Human Resources Committee on May 19th, 2022

[Steve Pomeroy]

There is a great deal of ambiguity about what the accelerator fund is intended to do. In CMHC's consultation, they said that “Everyone [in Canada] deserves to have a safe and affordable place to call home.” They said they needed to remove barriers to housing supply and wanted to offer options for renters to become homeowners. It's very much around this question of appealing to the middle class and asking whether our kids can afford to buy a home.

I think, to a large extent, it was politically motivated. It's a good political response, as opposed to a good policy response on helping young families get into home ownership. At the same time, they want “to remove barriers and help municipalities build [more] housing more quickly in an ambitious and innovative manner.”

Here in Ottawa, we saw housing starts go up last year by 58%. It was a very significant response. Some municipalities have been able to significantly accelerate what they're doing and build more homes, but simply accelerating and expanding the supply hasn't affected prices.

There is this need to reflect on the objective of the accelerator funds: Is it to improve affordability, or is it simply to expand supply and hope that as a consequence of supply that will result in greater affordability? In basic economics, that should happen. The problem with the housing market is that homes are fixed in location and certain neighbourhoods have very high values. When I walk around Ottawa, people are knocking down 1960's homes selling for $500,000 or $600,000, and building a duplex and selling each side for $1.4 million. We're doubling the number of units, but we're doubling the price at the same time.

I don't think anybody has really articulated, and perhaps this committee should, the objective of the accelerator fund. What are we really trying to achieve and what outcome measures are we going to put in place to make sure we achieve it?

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Thank you for that.

Mr. Moffat, you talked about that too—tying it to outcomes.

What are they saying in your circles, or what is your interpretation of what the housing accelerator fund is?

There is the question around demand. I know that you mentioned family housing. We know that the issue of schools in urban centres is difficult. Even in Calgary, the school board started busing kids into the urban centres because they didn't want to spend the money to put schools out in the communities where there's the growth.

[Dr. Mike Moffatt]

I would echo Mr. Pomeroy's sentiment. It's actually unclear to us what that housing accelerator should be trying to accomplish. I think affordability should be part of that, but I also think we need to think through environmental outcomes. In Ontario, we are losing 175 acres of farmland every single day to development. Again, as I said in my comments, our current system is very good at building small high-rise apartment units and single detached homes in small towns, and nothing else in-between.

On the demand side, I think of these issues that we've had during the pandemic—low interest rates, high white-collar savings' rates and so on—as an accelerant or a fuel. Think of it like gasoline. If you pour gasoline on a pre-existing fire like we had in the housing market in southern Ontario, you get a big explosion. Where you don't have a fire—we've had very low interest rates in Saskatchewan, Edmonton and Newfoundland—we haven't seen housing prices go up all that much.

Does this money play a role? It absolutely does, but it accelerates the pre-existing trends. As interest rates go up, we are going to see a lot of that speculative fuel come out, but we still have these underlying housing shortages in parts of the country.

[The Chair, Liberal, Bobby Morrissey]

Ms. Zarrillo.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Mr. Chair, do I have any time left?

[The Chair, Liberal, Bobby Morrissey]

You have 10 seconds.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Okay, I'll pass then. Thank you.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Ms. Zarrillo.

Next, we have Mr. Chong. Welcome to the committee. You have five minutes.

[Michael Chong, Wellington—Halton Hills, CPC]

Thank you, Mr. Chair. I'm excited to be here to talk about an important issue for Canadians.

I'd like to direct my question to Mr. Pomeroy. He mentioned something in his opening remarks that I thought was interesting. He said it's a demand issue, and not just a supply issue. What I've seen over the last two decades is the breakneck pace at which mortgage credit has grown, and, arguably, that's one of big reasons why housing has become unaffordable in Canada.

If you look at the data, mortgage credit stood at about $400 billion in the year 2000. I'm speaking in nominal terms now, so it was about $400 billion in the year 2000. It jumped to about $1 trillion in 2010, and then it doubled yet again to $2 trillion in 2020. If you look at the compounded annual growth rate, it's 7.5% over that 20 years, far ahead of population growth and inflation, and far ahead of nominal GDP growth. During the last two years alone, it has jumped by another $300 billion to $2 trillion. Sorry, it was $1.7 trillion in 2020, and then it currently jumped to $2 trillion.

Arguably, if the Office of the Superintendent of Financial Institutions, OSFI, and CMHC, which I know you have some experience with, and Finance Canada had issued regulations to slow the growth in mortgage credit to something more reasonable, in line with population growth and inflation—let's say something around the range of 3.5% per annum—we could have moderated house price increases.

Finally, before I get your comment on this, there's a further example of what I'm talking about. In March 2020, OSFI relaxed the rules concerning domestic stability levels. That's the domestic stability barrier of 1% that's required by the big banks, and that decision freed up an additional $300 billion in capital that the banks could then loan out, and, commensurately, mortgage credit growth jumped by some $300 billion over the last two short years.

My view is that if OSFI, Finance Canada, and CMHC had put in place measures to ensure that this additional $300 billion in credit didn't all get plowed into residential real estate, but perhaps into business lending and small business lending, and if other measures like that had been more broadly applied in recent years, we might not have ended up in this affordability crisis we're seeing now.

I wonder if you could comment on that.

[Steve Pomeroy]

Certainly, access to credit is a critical factor in driving up [Technical difficulty—Editor]. Home prices are market-driven. They are driven by what people can afford to pay. As much as the development industry would argue they are cost-based, I would argue they're market based, and then you would make sure the cost could be achieved. I think that having the access to credit has driven that up.

I did a chart. It's in the background paper you will get. If we look at the amount of borrowing, the median household could borrow over the last 20 years at the prevailing interest rate and the median income each year, that borrowing I am referring to was above the average house price, So we had people pulling that up, and therefore access to credit, mortgage credit in particular, has been a big factor.

Where OSFI and others got it wrong was around the macroprudential rules, trying to constrain access to credit to just sort of take the boil off the market, particularly after 2008-09.... The stress tests really impact first-time buyers more than they impact buyers who have existing equity. They don't need as much of a mortgage; they have all their accumulated equity. They're the ones who are driving the prices up, not the first-time buyers.

The first-time buyers are being closed out of the market, so we need to figure out a way to enable young kids to get into the market, because what will happen.... If you can't get into home ownership, you stay in the rental market. If you stay in the rental market, rents are going up, and the bottom end of the rental market is where things get hurt.

Try to think about housing as a system and recognize that what we do on the home ownership side affects the rental side. All of that is critically important.

I know this is not directly answering your question, but it is related to this. It's thinking about which parts of the housing system we want to help. Helping young buyers get into the market has an indirect benefit on the rental market, and can be very valuable. The policies that we've pursued over the last 20 years, or 10 years, particularly from 2015 to about now, have very much done the opposite and precluded them from the market.

[The Chair, Liberal, Bobby Morrissey]

You have 10 seconds left.

[Michael Chong]

Thank you, Mr. Chair.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Chong and Mr. Pomeroy.

We'll go to Mr. Van Bynen for five minutes.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Thank you, Mr. Chair.

I'll be sharing my time with Mr. Coteau.

My questions will be directed to Mr. Goldstein. I only have two and a half minutes, so I'll try to get to them as quickly as I can.

We've heard the dilemma in which some of the incentives are now encouraging developers to build studios and single-room units and that it does not respond to family needs.

In your opinion, Mr. Goldstein, how can the government avoid the trap if the incentives that it offers do not direct the developers to build family units? To summarize that, how can we incentivize family units as opposed to smaller units?

[Edward Goldstein]

I think the biggest problem is the levy situation, which prevents you from building large units. In the past six years, I've built 600 units, and at least 75% of them were two and three-bedroom units over 700 square feet—closer to 900 and 1,000 square feet—and they were always the fastest ones to go.

There's such a large supply of one-bedroom units through condominiums in the GTA that nobody wants them as much as they want two and three bedrooms. There's nothing for families.

I don't know that the fund has much effect on this type of product; it's just the availability. I think supply is the biggest issue. One of the other witnesses, Mr. Pomeroy, I think it was, said that the supply would help renters and therefore homebuyers, but it would also help homebuyers by taking some of the older people who presently live in homes out of that market and put them into the rental market. They really have nowhere to go if they don't want a house anymore.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I hate to interrupt you, but I'm at my two-minute mark.

[Edward Goldstein]

That's okay.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

A quick question would be about whether the the fund could subsidize the difference in development charges between smaller units and larger units. I'm looking at some really effective and quickly implemented incentives. Would something like that work?

[Edward Goldstein]

My question in this regard is: Why does the municipality have to load up development charges in a multi-residential rental building when there's very little cost to the municipality of having that building in the municipality? All it does is produce property taxes for them, and it doesn't require them to provide road repair, to do sidewalk snow removal or to do garbage removal. It could be a profit centre if they looked at it the right way. To me, they're not looking at it in the right way. That's the main thing. To throw money at it isn't really what should be done. The municipalities should recognize that their income will increase with these.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Let me apologize, please, Ed. I'm at three minutes and 21 seconds, and I'm shortchanging my colleague.

[Edward Goldstein]

I'm sorry about that.

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

Thank you so much.

My question is for Mr. Moffatt.

Mr. Moffatt, you said that there was a disconnect between the type of supply being built and the type that's needed, and you talked a bit about climate-friendly and family-oriented supply. Can you share some of the reasons you think municipalities are not building these types of units? Also, how could the accelerator fund—which, by the way, has a goal of building 100,000 units over the next few years—be used to accomplish this goal?

[Dr. Mike Moffatt]

Certainly there are levy issues, as Mr. Goldstein says. A lot of it is zoning. I could tear down my house here in Ottawa tomorrow and build a McMansion, but if I want to build a triplex and house three families, I would be facing years of red tape.

How the accelerator can help is by providing incentives to say that, if we are going to provide municipalities with a certain amount of funds to speed up approvals processes and things like that, here are the particular zoning and regulatory changes we would need tied to that funding. I think it's a carrot-and-stick approach where the accelerator fund could be used to incentivize the kinds of regulatory, zoning and parking minimum changes that we need in our communities to allow for more family-friendly density.

[The Chair, Liberal, Bobby Morrissey]

Your time is up.

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

Thank you so much, Mike.