Human Resources Committee on June 3rd, 2024

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

Good afternoon, members and witnesses.

The clerk has advised that we have a quorum. Those appearing virtually have been sound-tested and we are okay to begin meeting number 117 of the House of Commons Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities.

Before I begin, I will remind members in the room to use the new headsets. When you're not using them, please keep your earpiece in the assigned position on your desk. Please avoid touching the mic while you are speaking because it does cause sound popping, which can be harmful to the translators. Thank you for your co-operation on that.

Today's meeting is taking place in a hybrid format, with committee members and witnesses appearing in the committee room as well as virtually.

You have the option to speak in the official language of your choice. For those appearing virtually, click on the globe icon at the bottom of your surface and choose the official language of your choice. For those in the room, there is new technology. Familiarize yourself with choosing the language of your choice.

If there is an interruption in translation, please get my attention. If you're in the room, raise your hand and I'll recognize you. For those appearing virtually, please use the “raise hand” icon. We'll suspend while the issue is being corrected.

Again, for the benefit of the witnesses, please direct all questions and responses through me, the chair. Wait until I recognize you by name before you begin.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, February 12, 2024, the committee is continuing its study of federal housing investments.

I would like to welcome our witnesses for the first round.

From Abundant Housing Vancouver, we have Russil Wvong. From More Neighbours Toronto, we have Eric Lombardi, president. He is appearing virtually. Here in the room with us, from Mortgage Outlet Inc., is Leah Zlatkin, mortgage broker and chief operations officer.

Good afternoon, everyone. We'll begin with Mr. Wvong for five minutes.

Mr. Wvong, you have the floor.

[Russil Wvong, Volunteer, Abundant Housing Vancouver]

Thank you.

Hello. My name is Russil Wvong. I'm a volunteer with Abundant Housing Vancouver. I don’t work in development or in policy. I just read all the reports. I’d like to focus on three things.

We have increasing homelessness because we have an overall dire shortage of housing, and it's worse for the people who are poorest.

First, the housing shortage is a problem that's fixable. In Texas, Austin is building so many apartments that rents have dropped 12% in one year. In Vancouver, we have people who want to live and work here and other people who want to build housing for them. The problem is that the approval process is extremely slow. It's easier to elect a pope.

Housing is a ladder. It's all connected. Whenever we block market housing that somebody wants to build, the people who would have lived there don't disappear. They move down the housing ladder, competing with everyone else for the limited supply of existing housing. Prices and rents then have to rise to unbearable levels to force people out. We get trickle-down evictions.

In metro Vancouver, the result is a housing shortage that's bad for everyone, terrible for younger people and renters, and worst of all for people near the bottom of the housing ladder. They're forced to move away, crowd into substandard housing or end up homeless.

Second is COVID. Housing being painfully scarce and expensive is no longer a problem confined to Toronto and Vancouver. When COVID hit and there was a sudden massive surge in people working from home instead of the office, total demand for residential space went way up, while demand for office space went way down. Plus, a lot of people moved in order to find cheaper housing, which was great for them but bad for local renters and homebuyers.

The housing shortages in the GTA and metro Vancouver basically spilled over to the rest of the country. This means that we need to build a lot more housing everywhere—not just in the biggest cities—for the next 10 years or more. Our pre-COVID housing stock no longer lines up with where people want to live and work. Other countries are facing the same challenge.

Third, in the GTA and metro Vancouver, we need to move away from taxing new housing like it's a gold mine. Over the 10 years from 2011 to 2020, the City of Vancouver extracted $2.5 billion in “community amenity contributions”. The thing to remember is that there's no free lunch. Someone has to pay. If costs are too high, what happens is that nothing gets built until prices and rents rise further, for both new and existing housing. That's exactly what's happening now. In other words, it's renters and homebuyers who end up paying for these increased costs.

The federal government has made two major changes to reduce the cost of building new rental housing: removing the GST and allowing accelerated depreciation. This will help to counter the headwinds that result from higher costs. The problem is that local governments in Ontario and B.C. have strong incentives to raise development charges, slowing things down again, because they need money to meet local needs and because it's very difficult to raise property taxes. The B.C., Ontario and federal governments are all pushing municipalities to freeze or reduce development charges, but as long as local governments need the money, they're going to push back hard.

There are a number of proposals for alternatives. Benjamin Dachis suggests paying for water and sewer infrastructure by issuing long-term bonds that are then repaid from water usage fees. Municipalities have proposed progressive property taxes, regional sales taxes and regional income taxes. If you look at the U.S., they have property tax rates that stay the same instead of being adjusted each year, so if there's a lot of demand and property prices are rising, municipal revenues automatically go up, allowing them to build more infrastructure.

Finally, how can the federal government convince local governments to stop regulating new housing like a nuclear power plant and taxing it like a gold mine? Unlike provincial governments, the federal government doesn't have direct control. Machiavelli describes the three elements of diplomacy as persuasion, promises and threats. It's most effective to use a combination of all three.

Sean Fraser has been quite successful in using housing accelerator funding to convince municipal governments to allow more housing, with denial of funding as a stick to go along with the carrot.

Persuasion is also vitally important, and federal MPs from all parties can help. It's great that we seem to have consensus across the political spectrum on the need for more housing.

For example, when Calgary city council voted down its own housing task force recommendations by eight to seven, it was very helpful to immediately see critical comments from Scott Aitchison and Michelle Rempel Garner. It seems likely that this contributed to Calgary city council's reversing of its decision the next day.

Thank you.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Wvong. You actually concluded a few seconds under time.

We'll now move to Mr. Lombardi for five minutes, please.

[Eric Lombardi, President, More Neighbours Toronto]

Hi. Good afternoon.

My name is Eric Lombardi, and I'm the president and founder of More Neighbours Toronto, an advocacy group based here in the city that's dedicated to ending the housing crisis that is afflicting our generation, those who are renting and those who are poor and getting increasingly left behind.

The housing crisis in this country is putting downward pressure on living standards to begin with, and it will continue to worsen and deprive our country of its prosperity until it's addressed. It doesn't fall on all Canadians equally. It has created a substantially difficult situation for the middle class, particularly renters, and a very hard situation for the young.

Housing has always been a challenge for the poor and those who are suffering from mental illness, addiction and poverty, including those with disabilities. However, recent trends have made a difficult situation an effectively intolerable one for many in this group.

We can't solve the rising homelessness crisis without some direct capital investments in shelter and supportive and transitional services that address the different circumstances people face, including addiction and mental health. This issue should be simultaneously seen as a housing issue, as well as a health care issue and a security one. It is a complex challenge, and it requires complex solutions. Many of these need to be delivered at the provincial level, and many provincial governments have really neglected their policy focus in this area in particular. That is a role the federal government can play in encouraging solutions.

Housing will also continue to be a problem until substantial land-use and planning reforms, along with major changes to the tax code, are made, particularly when it comes to how we fund our infrastructure needs at the local level. This is something that is particularly true at the provincial level, without which solutions are basically impossible to meaningfully address in a systematic way.

I also want to address one of the questions around how we support and fund non-market housing. The vast majority of global markets that are sustainable over the long term have some degree of public investment in housing. However, this public investment is typically driven by a cash-flow positive—which means that it is marginally profitable—and a Crown corporation that is able to operate at arm's length from the governing institutions.

It is important that any model that pursues a public builder to pursue non-market housing investments is able to operate at arm's length from political interference, similar to entities like the Canada pension plan. With additional non-market housing in the economy, you are able to leverage public land to create value that would enable governments to deliver far more housing needs that address the poor end of the spectrum, which will never be served by market development.

This is not to say that we can ignore solutions in the private housing market. One of the key issues that Canada has not grappled with is the bizarre way that we apply taxation to new housing. I'll paint a picture for you. In 2000, the cost of a benchmark Toronto condo of around 950 square feet was $145,000. In 2023, that amount would be equivalent to $245,000. Now, the benchmark price of a condo in Toronto—which is now below 800 square feet—is $750,000, which is three times the real, inflation-adjusted value of what a benchmark condo cost 25 years ago in the year 2000.

If you want to build a new condo of around 750 square feet, it would be almost impossible to sell that condo for less than $1 million. Laden within that, both the price that gets charged to the consumer as well as the taxes that they pay on top of it, is over $250,000 of taxes that would be applied. For the HST, if you're a first-time homebuyer, you'll save $24,000, so you're looking at $130,000 minus $24,000. If you're looking at land transfer taxes in Toronto, you're looking at $30,000, and you can subtract about $8,000 if you're a first-time homebuyer. Plus, there is about $80,000 to $120,000 in development charges, another $20,000 in community benefit charges and another six types of levies and fees. Of the 12 that CMHC has suggested, all new housing apply to this.

Governments in Canada now charge more in taxes on every incremental unit of housing in this country than housing used to cost just 25 years ago. The economic disincentives this creates for our economy and our society at large are increasingly even more bizarre.

The first one is the land transfer tax, which disincentivizes labour mobility and the mobility of people who are trying to change their housing situation by immediately reflecting, in the economics of their personal choice, a disincentive to doing so. This overall affects the productivity of our greatest urban centres and, therefore, affects the overall amount of taxes collected by all levels of government as well as the types of jobs and opportunities that exist in our society.

As Russil addressed, a big important piece here is how this actually incentivizes speculation in the broader housing market, because it requires the price floor and all new housing to rise. What investors and homebuyers are willing to pay for new space can be justified based on what they expect the price of existing housing to do. This policy is also part of the particular challenges we're facing.

Thank you.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Lombardi.

Ms. Zlatkin, you have five minutes.

[Leah Zlatkin, Mortgage Broker and Chief Operations Officer, Mortgage Outlet Inc.]

I'd like to thank you all for having me today. My name is Leah Zlatkin. I'm a COO and mortgage broker at Mortgage Outlet.

In regard to the study that was conducted, I will address two issues. The first issue is that young people cannot actually afford houses. The proposal is for a temporary reduction in immigration targets until home construction and/or incomes catch up to the immigration, with an additional focus on immigrants who can contribute to the supply of housing.

We need new government backing of shared equity for first-time homebuyers of new construction properties, helping them secure a property before prices run away from them. The cost of waiting to save for a down payment is too steep given a 5.7% long-term annual price appreciation.

We need to work on fixing some of the mistakes the CMHC had with its first-time homebuyer incentive program, simplifying it drastically. We need to increase the qualifying income and the total mortgage amount, and allow for conventional properties, or any properties, with longer amortizations.

We need to allow first-time homebuyers to take on 35- and 40-year amortizations, allowing 40-year amortizations for first-time buyers for new construction in highly dense areas near transportation hubs as primary residences. It's even better if we can include all properties, not just new construction. Properties over $1 million or conventional properties would also benefit from this plan.

We need to create government grants to provide temporary 10% to 15% deposits—allowing people to total 20% of the down payment—for developers for well-qualified buyers of condos. The government would get its deposit back when the buyer's purchase closes.

We need to create legislation to prevent counterproductive OSFI policies, including curbing fixed-payment variable mortgages, crucial to shelter borrowers from extreme payment shock during the term. We also need to remove the idea that we would apply a stress test on a straight switch. We need to allow lenders to offer 40-year amortizations to borrowers on renewals if they're facing more than a 20% payment increase.

The second issue is how to help the supply and demand imbalance. I propose that we reduce the government's footprint and immediately stop deficit spending. Lower rates can then incentivize construction. People did trust the government to borrow more money, because the government said rates would stay low. Plus, many people got COVID subsidies, so everyone bought a little bit more than they could chew. Government-subsidized developer financing also needs to be facilitated via CMHC at below-market rates for rapid housing projects at mid-market prices near transportation arteries.

We could also implement capital gains deferrals on rental property exchanges like the section 1031 exchange in the United States. This would allow for deferred capital gains to provide investors with more capital to invest in new rental construction properties. Basically, if you buy and sell a rental property, you don't pay capital gains until you sell the last rental property.

The housing accelerator plan has resulted in many municipalities accepting plans that seem to emphasize social welfare programs over building more homes and increasing the supply.

We need to reduce developer and investor disincentives. For example, there are overbearing tenant protection acts, and under the budget, capital gains tax increased to 66%, not 50%, where it is now. This impacts rentals and discourages investments. It should actually be the other way around. The capital gains inclusion rate should decrease to 33% for rental construction units and accelerate depreciation allowances to incent building.

We need to encourage mixed-use developments. An example would be incentives to replace non-residential commercial to mixed-use to increase density in urban areas.

Finally, we need to increase housing starts, making housing more profitable to build. Taxation on construction of houses is excessive. Many projects have gotten cancelled and many builders have gone bankrupt. We need to offer rebates for builders, and we need to remove some of the costs associated with permits and the red tape for developments.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Ms. Zlatkin. You were under time. Thank you so much.

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

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

Thank you, Mr. Chair.

I'd like to start with you, Mr. Lombardi, specifically on some of the comments you made about the costs associated with new homes and how local municipalities charge exorbitant fees on new homes under this assumption that growth should and could pay for growth.

Did I hear you correctly, Mr. Lombardi, when you made those statements?

[Eric Lombardi]

That's correct.

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

You also acknowledge that the federal government is not directly involved in how municipalities plan and execute development agreements. The influence the federal government has is largely around federal funding.

[Eric Lombardi]

That's correct.

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

Would you think, then, that a federal government program that gives money to cities that are also actively increasing those charges at the local level would make sense, or is that backwards?

[Eric Lombardi]

I would say that the most important level of government to target reformat would be the provincial government in Ontario. It has a lot more influence over how municipalities define the types of taxes and the pace at which they can raise them, including on development charges.

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

Do you think the federal government has any role to play in that, then, or is it just up to the provinces?

[Eric Lombardi]

I believe the federal government has a responsibility to ensure that the provinces are maintaining a policy framework that is meeting the needs of the country.

I would say that this is particularly true of Ontario's provincial government, which recently even rolled back its own provisions to limit the pace of growth in development charges.

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

Thanks very much.

Mr. Wvong, I'd like to go to you.

You mentioned the housing accelerator fund specifically. What do you think of the fact that housing accelerator funds are still going to cities that have increased development charges? A couple of good examples are Ottawa and Toronto, specifically.

[Russil Wvong]

Locally, in metro Vancouver, there was actually a big fight over this issue. The Metro Vancouver Regional District, which is responsible for water and sewer infrastructure, decided to lower the burden on property taxpayers from, I don't know, 12% or something to 1%, thus raising the DCCs on new housing at exactly the same time the federal government was taking away the GST on rental housing. Sean Fraser actually said he was not going to give the housing accelerator funding to Burnaby and Surrey, two of the major metro Vancouver municipalities.

I actually was involved a bit in talking to some of the Metro Vancouver Regional District directors. Unfortunately, I would say, since the housing accelerator fund offers a one-time payment, it's pretty difficult to get municipalities to give up a long-term stream of revenue, so—

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

Hold on a second, Mr. Wvong. It's not a one-time payment. It's four equal payments over four years.

If the federal government has limited authority, obviously, or limited influence over municipalities and the fees they charge, would it not make sense to make getting the next payments contingent upon keeping costs lower or even reducing costs at the local level?

[Russil Wvong]

I think it's fair to say that the federal government, B.C. government and Ontario government have all been pushing municipalities to try to either slow down increases, freeze development charges or reduce development charges.

The new Canada infrastructure fund has some conditions. Basically if you want any of the $6 billion for infrastructure, you need to freeze development charges at April 2024 levels. I don't know if the provinces will pick that up.

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

Russil, imagine for a second that you're the federal Minister of Housing here. Dream of that for just a second. Would you imagine that you wouldn't use every single tool at your disposal to encourage and force municipalities to lower their costs? Would you not do that?

[Russil Wvong]

Yes, for sure.

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

Okay. Thank you.

[Russil Wvong]

That's why I was talking about Machiavelli. You need persuasion.

I think the fact that we're talking about this, that Sean Fraser highlighted this and that there are all of these conditions we're trying to put on to say—

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

That's why I was raising it, because I think it's part of the issue. We're not using every tool at our disposal at the federal level to force municipalities to reduce costs.

Thank you for that.

[Russil Wvong]

The other thing I would say is that in order to get the....

I'm sorry. Should I stop?