It’s a pleasure to be here. I want to thank the committee for rescheduling my appearance after I was unable to attend the session on January 30. Unfortunately, my daughter suddenly fell very ill and I had to take care of her.
Mr. Tremblay, the senior vice-president of policy, research and public affairs, spoke on my behalf at that session. He joins me again today. He is to my left, and Steve Mennill, senior vice-president of Insurance, is to my right.
Rather than repeating what Mr. Tremblay said two weeks ago, I’d like to respond to some of the testimony provided by other people.
First, I want to clarify CMHC’s role in the housing finance sector in relation to the role of other federal departments and agencies, in particular the Department of Finance.
Contrary to some testimony, CMHC does not in fact set the rules for mortgage loan insurance. This is the purview of the Minister of Finance.
As the Government of Canada's adviser on housing policy, however, we advise the minister on potential changes and their implications for financial stability and Canadian housing markets. More often than not, our advice and analysis are provided confidentially. Given that housing finance policy decisions can affect the marketplace, this function is managed separately from our commercial functions, and broad consultations on these changes are not always appropriate.
We also support the deputy minister of finance's senior advisory committee with regard to housing issues. This committee is a discussion forum for financial sector policy issues, including financial stability and systemic vulnerabilities.
Let me turn now to just a few issues that have been raised directly with the committee by prior testimony.
Some witnesses have expressed concern about the changes in mortgage loan insurance rules announced by on October 3. I can confirm that we did in fact provide policy advice to the minister and Department of Finance officials on these changes, and that we fully support them as they contribute to the sustainability of Canadian economic growth.
The committee has also heard that the October 3 changes had a negative impact on first-time homebuyers and on some industry participants who experienced some disruption in their business models. There has been some suggestion that the changes had unintended consequences.
However, as I noted in a commentary piece published in The Globe and Mail on October 17, in fact the results of these policy changes were fully intended. We did expect lower levels of competition in certain areas, as well as a modest increase in mortgage rates, and we did understand how the changes would impact first-time homebuyers' ability to borrow.
With regard to competition, we need to make sure that measures to support competition promote financial stability. Good public policy involves making balanced and measured trade-offs between differing objectives. In our judgment the mortgage insurance regime was providing undesirable stimulus in the marketplace, so indeed we sought to remove distortion, not to add distortion.
We also felt that action was needed to address the level of household indebtedness in Canada, which is now at a historic high of 167% of disposable income. The Bank of Canada calls this factor the greatest vulnerability to our economic outlook.
Highly-indebted borrowers are more likely to be young first-time homebuyers. With potentially less employment experience as a result of their age, they would also be at a higher risk of losing their jobs in the event of a downturn. In short, they're a vulnerable group of Canadians who would suffer financial hardship should the economy take a turn for the worse or should interest rates rise significantly.
Given what we know about wealth effects and financial acceleration, should a weakening of the economy come to pass, their financial troubles could have spillover effects for the economy at large.
It's important to note that the October 3 changes were not targeted at escalating house prices in the greater Toronto and Vancouver markets, as suggested by some witnesses. In fact, our objective was to avoid negative long-term consequences to the Canadian economy as a whole.
At CMHC, we have signalled strong evidence of problematic conditions in the Canadian housing market as a whole for several months now. It's true, Toronto and Vancouver have higher levels of indebtedness and thus will be more affected by the changes, but as the Bank of Canada noted in its December financial system review, the proportion of highly indebted households has continued to rise in many cities, and this is a problem across the country.
The stress test imposed on borrowers ensures that they could withstand an increase in interest rates. This will impact only borrowers who are or would be highly indebted following the purchase of their house regardless of where they live. The resulting delay in when some individuals can purchase their first home or the decision to buy a smaller home, or to rent, or stay put is a necessary trade-off to ensure economic growth and continued financial stability for all Canadians.
As it is, through nearly $1 trillion in mortgage insurance guarantees, the homebuyers' plan, and other federal and provincial programs, we believe substantial support already exists for first-time homebuyers. It is possible to have too much of a good thing.
I can assure the committee that CMHC continues to closely monitor housing markets across the country, and we continue to offer the government expert advice based on our research and analysis both to facilitate access to housing and to contribute to financial stability.
Thank you again for the opportunity to speak to you today.
My colleagues and I would be pleased to answer your questions.
Thank you very much, Mr. Chair.
Thank you very much, Mr. Siddall, for coming here today.
I had the opportunity of walking for about 900 kilometres visiting 41 first nation communities over the past 22 days, and in many of the communities I was very pleased to see that CMHC is actually building homes in partnership with the communities. Some of these communities have excellent housing.
I met young men, such as a guy named Moose, who was very proud of building new homes in his community, and I'm very proud of the commitment our government made on that. But I also found a lot of challenges are occurring, for instance, related to rent within communities. I can't say yet that there's a correlation—I'm going to have to go over my data and what I learned—but it seems that some communities require that rent be paid by people who are living in CMHC housing, and other communities do not, and at first glance there seemed to be a correlation with the long-term quality of that housing.
We can talk a bit about that, but also, just to get more information, what is CMHC doing in working with first nations communities on this file?
We share responsibility for housing on reserve with our colleagues at INAC. Currently we spend about $282 million—I'm just referring to my notes—to house first nations on reserve annually. Budget 2016 added an additional $554 million over two years, of which $138 million was directed to CMHC for renovation and retrofit programs. That was the bringing back of a program that was introduced some years ago.
That's the purview of our activity. CMHC's participation tends to be more market-oriented than that of INAC, which tends to be more deep support, but we share that responsibility with them.
I have visited a number of first nations communities—not 41. Every time I travel I try to do that, because it's a core part of our responsibility. People were surprised when I referred publicly to the status of housing on reserve as “abysmal”. That shouldn't be a controversial statement for a civil servant to make, and we definitely share your concern.
Part of the problem, of course, is a local political problem. There is a correlation between those communities that collect and enforce rent, and will actually evict people—and support people so that they can pay the rent—and the housing outcomes we observed in those communities versus others where that is not as enforced and there's less political courage, I would say, with respect to rent collection.
Thank you to our guests for being here today. I certainly appreciate your coming and giving the committee a bit of a better understanding of your opinion.
Some of the best advice I ever received was to think of people, not for them. When I read this, it sounds as if your agency is thinking for people. You said, “Action was needed to address the level of household indebtedness in Canada, which is now at a historic high of 167%”. That is probably true, but it doesn't necessarily address housing debt.
We've had witness after witness come and say that when someone can get into the market.... Bear in mind that many people of the baby boom generation came in at double-digit interest rates. They did so because they felt, first, that a home gave them a place for their family, for safety; and second, it allowed them to put away money into forced savings, so to speak, and it allowed them to have the privilege of home ownership, which I think is important.
I think what you're doing here with your comments is somewhat construing the situation to sound as if it is all mortgage debt that is causing the problem, but we've heard very clearly that access to credit card debt, access to financing loans for cars or for other non-durable goods, unlike a home, is an issue.
When you say, “Highly-indebted borrowers are more likely to be younger, first-time homebuyers”, are you not also saying that when people finally get into market, they're going to be older and they're going to be kept out of the market for longer? I'm just trying to get a sense of where you're going with this.
First, I want to thank you, Mr. Siddall, and your colleagues for being here today. I find your remarks very informative.
In your presentation, you said it was possible to have too much of a good thing. I agree with this philosophy. Sometimes, we must soften our zeal for taking on debt to purchase a home.
You mentioned that your goal wasn't to create a spike in housing prices in the greater Toronto and Vancouver markets, but to avoid negative long-term consequences for the Canadian economy. You're doing this because you really want to focus on Canadians who are vulnerable to external factors in the Canadian economy. These people are heavily in debt.
Mr. Siddall, several witnesses have said that there's no need to panic and that the situation isn't like the one that occurred in the United States in 2007-2008. When we look at the indicators, such as the 90-day arrears, we can see that we're not in a similar situation.
I'll ask you a question to start our discussion.
If the 90-day arrears are not a good indicator of risk for the future, what indicator do you think is useful for predicting the future?
Let me reinforce two things, if I may, in response to the question.
First of all, the decisions were taken by the on our advice, so I don't deserve credit for those changes but of course we advised in support of them. The “too much of a good thing” reference was my interpretation.
Arrears are in fact quite low, at about one-third of 1%, and indicators are that they're in fact trending lower, not higher, in our country. There are some delinquency issues that are trending up in a few areas. That's another indicator that we pay attention to, as is, as a result of this research I referred to in response to Mr. Albas, the overall level of indebtedness.
Also, then, I should say that our housing market analysis framework is a model that refers to evidence of problematic conditions and analyzes four factors: overvaluation, overbuilding, house price acceleration, and one more that I've forgotten—
Mr. Siddall, thank you for coming today.
I must say that I cannot believe that we had about 12 hours of witnesses here—people who are in the field, people who are experiencing this every day—and you come here with a statement that basically says they don't know what they're talking about, and says, “I'm sitting here in Ottawa and I know better than they do.” I don't think I've ever seen a more arrogant presentation in my life.
I think you might want to take a minute and just step back and say that some of these people who are experiencing these issues every day might know something about what's going on here. You say, “it could happen”, “if it happened”, and based on reading a book. I'm appalled.
We have a situation in Alberta where we've gone through two years of job losses that are unprecedented in this country, and foreclosures have barely changed. Based on exactly what has been happening in Alberta for the last two years, how do you justify what you recommended to the ?
First of all, I apologize if I come across as arrogant. That's not at all my intention.
We have people working in all provinces of this country, including Alberta, and we listen to our colleagues in all of the entities and to all of the stakeholders who testified to you. Some of them are our clients, in fact. Some of them are our competitors, and we listen quite intently to them.
I misspoke if you thought our conclusions came merely from a book. I was citing that as a particular piece of evidence for being concerned about the future, and I would reiterate that concern.
I must say that the problem that we worry about the most is unemployment. That is absolutely the single creator of somebody losing their home. That's the single risk we face.
Economists talk about negative demand externalities. People in Canada will determinedly pay for their home, so the fact that our arrears rates are very low is actually worrisome, in the sense that someone will save their home by not buying a car, by not buying a fridge, or by economizing on their groceries. That's our experience in Canada. What that does is it reduces consumption. When we reduce consumption, we reduce economic activity. When we reduce economic activity, someone loses their job. That is what we're concerned about.
Thank you very much, Mr. Chair.
Thank you for coming.
In fact, the only opinion spoken was not as Mr. Liepert stated. In fact, we spoke, on this side, anyway, of the significant concerns, especially to the taxpayers who back a lot of the insurance. Should the market fail, or should people not be able to pay for their homes, it's actually the taxpayers who are on the hook.
In terms of the support that the government provides, you talked about it, and you talked about it with my colleague as well, but you said there is major support in the mortgage market. You just alluded to your analogy here. Can you elaborate so Canadians know, people who have invested in their homes? Also, what are the risks if the models are correct and if the indebtedness is too high, and a crash occurred, or even a drop in terms of affordability and people being able to pay for their mortgage?
What are the risks associated to taxpayers, given the fact that the government actually supports the mortgage market in the ways that we do? Mortgage lenders acknowledge some of the highest support in the world, when comparing us with the U.K., Australia, etc.
To move on to a bit of a different topic, you said there was some talk about the steps taken that were not intended, and then, in the meantime, there appeared to be unintended consequences. If we were to take all this out there and say that you intended to do what you did, that means....
We hear back from builders in our communities, in our ridings. We know that people lost money, or they cannot sell their properties anymore and they end up with no profit, or below zero. We know that there's another interpretation to what you did, which was to encourage more or less the rental market versus the home builders, which was another consequence of the whole thing.
Another perception is that you are imposing policies on Canadians, especially first-time homebuyers, in terms of their dreams, their opportunities, and what they want. If we look at the Alberta market—we represent Alberta—we see that this policy has impacted Alberta a lot, including small businesses. During the difficult time of the economic downturn in 2007-08 until now, Albertans managed to really hold their market and to hold their mortgages, and we've seen the best results of all.
With these controversies surrounding what you have suggested to the , can you clarify exactly why you think your policy is of benefit to Canada and Canadians? We know that Vancouver and Toronto markets have driven your policy, in many cases. What does that represent percentage-wise compared with the rest of the Canadian markets? Is it a good blanket policy that's really fair for all Canadians?
Good afternoon, gentlemen. Welcome.
I don't think there's anything more important for Canadians than their home. I was invited to attend a pre-budget consultation in the city of Toronto with the member from . I would say half the comments and questions we received from the residents were with regard to our housing market, in terms of affordability, accessibility, and ensuring that, for one voter, her kids would be able to buy a home and live in the neighbourhood they grew up in. It's very topical, as you can imagine. Two days ago, we had a house in Toronto listed for $1.5 million and sell for $2.6 million, I think it was, so it was a million dollars over. There's obviously something going on. Canadians are concerned and they want to know that things aren't going to go astray.
Mr. Siddall, you've commented quite prudently on our housing market for the last several months in terms of identifying the risks and vulnerabilities. I've read your speeches and gone over the results. It behooves us to make sure we deliver the message that CMHC, since 1954 or whatever the year was, is there to assist Canadians in entering the housing market. We must ensure they do so in a prudent manner. As the Bank of Canada comments, we must ensure that the quality of indebtedness that Canadians take on going forward is a good quality. We don't want individuals overstretching themselves, especially if there's an exogenous shocker or anything of that manner.
A number of countries have undertaken actions for their housing market, be it Australia, Switzerland, New Zealand, Hong Kong, or Britain. I would like you to answer, because I think what we've done is prudent. We needed to ensure financial stability. I believe we have a home ownership rate of 69%. However, Canada is made up of regional markets, not one national market.
When we're looking at the Canadian housing market, what other pieces of information do we need to improve our decision-making? If you look at Australia, they seem to have more data than we are able to have. What more can we get to allow you folks to do an even better job than you're doing?
No. I suggested it is a factor, not the factor. There is certainly foreign investment in all major international cities, in particular in Toronto and Vancouver in this country. I am more concerned about the future of it than the current state of it.
It is certainly a factor, but the work we have done on the factors underlying escalating house prices has shown that there are three principle reasons for increased house prices. These are low interest rates, increased incomes and jobs, and immigration, which tends to arrive in Vancouver and Toronto.
On top of that, there is foreign investment, certainly, and domestic investment, which is an even larger factor than foreign investment in our country. There are income and wealth effects, and finally, there is constricted supply. In fact, in our work, the evidence would suggest that the two markets with the slowest and weakest supply response are in Vancouver and Toronto.
Thank you for coming today. We really appreciate it.
I think the quintessential question for the government, the finance department, and most of the people involved is the balance between stabilizing the housing market and making sure that Canadians have confidence in the housing market, and then making sure that there's access to housing. A lot of the testimony we heard was that you're over-regulating. But then I go back to 2008 and the lessons learned in the United States, and say that a lot of Americans probably would have appreciated a little bit of regulation then, because when it unravelled, it unravelled so quickly.
My colleague spoke about data, and we asked a lot of questions on the data that's being looked at to come up with policy recommendations. We do have concerns with the data elements.
Can you please speak again in depth on what you think the government should be looking at right now, because in your testimony today you said you're still looking at the housing market? What indicators are you guys looking at? What do you guys think is the best way to judge if we have a stable housing market in Canada?
Because the housing market is very regional, the story in Brampton East, in my neck of the woods, is a lot different from the story in Alberta that many of my colleagues talk about. Funnily enough, from one end of Brampton to another, the story is different.
What's happening in my city is that supply is really driving up prices. In January the forecast across the country for construction start-ups, again was at record highs. When I drive past a new open house or a model home, and there's a lineup of people willing to spend $700,000 and six hours in line to buy a house in the area they want to live in, and then I come back here and I hear all this testimony saying that the housing market is sound, there seems to be something wrong.
I know you're still looking at it. Would you say that today the market is stable and that Canadians are okay purchasing their homes with confidence?
Good afternoon, Mr. Chairman and committee members.
I'm pleased to be here today to speak to you as parliamentary secretary to the Minister of Finance, the Honourable Bill Morneau.
I am also pleased today to be in the good company of Rob Stewart and Cynthia Leach, who will be here to help me if there are any questions that I need some assistance with.
One of the most important responsibilities of the government and the is to ensure that Canada has a healthy, competitive and stable housing market.
This is why our government has been focused on housing issues since coming into office. This has included a series of carefully targeted measures to ensure stability and to promote affordability. Today I want to clearly explain the benefits of these changes and why our government has taken action.
Investing in a home is the single, largest, and most important financial decision most Canadians will make in their lives. Home ownership is vital to the economic and financial health of Canada and middle-class families. It is vital that we do what we can to ensure that the market is stable, and to provide peace of mind to homeowners across Canada. Especially in markets like Vancouver and Toronto, there is a risk that some middle-class families buying their first home could be taking on high levels of debt as house prices climb, reducing the likelihood that they would be able to afford their properties over the long term if economic situations or circumstances occurred.
Those who already own their homes want to know that the market is stable and that their most important investment is safe. We've heard that quite a bit during the testimony. Affordability and market stability are, therefore, issues that concern many middle-class families. These concerns are real, and this government takes them extremely seriously.
Last October, announced tighter mortgage insurance rules—among other measures—designed to improve stability, reduce risk to taxpayers, and ensure that everyone is playing by the rules. The more robust mortgage rate stress test for insured mortgages is meant to ensure that Canadians are taking on mortgages they can afford, even if interest rates go up or if their income drops in the future.
Other changes were also made to target safer forms of lending. These measures are focused on addressing the buildup of housing debt across Canada. As you have heard, these measures will require borrowers and lenders to make adjustments in the short term. Fundamentally, these measures are important in containing risk to preserve the long-term stability of the housing market in Canada.
We have seen in other countries what can happen to the housing market and the overall economy when housing risks and leverage are not appropriately managed. In these situations, it is often the middle-class families who suffer the most. Ultimately, the government's efforts to contain risk in the housing market will support its plan to create conditions for economic growth over the long term, growth that will benefit the middle class and those working hard to make it to the middle class.
One fundamental point that has yet to emerge clearly in this committee is the fact that the government's support for the housing finance system remains significant, especially compared with other jurisdictions like the U.S., the U.K., and Australia. Mandatory mortgage insurance promotes the extension of low-cost credit to a large proportion of homebuyers—many of them first-time homebuyers—and mitigates risks to financial systems.
No other country supports mortgage insurance like the Canadian government does here at home. At the same time, discretionary mortgage insurance and government-sponsored securitization programs support access to low-cost funding for mortgage lenders. Some lenders have built their business models around this support, which will continue to be available for mortgages that conform to the new requirements. They can also continue to provide loans that do not meet the new requirements, but on an uninsured basis.
One element that we know we need to make greater progress on is a better understanding of the factors that drive developments in housing markets. This includes the impact of purchase by foreign investors on demands for homes, but it also includes factors that impact the housing supply. This is why in the 2016 budget the government provided funding to Statistics Canada to gather data on purchases of Canadian housing by foreign homebuyers. Work on this initiative is ongoing.
The government has also created the federal, provincial, and municipal working group of officials to review the range of factors affecting regional housing markets. In addition to sharing data and identifying information gaps, this group has been looking at factors relating to housing supplies in Canada. A healthy supply of new homes is an important component of any strategy to promote access to housing.
This brings me to affordability. Our government knows that it needs to work with provinces and municipalities to provide housing that meets the needs of the most vulnerable citizens. This is why it is also acting on affordable housing fronts.
In the last budget, the Government of Canada spent $2.3 billion on affordable housing. It will continue to work closely with the provinces and municipalities on this file. As you may know, the Honourable Jean-Yves Duclos, Minister of Families, Children and Social Development, is currently developing a national housing strategy.
We know that the financial security of Canadian families depends on sustainable debt levels and stable housing markets. The federal government takes its responsibilities seriously by making sure the housing policy framework remains healthy, competitive and stable and protects all Canadians and the economy from potential excess housing market volatility. That's why the took action twice during the first year of our mandate and continues to follow the file very closely.
Measures that ensure a sound and stable housing market and financial security for Canadian families are part of the government’s economic plan. This economic plan is based on the notion that, when you have an economy that works for the middle class, you have a country that works for everyone.
As we look to the future with the goal of creating growth that benefits all of us, nothing could be more crucial than protecting what for many Canadians is the most important investment they will ever make in their lives. At every step of the way, our government will continue to listen to Canadians, homeowners, and stakeholders as it seeks to ensure a healthy and stable housing market for the benefit of all Canadians.
In that spirit, it gives me great pleasure to be here today to take some of your questions on behalf of the minister.
I want to thank the witnesses and the parliamentary secretary for being here today.
I'll go back to the question I asked earlier this afternoon.
You spoke a great deal about the need to help the middle class and those who want to join it. I think homeowners and those who are trying to own a home should be helped. In our communities, many people are concerned about this. It's the case in Montreal and in my constituency.
As members, we're invited to visit schools, which is a very pleasant activity. Children ask us questions about a range of topics. Surprisingly, the issue of house and condo prices often comes up. Since they hear the issue discussed at mealtimes, they ask us what we can do to help their parents purchase a house or condo. It makes me sad to think I'll need to tell them, when I return to the schools, that the federal government has taken measures that will make it more difficult for their parents to own homes.
How can you justify these measures to all the young families whose dream is to purchase their first home?
Thank you all for being here.
My first question is for the officials.
Can you, perhaps, speak to what happened in the past, with regard to consultation on items that could potentially have market implications? As we just heard from the president of CMHC, in the past, previous governments have also implemented changes to affect the housing market or mortgage market.
Can you as officials comment on whether there were consultations at the time, or has this been a policy of protecting market sensibilities? I don't mean attributed to one government but in terms of a department policy.
Just following up on that point in terms of lender support, ultimately if.... The competition is good. I don't think anyone is denying that fact. However, with the level of investment that Canada makes to allow for this competition through backing that insurance, as one example, changes or people's inability to pay, because sometimes those are the higher-risk individuals we're looking at there.... What would be the impact of the government's investment and Canadians' investment, in your opinion, if we didn't take these market risks and this debt load risk very seriously?
I think the earlier testimony pointed to maybe trying to ensure that there isn't too much of a good thing in terms of allowing too much debt to accumulate without really looking at the fact that, if we don't cool it off a little bit, people will out-borrow what they can afford with any market changes.
Do you see the risk to the overall investment as the real cause of concern if we don't protect and put these moderate tests in place to ensure people really can absorb those market changes?
The question is to the parliamentary secretary.
I gather from your opening statement that somehow the policies that have been pushed forward left a lot of consequences for small builders, for credit unions, for small lenders, and for overall big industry in Canada, other than in Toronto and Vancouver.
You mentioned the national housing strategy. As I gather from what you've said, those policies are going to encourage the government to have a national housing strategy. Any expert looking at it can see that the government is going to replace those industries, that they are in business and are going to really take that national strategy to start to be in competition with these interests, which is really against the free market, against the encouragement of small business owners, and in the meantime is going to cause a lot of loss of job opportunities and put a lot of doubts in the market.
Did I gather right from what you said or not?
I don't know if I could answer the question of when, but I could answer the question “under what circumstances”.
Obviously we've taken these measures over a series of years, in the last year two times, to address circumstances arising from a low interest rate environment. An ability to borrow and a consumer's interest in borrowing to buy a house have been very high. That has pushed up house prices. It has pushed up people's interest in buying houses.
These measures have been taken in general, as I've mentioned, to make sure that when they enter into those arrangements, they're not vulnerable to either a loss of income or interest rate rises over time.
In other circumstances, for instance, where the economy is performing well but risks are lower, interest rates are higher, and the impediments to people making imprudent borrowing decisions are higher, we would perhaps look at circumstances in which we would change some of those rules. These are macroprudential rules, and they are adjustable.