Human Resources Committee on June 6th, 2023

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

Thank you, Mr. Chair.

I appreciate the gentlemen coming forward and giving us the benefit of their perspectives on the issue.

One thing that concerns me—and I've heard it over and over again—is that the business model currently doesn't work. I think your terminology was that it doesn't “pencil out”, that it doesn't make sense.

As a municipal mayor, I would challenge anyone who would ask the municipalities to give up their development charges. There's a very thorough analysis of why those funds are required because of the impact they have on the municipality. Let's set that one aside.

The other items are the increasing costs of construction, the interest rates and the cost of land. You're suggesting that if you could get no-cost or low-cost land, the business model could be workable and there would be some interest in it. How would a municipality or an organization like the CMHC put together a proposal that would work and give consideration to those components so that you have a business model that works? How could we approach something like that?

I'll start with Mr. Brooks.

[Michael Brooks]

For CMHC, obviously they're in the interest rate business, so with CMHC, getting super low interest rates at 1%, float 1%.... Every pro forma is going to be a little different across the country. You have to go through it on a pro forma by pro forma basis. A development in Newmarket might be different from one in downtown Vancouver or somewhere else. Super low interest rates might move the needle to get something to pencil out.

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

What length of commitment would be required to make something like that, or would that be subject to negotiation?

For example, some of the co-ops were committed to 25 years. Once the mortgage funding was paid down, the conditions of affordability would no longer have to apply. How long would the industry be prepared to commit to the rental rates on the basis of the cost to produce the units that you're going to be renting out?

[Michael Brooks]

Again, through you, Mr. Chair, that's a very good question.

It's subject to the pro forma. I'll take the example of inclusionary zoning. I went through an exercise of inclusionary zoning in the city of Toronto, with some requiring a percentage of affordable in a new development, and that just killed the pro formas and still does.

It all depends on the individual project as to whether that's 10% or whether it's 15% or 20%. If you said to me that 100% of it has to be deeply affordable, I will tell you now that it probably won't pencil out, even at a 1% interest rate. It's all a question of looking at the numbers and seeing what works.

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

Is there an appetite for the industry to consider those types of arrangements?

I'll turn that over to all three of you.

[Michael Brooks]

I will respond first.

Absolutely—I'm seeing it now. Look at Regent Park and Daniels Corp., which has done it effectively. Look at Taz corporation. Look at Dream Impact fund. It's happening all over the place, but it's a discussion across the table with numbers.

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

The challenge to that is that, if you go by tender, we go to the cheapest price and we can't negotiate arrangements because of the criticism that our organizations subject themselves to so often.

Go ahead, Christian.

[Christian Szpilfogel]

When you think about the construction of housing, realize that about one-third of the cost is obviously in soft costs. I think that was mentioned earlier.

Take a look at all the hard costs going in. In the city of Ottawa, to build a one-bedroom apartment, justifying the rent based on existing costs means there's a rental floor of about $1,700 a month. That's a very important piece, because, if we're talking about affordability in there, it necessarily means we need to find ways to drive the cost of that construction down. I think that's what you're getting at.

Soft costs are an obvious place to take a look, including things like the HST and some of the development charges in there. The mortgage costs are obviously a significant piece in there. CMHC doing what they do is helpful in releasing capital to create new housing.

My only wish—if I had one wish, with respect to CMHC—would be this: If they were to underwrite a little less conservatively, it would actually enable more capital to be invested to create new housing.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Van Bynen. Your time has expired.

Ms. Chabot, you have the floor for two and a half minutes.

[Louise Chabot, Bloc, Thérèse-De Blainville, QC]

Mr. Szpilfogel, I am trying to understand a certain philosophy. If I understood you correctly, you are saying that it is not possible to maintain affordable housing because of construction costs. But affordable housing is what we want. It is for the long term.

What contribution can you make without it become a form of market speculation, so to speak?

[Christian Szpilfogel]

Thank you very much for the question. I apologize that I'm not responding in French. I just want to make sure I'm clear.

Right now, what we're looking at in the private industry is.... The private industry can probably solve about 90% to 95% of housing needs within the overall population. That means private industry is a piece the government can leverage in order to do that. As I was saying earlier to Ms. Zarrillo, part of the concern is that the private industry can serve almost everybody, but it can't serve certain segments of the population. In that capacity, there is a responsibility with respect to the government being able to help that particular segment. It may be 3% or 5% of the population.

What we need to be able to do is make sure we properly leverage private industry to solve the big piece of the pie.

[Louise Chabot, Bloc, Thérèse-De Blainville, QC]

Do you agree that the National Housing Strategy should allocate most of its funding to off-market housing?

[Christian Szpilfogel]

That's difficult for me to comment on, because I haven't looked at the details of the national housing strategy, to be fair. I don't know exactly what they're funding.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Ms. Chabot.

I don't see Madam Zarrillo.

If nobody objects, Mr. Morrice, you get a quick question.

[Mike Morrice, Green, Kitchener Centre, ON]

Thank you, Mr. Chair.

I'll be honest. It's no surprise to me that, at committee today, we have some large corporate landlords who are receiving preferential tax treatment and telling us they want to keep that.

I'd like to ask a question of Mr. Sullivan.

Mr. Sullivan, as you might know, I've been joining others in calling for real estate investment trusts simply to be taxed as other for-profit corporate landlords already are, and to use those funds to build more of the affordable supply of housing we need. This isn't about villainizing any one group. It's about ensuring tax fairness across the board and using every tool available to build the affordable housing we need.

In recent years, we know corporate financial landlords have increased their stock. It's up to 20% of Canada's rental stock. At the same time, over the last 10 years, we've lost 830,000 affordable rental units.

My question to you, Mr. Sullivan, is this: Do you feel there is any justification for maintaining corporate tax exemption for REITs?

[Ray Sullivan]

Mr. Brooks mentioned an interest in maybe adapting the American low-income tax credit program to a Canadian context. This is the kind of opportunity where tax incentives are coupled with actual public benefit. If there's a tax break, what does society get in return for it? In this case, it could be investment in affordable housing.

I think there's a lot of will in the private sector to address this problem, but we need to make sure we're targeting those incentives toward the core of the problem, which is affordability.

The other witness mentioned the floor of $1,700 to build a new apartment. That's actually the minimum level of affordability for the median income in Canada. Half of all people in the country cannot afford any rent higher than that. Good luck finding a $1,700 apartment in any urban centre in the country right now.

Clearly, something has to be done.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Morrice.

Madam Zarrillo, go ahead with your question, please.

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

I'm sorry. I thought you had said that was the last round of debate.

Very quickly, then, I'll ask Mr. Brooks my question.

How long do I have?

[The Chair, Liberal, Bobby Morrissey]

You have two minutes.

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

I'll ask a question around what was obvious to me and was coming to me as I was sitting in my city councillor chair. Did the private market see this disaster happening, in regard to the financialization of housing for people and corporations that had the money and could benefit from it to invest in housing?

We saw these condos being built at an exponential speed. We saw the interest rates being super low. People of wealth and corporations came forward and bought those homes.

Did your realm, your organization or you see this disaster coming and see that there was going to be a crisis in our communities of homelessness? Did you do anything to offset those realities that have transpired on the street?

[Michael Brooks]

Thank you, Ms. Zarrillo.

Did we foresee this coming? No. I don't represent the condo builders. That's a separate group and market from our members. We represent people who build long-term income-producing property. We respond to market demand, where permitted to do so, across the country.

Did we expect immigration to go to a million people? No. It spiked. Did we expect 800,000 students to come into Canada? No. My colleague, Mr. Moffatt, will talk about the lack of student residences across this country as being part of the issue.

The job of the market is to respond to demand. We're trying to catch up with that demand as quickly as we can, but it's a slow process and right now it's difficult.

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

Thank you.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Madam Zarrillo.

Thank you to the witness.

That concludes the first round. We will suspend while we transition to the next witnesses.

Thank you, witnesses, for appearing today and taking questions from the committee members.

We'll suspend.

[The Chair, Liberal, Bobby Morrissey]

The committee will resume.

If you noticed, there is a large spectator group at the back of the room. This is a group of students. Mr. Coteau knows this group.

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

Are they there in the room today?