44th Parl. 1st Sess.
December 9, 2021 10:00AM
- Dec/9/21 12:27:16 p.m.
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Madam Speaker, the government's failure to properly oversee and regulate Canada's banking system and its failure to properly manage fiscal policy are the two reasons Canadian families are struggling with skyrocketing housing prices and why Canadian families are burdened with record high levels of household indebtedness. The government is also putting the stability of our financial system at risk. It is mispricing risk, leading to the misallocation of capital toward residential real estate. As David Rosenberg has said, Canada's economy is overly reliant on “credit, cannabis and condos”.
The average house price in this country has skyrocketed over the six years the government has been in power. According to The Canadian Real Estate Association, the actual benchmark price for a home in this country has gone from $430,000 in November 2015, when the government was appointed to office, to $726,000 in October of this year, the last month for which we have data. This is a massive increase of 77% over the last six years. That is an annual compounded rate of increase of about 10% per annum, far ahead of the nominal growth of GDP. It is putting the cost of housing out of reach for many young families and individuals looking to get a start to their lives.
The average house price for a single detached home in Toronto is now $1.8 million. It is $2.9 million in Vancouver. In Fergus and Elora, two small towns in the rural area of my riding of Wellington—Halton Hills, the typical house price has trebled in the last five years. It has gone from approximately $325,000 in 2015 to $950,000 in 2020.
These prices are way, way above the long-term average of three and a half times household income. Prices in many Canadian communities are now eight, nine and 10 times household income. We are an outlier among advanced economies of the OECD. In fact, our housing prices are some of the most expensive in the world.
As housing prices have skyrocketed, so too has household debt. Mortgage debt makes up the vast majority of household debt. Mortgage debt comprises two-thirds of overall household debt, and the remaining one-third of household debt is closely tied to real estate in facilities such has HELOCs and other forms of credit.
In 2016, the first full year the government was in office, household debt stood at $1.9 trillion. Today, it is $2.6 trillion, an increase of almost 40% and an annual compounded rate of increase of almost 6%, far ahead of the nominal rate of increase of our GDP. That amount of household debt is reflected in the fact that household debt as a percentage of household income has also increased since the government took office. It now stands at 173%.
The government has allowed this to happen. We have a housing crisis in this country, and it is because of the government's failure to properly oversee and regulate the banking system and its failure to properly manage fiscal policy.
The government has had plenty of warning about this problem. Before I get into who has warned the government about it, let me tell members one of the unintended consequences of these skyrocketing housing prices and skyrocketing levels of household indebtedness.
Small to medium-sized enterprises have found it difficult to get financing. Canada has low levels of business investment relative to many of our economic peers. This low level of business investment is one reason for our low productivity growth rates. This low productivity growth rate is of particular concern because it is the only long-run determinate of wealth and prosperity.
These two challenges, namely the challenge of skyrocketing household debt and the difficulty many small and medium-sized businesses have in getting financing to make investments in plant capital and equipment, are two sides of the same coin. The government needs to take a hard look at the macroeconomic policies it has put in place, which have made life less affordable for Canadian families, and the policies that are making it difficult for businesses to invest, grow and create jobs.
The government is ultimately responsible for the regulation of our banking sector through the Office of the Superintendent of Financial Institutions. It is also responsible for mortgage financing through the Canada Mortgage and Housing Corporation, tax expenditures, government programs and Finance Canada. It has allowed mortgage credit to grow at unsustainable levels. Its responsibility is to oversee mortgage credit through OSFI and CMHC.
The IMF has warned Canada repeatedly over the last number of years about its oversight of housing finance. In addition, the IMF found, through its studies, that government intervention in housing finance exacerbated house price swings and amplified mortgage credit growth in advanced economies in the years before the global financial crisis. Moreover, the IMF's studies also concluded that government participation did not provide a cushion against economic crises, and countries with greater government involvement in mortgage financing experienced deeper house price declines.
In a 2011 analysis, the IMF concluded, “rapid mortgage credit growth and strong house price increases go hand in hand.” It added, “government participation in housing finance exacerbated house price swings and amplified mortgage credit growth during the run-up to the recent crisis, particularly in advanced economies.” It concluded by saying, “Countries with more government involvement also experienced deeper house price declines.”
The officials at Finance Canada and CMHC have warned the government. For example, last year in September, officials at Finance Canada discussed forcing private mortgage insurers to tighten eligibility rules, but left CMHC to try to manage the risk in mortgage credit markets on its own. Evan Siddall, the CMHC CEO at the time, said, “We had that conversation and you’ll have to pose the question to [the government] as to why it didn’t happen.” In reference to the rejection of the tightening of the rules to reduce risks, he added, “The minister of finance could have done it.”
OSFI itself has warned about skyrocketing levels of mortgage credit and mortgage credit growth, but when it proposed higher mortgage stress test levels in 2018, otherwise known as the B-20 guideline, the Minister of Finance opposed the rule. In March of last year, when OSFI announced changes to capital requirements for Canada's systemically important banks, the government did not ensure that additional liquidity, measured in the hundreds of billions of dollars, would not exacerbate the growth in mortgage credit. As a result, household debt, primarily mortgage credit, has jumped 4% in the last year, picking up sharply in the middle of last year, after the March 2020 changes that OSFI had introduced.
The Governor of the Bank of Canada, Tiff Macklem, warned earlier this year that Canadian households were taking on too much debt. In other words, the governor was warning the government that it is not using the tools it has at hand to properly regulate mortgage credit growth in this country.
Canadian families are finding it harder to make ends meet. They are being squeezed by the increasing cost of living and by the cost of housing. This is due to the government's failure to properly oversee and regulate Canada's banking sector and properly manage fiscal policy.
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- Dec/9/21 12:37:49 p.m.
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Madam Speaker, we are proposing constructive solutions to the housing crisis we are facing. The government is not coming forward with anything constructive to deal with what is a real crisis.
The government has overseen a regulatory system in our financial sector that is putting households at risk, which is leading to skyrocketing housing prices, and it is also overseeing fiscal policies that have exacerbated the problem we see in the country today. We are proposing solutions to address this, and the government is not. What is the government going to do about this situation?
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- Dec/9/21 12:39:42 p.m.
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Madam Speaker, quite simply, here is the problem: The government's affordable housing measures are a drop in the bucket given the challenge that Canadian households are facing. Household debt in this country, largely made up of mortgage credit debt, has skyrocketed from about $1.9 trillion the first year the government was in office to $2.6 trillion in the most current year. That is a $700-billion jump in household debt. The government can come forward with all the affordable housing programs it wants, but they are a drop in the bucket of the $700 billion in additional mortgage debt and other forms of household credit debt that Canadian families have had to take on because of the government's mismanagement of housing finance.
We are focused on the root causes of the problem rather than on using band-aids that will do little to deal with the housing crisis in this country.
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- Dec/9/21 12:41:31 p.m.
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Madam Speaker, I agree. We need more affordable housing in this country.
However, no matter how much money the government puts into affordable housing programs in this country, it is not going to address the underlying problem, which is our skyrocketing levels of household indebtedness and skyrocketing housing prices.
Governors of the Bank of Canada only have one or two tools at their disposal to deal with monetary policy: the overnight rate and quantitative easing. The government has an immense number of tools available at its disposable. It has dozens and dozens of tools through finance regulation, CMHC and OSFI to get a handle on this problem, tools it is not using to deal with the underlying problem.
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- Dec/9/21 1:09:10 p.m.
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Madam Speaker, the motion calls on the government to look at freeing up 15% of federal real estate. The member opposite keeps talking about parks.
We are not referring to parks in our country, which all Canadians treasure and want to protect. We are talking about real estate like the federal government building at Front and Bay Street in downtown Toronto. It is a five-story building right next to Union Station, some of the most prime real estate in the country. It is across from the Royal Bank towers, which are 41 stories high. If that building was repurposed and redeveloped to allow for a condo to be built of some 40 or 50 stories, it would create additional supply in one of Canada's hottest real estate markets. That is the kind of real estate we are talking about in our motion and not our national park system.
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