Deconstructing the Canadian Housing Crisis

Roman Dubczak: Hello, everyone. I’m Roman Dubczak, Deputy Chair of CIBC Capital Markets, and welcome to another webcast in our Perspectives series. How can Canada Solve Its Housing Crisis? Housing affordability continues to dominate the national conversation, and all levels of government are feeling significant pressure to act quickly. According to the Canada Mortgage and Housing Corporation, we need to build 5.8 million new homes by 2030, which will require building homes at a faster pace than ever. From renters and homebuyers, to commercial landlords. It’s an issue of increasing urgency, and one that public and private sectors need to come together to address. Our team is highly engaged and looking for solutions of this generational crisis, and we have two leading experts joining me here today to further unpack this topic. Joining me are my colleagues, the Honourable Lisa Raitt, Vice-Chair of Global Investment Banking at CIBC. Lisa recently served as the co-chair of the Task Force for Housing and Climate, which will delve into further. And Benjamin Tal, our Deputy Chief Economist who has written prolifically on, and is arguably Canada’s leading economist, on this issue. Lisa, Ben, thanks for joining me here today. Let’s jump right in. Ben, it’s been said that there is no single cause for this crisis and no single solution. What do you see as some of the key drivers behind the housing shortage?

Benjamin Tal: Well, a good question. Where to start? Well, first of all, we have COVID. You know, home prices went up by 40% over the course of breakfast. And we have to understand what happened. It’s very important because the asymmetrical nature of the recession meant that all the jobs that were lost were young people, renters. That’s why rent actually went down. Homebuyers? They were zooming. Their income was there. Interest rates were in the basement. That was a once in a lifetime opportunity. So to understand the housing market during COVID is to say that homebuyers got the benefit of a recession, vis a vis extremely low interest rates, without the cost of a recession, vis a vis, a broadly based increase in unemployment, which we have never seen anything like that. There was a sense of urgency to get into the market and people got into the market. So what we are seeing now is simply a reallocation of activity over time. That’s one thing. The other is demand. Population growth is going up like crazy. We all know that, too fast. And that’s something that we have to fix. So population growth, especially non-permanent residents, rising quickly. Clearly demand, especially on rental units. Then we have supply. Our ability to build. In Ontario, for example, Doug Ford is saying that they would like 1.5 million units in ten years. I don’t have my calculator with me, but I think this 150K, a year. Well, we cannot build more than 70-80K. We simply don’t have the capacity. Part of this capacity is technology. We are not using technology. We are building the same way we built 50 years ago. And that’s very different. We don’t have the labour. We don’t have trades. You look at the situation over time and you see that it’s getting worse. Over the next ten years, 300,000 trades and construction workers will be retiring. What’s replacing them? Not much. The number of apprentices is actually going down. How many new immigrants are in the construction? 2% going down from 4%. So clearly that’s an issue. So all those forces, in addition to major delays when it comes to government approval of projects, and we have a situation in which the housing market simply is unable to provide and supply what’s needed.

Roman Dubczak: So, supply, demand. And it sounds to me like a planning crisis?

Benjamin Tal: Absolutely, Absolutely. We just recently released a paper about that because it takes a long time to plan, to allocate the land, to service it. Ten years. So when you look at the population growth and all those municipalities are getting their quota. So ten years ago, the expectations were that the population in Canada would be 38.5 million. The real number is 1.4 more than that.

Roman Dubczak: Yeah.

Benjamin Tal: Which means that you cannot plan for something that is not in the plan. And that’s exactly what happened. So you cannot blame municipalities because they were planning for much less. And 90% of the gap is non-permanent residents and students. So clearly, we have an issue here.

Roman Dubczak: Yeah. So then just on that topic of immigration, how do we then balance the competing themes here? One is the need for growth in Canada and to continue to grow our population base, to make up for a variety of issues, demographics not being the least of which. Yet, to what you just mentioned, the supply-demand imbalance of housing supply.

Benjamin Tal: Yeah, the issue is very complex, but clearly we cannot have a situation in which we get so many people into this country without the ability to house them, to service them. It’s not fair to anybody. So I think that we have to be a more creative here. And the latest changes to foreign students and quotas is the right thing to do. We pushed for that. I think it’s not going far enough. Also, we need to do something else when it comes to new immigrants. Don’t cut the number, but change the point system. We need more construction workers. We need to close this mismatch between what they are bringing and what we need. So clearly, we can do much more, but definitely cut the numbers of foreign students and non-permanent residents and clearly foreign workers, because we have a situation in which we simply have too many of them.

Roman Dubczak: Right. Okay. Hear you loud and clear on that. And clearly, we can go on this topic for a while. But, you know, Lisa, over to you. The Housing and Climate Task Force is due to publish its findings imminently.

Lisa Raitt: Yeah.

Roman Dubczak: What were some of the aims behind pulling the group together? And congratulations, by the way, for chairing the task force’s quite a coup and quite a lot. I think you’re about to let us know what’s coming out of this task force.

Lisa Raitt: I am. And it kind of picks up from where Benny left off, which is I think you’ve done a great job of telling us what the situation is and what the story is. And where the task force came in was, “Okay, well, we know what the problem is.” It’s been defined and smart people like Benny have been able to tell us maybe some policy thoughts around it. But handing governments concepts doesn’t get it done, at the end of the day. You actually have to specifically give recommendations. So we pulled together an advisory group made up of academics, made up of people within the development industry, made up of former politicians like myself and Don Iveson, who’s the other co-chair, studiously non-partizan or cross-partizan, as it were, to make sure that when we were talking, that Conservatives, Liberals, NDP, Green, everyone can find something that they agree with in there. They’re also going to find things in there that they disagree with. But we wanted to give as many recommendations to all the orders of government as possible in order to try to break the logjam on what we need to do. However, there’s one big caveat, and it’s this building, 5.8 million homes, incredibly important. If you do it without thinking about what our carbon budget is, you blow the budget and you’re not going to get to your net-zero by 2050 goals that we have in this country. So we actually overlay climate on it. And there are three broad themes. What we hope to do is give recommendations on ‘how to build’, ‘what to build’ and ‘where to build’, and then we plumbed down from there and showing that it’s not just a provincial or a municipal issue, it’s a federal issue as well.

Roman Dubczak: It is, yeah. Okay, so I know there’s a whole slew of recommendations.

Lisa Raitt: Yeah.

Roman Dubczak: Why don’t we go through some of the, kind of, more…

Lisa Raitt: I can’t tell you them all. You’re being very kind. You’re being very kind, you know that.

Roman Dubczak: I wouldn’t say they would be ‘controversial’, but some of the more exciting ones.

Lisa Raitt: Yeah. So I think building on what Benny said, we do have recommendations for the federal government on immigration, and it’s along your lines, which is you do need more people in the country, but you need more builders, quite frankly. You need to have people who are going to come in and add to the ability to build. I think one aspect of, ‘how to build’ is looking at manufactured housing, palettization, looking at mobile housing. Those things actually do help in terms of building quickly and not just thinking about it in terms of your regular bricks and mortar kind of thing. And then I think the final one that I would highlight is the ‘where to build’, which is possibly the most important and could be the most controversial. And that is, the concept of building out, and out, and out beyond the outskirts of any metropolitan area, just brings with it problems of commuting and more exhaust and more issues with respect to having to service anew and build new infrastructure around it. So we say, “build where there’s infrastructure already”. Go after those little strip malls where people currently have wonderful investments, but make it worth their while to actually include densification in the area and add housing in it. And we have some, I think, some pretty interesting ideas for the federal government in that.

Roman Dubczak: Well, those are fascinating ideas and hopefully they get implemented because it’s time for a radical rethink on how we’re moving forward with some of these opportunities. Thank you for the very brief summary. Benny, thank you, as always, for your provocative insights as to how to move this forward. And Lisa, as we know, the report’s going to be published very soon, and I hope it gets the level of due response that it deserves. And, you know, our goal at CIBC is to help our clients make sense of these issues and help them make informed decisions and to move forward. So I’d like to thank you, our clients, for spending some time with us today. Hope you enjoyed our exploration of this topic and we look forward to seeing you again soon. Thank you.