Human Resources Committee on May 27th, 2024

[The Chair (Mr. Robert Morrissey (Egmont, Lib.)), Liberal, Bobby Morrissey]

I call this meeting to order.

Welcome to meeting number 115 of the House of Commons Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities.

I want to remind those in the room that to avoid feedback, please place your earpiece in the approved location on the table in front of you. Please refrain from touching the mic while it is active, which is while you're speaking, to prevent hearing damage to the interpreters.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

On a point of order, Mr. Chair, there's English translation on the English channel.

[The Chair, Liberal, Bobby Morrissey]

Is it good now?

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

That's better. Thank you.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Ms. Gray.

Today's meeting is taking place in a hybrid format. Members are appearing in person in the committee room and joining us virtually on the screen.

Please direct all questions or comments through me, the chair, and please wait until I recognize you before speaking.

You may speak in the official language of your choice. In the room, interpretation is available using the microphone in front of you. For those appearing virtually, click on the globe icon at the bottom of your screen and choose the official language of your choice.

If there is any interruption in the translation, please get my attention. You can use the “raise hand” function online. If you're in the room, you can get my attention. We'll suspend while it is being corrected.

This meeting is taking place pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, February 12, 2024. The committee is commencing a study of federal housing investments.

Before I welcome the witnesses, I want to point out that we were late starting. We may be interrupted again, but we have the resources to conduct a full two-hour meeting, which is my intention. I've had a request for the first hour to be extended to an hour and 15 minutes, which I have agreed to, unless there is a strenuous objection from the committee.

We will then suspend while we transition to begin our review of version one of the volunteerism report.

Today, we have with us in the room, Kevin Lee, chief executive officer of the Canadian Home Builders’ Association.

By video conference, we have Richard Lyall, president of the Residential Construction Council of Ontario, and from the Royal Bank of Canada, we have Robert Hogue, assistant chief economist.

Witnesses, we were delayed because of votes in the chamber, but we will be proceeding with a full meeting.

We will begin with Mr. Lee.

You have up to five minutes for an opening comment, if you choose to make one.

[Kevin Lee, Chief Executive Officer, Canadian Home Builders' Association]

Thank you very much for having me and for the invitation to be here while this committee takes on the important issues around housing.

As you know, I'm the CEO of the Canadian Home Builders' Association, which represents over 8,500 member firms across the country in home building, land development and renovation, and supports the suppliers and service providers in the residential construction sector. This represents over 1.5 million jobs and $211 billion in economic activity from coast to coast. Our members build low-rise and high-rise housing for home ownership and for rent.

The motions that launched this study speak to three different but related parts of the housing continuum: one, below-market-rate housing, which is often referred to as social housing or affordable housing; two, market-rate purpose-built rental; and three, market-rate home ownership. I draw your attention to these three different parts of the continuum because it is important to understand how they are intrinsically connected.

In the current housing crisis, all three are under stress, which is not surprising because affordability in the market-rate part of the continuum has deteriorated brutally over the past decade and a half, which in turn has put more pressure on the below-market-rate affordable housing stock. This is important to understand because there is often a call for more funding for affordable housing, which you will no doubt hear a lot about in this study. While that funding is important, I'm here to tell you that you'll never fix the affordable housing issue with funding alone. There are simply not enough tax dollars to go around.

As past chair of the International Housing Association, I can tell you that these challenges are not unique to Canada. Experts from developing countries in the IHA tell us something about their countries that applies equally to developed countries like Canada: If you don't first fix housing affordability, you can never fix your social housing problems. If you don't fix housing affordability, people can't buy homes. That puts pressure on the rental housing stock, as more people are forced to rent, and rent prices keep going up due to increased demand and other affordability issues. This in turn puts mounting pressure on the social housing stock, as more people need housing assistance because they can't afford market-rate rental units.

In this scenario, no matter how many affordable units you build, the lineup will keep getting longer for more. I heard a term for a similar problem from a policeman when I was involved in studying the challenges in Vancouver's Downtown Eastside. He said that without policy fixes, trying to deal with addiction on the streets was just like shovelling water. If you help one person, then there is a new one right behind taking their place and it's like you did nothing.

We need to break that cycle in housing. That can only come with fixing housing affordability across the board.

The current issues of housing affordability have developed over the past two decades through policy action or inaction at all levels of government. There's no silver bullet to fix it. We need a comprehensive approach that comes with the challenge from all angles for all levels of government.

We know we need much more supply. Numbers like building 5.8 million units over the next decade are important targets to strive for, but our industry can't build more homes if people can't afford them. While high interest rates have slowed the market down right now—and we need those rates to come down as soon as possible—it is actually the ever overtightening of mortgage rules that has been knocking well-qualified buyers out of the market for the past 15 years. We were therefore very pleased with the move to 30-year amortizations on insured mortgages for first-time buyers in new construction. We would advise that this be extended to all insured mortgages for new construction as soon as possible. A revision of the stress test is also critical and long overdue.

High interest rates have also severely hampered purpose-built rental construction, but again, the problems began long before the rise in interest rates. The PBR business model has been broken for decades, resulting in a lack of PBR supply. That is why we had long called for and are happy to have secured the removal of the GST on purpose-built rentals last fall. I would note that we also need to fix the GST threshold for the new housing construction rebate.

Back to PBR, we need simplified access to more low-interest financing and less encumbrance on that financing on things that drive up construction costs. Energy efficiency, accessibility and more affordable housing units are all fine, but not if they are excessive and drive up the costs of the market-rate units.

That brings us to the building code. There is too much going into the building code too fast. It is driving up house prices and reducing housing supply. We need to make some smarter choices to optimize all of our housing challenges.

I'll wrap up by saying that there are several other issues driving up house prices, too, from development taxes to red tape to Nimbyism to labour shortages. We are seeing the start of policy action to address these, which is good, but we need to keep going at all levels of government.

I look forward to your questions. I'd be happy to expand on any and all of these issues.

Thank you.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Lee.

Mr. Lyall, you have five minutes, please.

[Richard Lyall, President, Residential Construction Council of Ontario]

Thank you for the opportunity to be here, Chair Morrissey and members of the standing committee.

I just want to say first that I concur with Mr. Lee's comments.

I'm pleased to have this opportunity. We're in a crisis moment. It's a crisis in not just housing but also in growth management. The data points are truly shocking when you look at them.

I'm the president of the Residential Construction Council of Ontario. We're a council of builders in Canada's largest province. We know that the housing crisis is affecting many developed countries across the world, but we are one of the most afflicted, in my view. It's ironic, because we occupy one of the best pieces of land on the planet. We have unparalleled resources in land and people, and yet we can't build affordable housing for our existing Canadians and those to come, which is critical, especially for the next generation.

I would urge you in your deliberations to take all of housing into consideration, not just one part of it. There's research that supports this, because this especially affects what we're seeing now, where first-time homebuyers are pretty much extinct.

This crisis has been decades in the making, as Kevin noted. There were various points where we cancelled long-term investments in social housing and where there was a budget freeze by Canada Mortgage and Housing. Then we introduced the GST. In the 1990s it was supposed to have been adjusted for inflation. It didn't happen, and I think that's coming back to bite us now.

We've been warning about some of these things for some time, but that's not anything new. Some solutions are in the works now with all levels of government, which is quite positive. That's a good thing. We certainly support the efforts by the federal government with respect to purpose-built rental housing, because that's absolutely needed. It's vital for economic development and labour mobility and so on. But we need to do a lot more.

Some of the problems we have lie in the area of excessive red tape. That's not necessarily a federal problem, but it certainly has been growing over the years. One of the general problems we've had is that we've had different actors at various levels of government and within governments all acting in a way that affects housing, but no one's really coordinating it from the 30,000-foot level. Something really needs to get done there. We need to run simulations. We need to digital twin. We need to examine better what the impact of proposed measures would be. We're not forecasting well enough. We're still mired by outdated regulations, inefficient approvals processes and file management not really utilizing the most advanced techniques.

The OECD ranked us 34th out of 35 countries in our ability to get things done. We've been calling for over a decade to modernize and digitize our approvals processes, both development and building. That's been very, very slow. In fact, we're well behind other jurisdictions. This can't be left to municipalities. They don't have the individual expertise. They don't have the economies of scale to deal with that. Frankly, we need common performance standards across the board, which would help.

We did the first study, with some others, on how much the taxes, fees and levies are on new housing now. It varies across Canada, of course, but in the greater Toronto area, it's 31% of the cost of new housing. In British Columbia they did their own study, and it's 30%. That is by far the highest in North America. It's not sustainable. It particularly hits the first-time buyer the most. We effectively tax housing like we do alcohol and tobacco. It's like a sin tax. It doesn't make sense, and it's too much.

We need to do things on lands—Crown lands, government lands—and we need to deal with innovation and modular housing and mandates there. Things like building information modelling mandates are badly needed.

I would point out to you a recent report by CANCEA that was really interesting. It was on the social value cost of the housing crisis in the GTA. It was prepared for the Toronto real estate board, of all things—quite surprising, but I commend them for that. It equated the housing crisis with chronic illness. It was equated with cancer, diabetes and heart disease. That's how bad it is.

We often look at things in little silos. We need to take a broader view and a holistic view of what the broader impact of this is.

We need to do more. We need to work more effectively together, and that's industry and all levels of government. I think we can do this. I think we're getting there because I think we're hitting a wall because, as you probably know, in most parts of the country housing starts are starting to come down. The supply is actually falling at the worst possible time. I think that reflects exactly where we're at.

We need that broader oversight. I'm not sure how that can work. I reckon we're one of the most decentralized countries in the world, and that's not necessarily a problem, but we have to pull together to borrow an old rowing term on this, and I think we can.

Anyway, I'll stop there.

Thank you.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Lyall.

Now we go to Mr. Hogue from the Royal Bank of Canada.

Mr. Hogue, you have five minutes.

[Robert Hogue, Assistant Chief Economist, Royal Bank of Canada]

Thank you for the opportunity to speak to you today.

I, as an economist, have been tracking and following the housing market for many years, and specifically focusing on housing affordability. This is a report that RBC has been putting out for decades now. It goes back to the mid-1980s. The developments over the past several years are telling us that we are indeed in a crisis, which is a term I don't use very lightly.

As was said before, this was, in some parts of Canada, decades in the making. In fact, in the second half of the 2010s, we were talking about a crisis in the Toronto region or in the Vancouver region. I think what happened since then is that we had a perfect storm that occurred because of the pandemic and the policies that were put in place to get us through it, which made it, unfortunately, a nationwide crisis. When we look at our measures, which specifically look at ownership affordability, the cost of ownership has increased tremendously in every single market across Canada that we study.

This is not an isolated issue. It is pretty much a nationwide issue, which is probably why the committee is looking at this very specifically. Now, the sources behind this, and I think both Mr. Lyall and Mr. Lee did a good job at highlighting some of those factors, although they're very complex and cut across all levels of policy-making and through the industry as well, I narrow it down to very simple terms from an economics point of view. It's been the inability of the supply side to adjust and respond quickly enough to sharp increases in demand.

For those of you who have had an economics 101 course, when you have a stronger demand than supply, the adjustment mechanism is prices. This is exactly what we've seen, especially during the pandemic. When home prices nationwide in the space of 24 months increased by 50%—that's five zero—it really puts tremendous stress on homebuyers.

As Mr. Lee pointed out, it had some impacts across the entire spectrum, pushing a lot of people into the rental space where now today the rental vacancy rates are at the lowest ever recorded by CMHC. Rent has gone up and is increasing incredibly rapidly pretty much across the board in Canada. For those who cannot afford to buy, this puts them in rentals. Many renters now cannot afford market rent and that puts them into social housing. I could only agree with what has been said before me. We need to tackle it as an entire system here, and not just from a punctual point of view.

From a policy perspective, I am encouraged now to see that there seems to be a consensus that the focus should be a lot more on the supply side. This was not the case until we were in this crisis, to be honest, and this is something that economists like me have been talking about for years. We need a much nimbler supply and a quicker supply response to the demand that we have. To me, the shift towards focusing policy on the supply side is a big first step. I think going forward what we need are not only the policy plans and intentions but really delivering on those plans and intentions.

Thank you.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Hogue.

We'll now begin with Mr. Aitchison for six minutes.

[Scott Aitchison, Conservative, Parry Sound—Muskoka, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for being here today.

My first question is for Mr. Lee.

Mr. Lee, the federal government has announced a number of different plans over several years, starting with the national housing strategy in 2017 and most recently their latest, most ambitious plan ever. The centrepiece of that, of course, is the housing accelerator fund. It's $4 billion. That was a centerpiece of their budget a couple of weeks ago when they announced they were going to build 3.87 million homes.

Is it helping? Are starts improving as a result of any of that?

[Kevin Lee]

I think we're still early on with that program. You'll have to ask CMHC for the data that they have. It's their program. I will say that what's interesting about that program is that it targeted the right thing, we would suggest, which is getting more supply online. Although the municipalities could use the funding for whatever they wanted, essentially, within the housing spectrum, the idea was that we would address the policies, practices, procedures, approval timelines, permitting systems and all of those things to get more online and come with concrete goals. Hopefully, performance measurements get followed up on, and the actual payment of the housing accelerator funds that go out will legitimately be based on real numbers. That will be really important moving forward.

[Scott Aitchison, Conservative, Parry Sound—Muskoka, ON]

You stated that it's not just a supply crisis, that it's an affordability crisis, and a big part of the reason for that affordability crisis is, in fact, government charges and fees. Is that correct?

[Kevin Lee]

That is correct.

[Scott Aitchison, Conservative, Parry Sound—Muskoka, ON]

Do you think it was an oversight of the government to not include local charges and fees as one of the criteria to receive that housing accelerator funding? You have examples now where cities have been awarded money by the federal government and, in the next breath, they're increasing their development charges.

[Kevin Lee]

There's no question that we need to target development taxes, as we refer to them in all of the different ways that they come about and are labelled. Could it have been in the accelerator fund? Yes. I do think the minister has been saying that when you raise development taxes, they don't want to give you accelerator funds.

We've also called for the connection of investment in infrastructure and transportation and transit to be tied to housing outcomes. There is talk now of that being tied to development taxes as well.

To your point of whether or not we should be addressing local municipal taxes, which have gone up 700% over the past 20 years and are a big part of the problem, yes.

[Scott Aitchison, Conservative, Parry Sound—Muskoka, ON]

I'll turn to Mr. Lyall next.

Sticking with development charges, they've gone up over 400% on average in the last decade around the country. On those development charges that municipalities charge, there's an understanding by some that the developers just pay that. Who pays the development charges? Who pays those fees that developers and builders have to pay to local municipalities?

[Richard Lyall]

As Kevin said, it's a development tax, and it's a tax paid by consumers. It's regressive. It's not income tested, and the people who get hit the hardest the most by those taxes are the ones who can least afford housing. It is very un-Canadian, among other things. Also, they've been out of control. Apportioning blame on all of these issues is really pointless at this time. We have a systemic problem here in that we're not managing growth properly.

For example, when you look in the GTA area, you have DCs, development charges, that have gone up 900% in just over a decade, which is crazy. In fact, just this month, they've gone up again in Ontario.

Sales cratered last year, as we know. Housing starts are falling, because housing is unaffordable. The first-time homebuyer is extinct. We can't build new housing for the middle class. In fact, Habitat for Humanity's new client is the middle class. Who would ever have thought we'd get to that point? That's where we are.

DCs are completely wrong-headed, and it's a function of our not managing growth properly. Other countries don't have this problem. They are dealing with housing much more effectively than we are. They have much more affordable housing. If you compare us to the United States right now, we've diverged from the United States on many data points. Pick your data point, we're diverging from the U.S. Our productivity is dropping, and real incomes are dropping here. In the U.S. right now, rents are flat or dropping because they overbuilt rental housing, for example. Their housing market is starting to come back. Meanwhile, we are going in exactly the wrong direction, and we have to compete with them. Let's not forget that—

[Scott Aitchison, Conservative, Parry Sound—Muskoka, ON]

I'm going to stop you there because I want to get in a question for Mr. Hogue as well.

Mr. Hogue, would you say that a big part of the problem here in the affordability crisis that we're seeing in housing is related to government charges and fees, and that the federal government really missed an opportunity to try to pressure municipalities to reduce those fees?

[Robert Hogue]

Well, I think those government charges are part of the issue. I mean, they're not the only reason we are where we are today. I think our worry is that for that marginal unit you add to the housing stock, what you're adding is something that's a higher price than people can afford. Unfortunately, you're not building homes that are affordable in sufficient numbers just because the construction or building costs are high. Government charges are part of that equation in some parts of Canada but not everywhere.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Aitchison.

Mr. Coteau, you have six minutes.

[Michael Coteau, Liberal, Don Valley East, ON]

I'm going to share half of my time with my friend, Mr. Long.

Mr. Lee, thank you for being here.

Thank you to all our witnesses for joining us.

Removing the GST is a big part of the plan for government to move forward on the construction of apartment buildings. Do you think this is going to have a positive impact in building more apartments in the country?

[Kevin Lee]

Yes, we do. As I mentioned, the business model for purpose-built rentals has been broken for a long time, and the numbers just don't pencil out. In order to build more purpose-built rentals, you have to be able to do it and not lose money, frankly. The taxation system has been a problem and is now an opportunity, thanks to the removal of the GST. Unfortunately, the high interest rates have come at the same time, so we still need other support, like more low-interest financing and that sort of thing. It's really important that we get that model for purpose-built rentals working so that we can get more supply online.

[Michael Coteau, Liberal, Don Valley East, ON]

Have you talked to people within the sector about how it's going to impact them and how that savings can be transferred to the actual renter? Has there been discussion? If so, what kinds of savings are we looking at? Is this going to have a positive impact on the renter at the very end?