Thank you for inviting the Canadian Bankers Association (CBA) to appear this morning to participate in the Committee’s review of Housing Affordability in Canada. My name is Alex Ciappara and I am the Head Economist with the CBA. I am joined today by Aaron Meyer, Advisor, Consumer, Household Finance and Mortgage Markets.

The role of the CBA and the banking industry re: housing affordability

The CBA represents more than 60 domestic and foreign banks employing over 280,000 Canadians that help drive Canada’s economic growth and prosperity. We advocate for public policies that contribute to a sound, thriving banking system to ensure Canadians can succeed in their financial goals.

For most Canadians, purchasing a home is the largest financial decision that they will make and Canada’s banks are there to help them throughout the process. Our members have provided over 5 million mortgages valued at $1.9 trillion in residential mortgages to meet the financial goals for Canada’s growing population. Our members also provide acquisition, development and construction financing for building developers which serves to increase housing supply. In short, our members by virtue of their lending activities see both sides of the economic interplay of housing supply and demand.

The problem

We believe that an imbalance between home supply and demand continues to be the key factor contributing to the housing affordability crisis in Canada. The CMHC estimates that Canada needs to a build an additional 3.5 million units above current construction trends to restore housing affordability by 2030.

As a result of this imbalance, owning a home in Canada has never been more expensive. According to RBC Economics, housing affordability, defined as home ownership costs as a share of household income recently hit its worst-ever level, with Canadians needing to devote over 60% of their incomes to home ownership.

The solutions

The only sustainable option for improving affordability over the long-term is to expand the supply of housing, including rental units. This is easier said than done as government responsibility for the various functions of building homes is spread over different levels of government– municipal, First Nations, provincial and federal. As such it is critical that there is greater coordination between various levels of government to address Canada’s housing challenges. A permanent discussion forum for relevant stakeholders, including all levels of government responsible for housing, infrastructure and immigration, representatives of the construction industry and advocacy groups. Of course, not only should a discussion forum be established, but action should be redoubled to address this critical issue.

From the banking industry’s vantage point, there are a number of actions that we believe would contribute to addressing housing affordability. They can be categorized in three buckets:

• Financing – This is the area where the banking industry has the greatest expertise and there is a number of initiatives that the federal government, particularly, can take to provide more financing.
  • First, improve income verification processes with a third party such as the CRA. This would allow banks and other financial institutions to reduce mortgage fraud that serves to drive up costs for borrowers.
  • Second, lower capital requirements set by OSFI on banks in any number of ways to allow the industry to provide financing to address this problem. For instance, banks are required to set aside more capital for multi-unit residential property development and construction than for other types of real estate despite the increased structural demand for residential property. Another example is avoiding adding to the domestic stability buffer for banks which has just been raised by 50 basis points to 3.5% of total risk-weighted assets,
  • Third, CMHC plays an important role in the insurance and securitization of multi-unit residential housing, including for rentals. We applaud the federal government’s recent announcement to increase the annual limit for Canada Mortgage Bonds for multi-unit rental construction by $20 billion. In order for the market to take fully advantage of this initiative, it is critical that the federal government remove uncertainty surrounding the CMB program that is the result of its recent consultations to wind up the program.
• People – Our members speak to their developer clients on the front lines building housing. The number one priority is shortages of skilled trades. According to StatsCan, as of July 2022, the national construction unemployment rate is at its lowest recorded level since 1976 at 2.4%. A long-term strategy of both encouraging Canadians to take up skilled trades as well as attracting immigrants to the country with these skilled trades is critical to speed up construction.
• Construction of social housing –According to Scotiabank Economics, Canada’s stock of social housing represents 3.5% of its total housing stock, among the lowest in the OECD.

In the near-term, we encourage all levels of government to accelerate the funding and construction of social housing to meet the growing needs of Canada’s most vulnerable population.

We believe that if the federal government takes action in these key areas, the banking industry will be able to make a greater contribution to addressing housing affordability.

Thank you, and we look forward to your questions.