. Butler, in my next turn, I'll come to you on the mortgage renewal issue, because it is important, but my time is up.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Leitão.
Mr. Garon, you have the floor for six minutes.
Bloc
Jean-Denis Garon Bloc Mirabel, QC
Thank you, Madam Chair.
Mr. Butler, you host a podcast called Angry Mortgage. At first glance, you don't look too angry.
In language acceptable to a parliamentary audience, I'd like you to tell me what makes you most angry in the marketplace when it comes to household debt.
Principal Broker, As an Individual
I'm on CTV sometimes, so I can clear it up.
The most concerning issue that is prevalent today is that despite a drastic reduction in house prices, it's not enough. It's not enough to bring the average Canadian and young Canadians to a point where they can easily afford homes. This is very meaningful.
I support the idea of developing smaller centres and smaller cities getting bigger. However, the way the world works is that the action is in larger cities. It is just that way. We've seen Calgary grow. We've seen Edmonton grow. They are feeling the effects in the price matrix of those things.
The point I would make is simply this—and it's not necessarily a federal issue. It might be a provincial issue. There has to be deregulation of how we allow the building of houses. There have to be ways to get more land available at lower costs. There have to be ways just to have lower-priced materials in the homes. There have to be ways to address the massive charges that municipalities put on new home builds. The Government of Ontario just moved on that matter. That's been a crucial issue that has relentlessly increased the price of homes.
Bloc
Jean-Denis Garon Bloc Mirabel, QC
Thank you.
On another topic, when we look at social networks like TikTok, we see that there are a lot of people, a lot of young people who get information about personal finance, how to get rich and how to invest in people, some of whom are a good prospect, and some of whom are not. In addition, we've seen a real estate fetish develop. As a result, real estate is being presented as a way to get rich very quickly. Presumably, that's speculation. People have benefited from price increases in recent years.
What are your thoughts on that? What do you think about the quality of the information that young first, second or third-time buyers are exposed to?
Do you think that's a good strategy? In your practice, have you seen people become financially compromised by using these serial buy and refinance techniques?
Principal Broker, As an Individual
That's an excellent question.
The most popular mortgage person on social media in Canada is Québécois. He is Pierre-Charles Jolicoeur, who has an enormous following in the province. It far outdistances anything I have accomplished in English Canada. You make a great point that—
Bloc
Jean-Denis Garon Bloc Mirabel, QC
Would you let him advise you? Is it good advice? Are those good investment techniques? Ultimately, shouldn't the people who listen to these would-be advisers invest in more productive assets elsewhere?
Principal Broker, As an Individual
It is almost universally bad advice. It is almost exclusively trickery and memes; it's really bad advice in general. It's a free access platform. Anyone can say whatever they want on those. Unfortunately, the majority of the financial advice that's given is pretty bad, so I would support that concept.