CMHC asserted its raison d’être in 2018 when we declared our goal that, by 2030, everyone in Canada has a home that they can afford and that meets their needs.
Our audacious aspiration belongs to CMHC alone, yet we will only succeed with the help of others. After refocusing our business in 2014 and implementing a technology-driven business transformation from 2016 until now, we have again restructured our company to support a strategy focused on working with others to ensure housing affordability for all. This strategy has 4 key elements, described in our Annual Report, and in greater detail in our 2019 – 2023 Strategic (Corporate) Plan.
We were occupied last year with the implementation of Canada’s first National Housing Strategy (NHS), which was also proudly crafted by CMHC. The year marked several milestones on this 10-year, $40-billion journey:
- Completion of a multi-lateral NHS framework in April, and completion of bilateral agreements with Ontario, British Columbia, New Brunswick and Northwest Territories
- Launch of the National Housing Co-Investment Fund
- Expansion of the Rental Construction Financing Initiative to finance the construction of 14,000 new homes for renters
- Launch of the Federal Community Housing Initiative
- Hosting of the first ever National Housing Conference
We operate our company to ensure value for taxpayers. In 2018, we earned $1.4 billion on $4.8 billion of revenues, generating a return on equity in our commercial operations of 8.7% (our government assistance programs are operated to break even). And we did more than we ever have without increasing our employment levels. Our 1,900 people were associated with $1.9 million in revenue per person. We achieved substantially all of our Strategic Plan targets for the fifth consecutive year.
Housing affordability and boom/bust cycles
Our goal contemplates both good times — periods of economic expansion — and bad — especially the spectre of housing-related financial crises. We know that housing’s unique character as something we consume, invest in and trade can promote volatile boom and bust cycles. We cannot ignore the fact that housing boom and bust cycles preceded over two-thirds of the 46 systemic banking crises for which house price data are available.
Housing markets in Canadian cities moderated somewhat in 2018. Government measures undoubtedly contributed somewhat to the resulting slowdown in activity and house price growth. Patience and discipline will be required for many more years as incomes slowly catch up to the high levels of household indebtedness still observed in Canada (177.5% of income as of the third quarter of 2018). Sustained housing affordability therefore requires discipline and we need to avoid the temptation of short-term gratification that can be inherent in shorter electoral cycles.
Regrettably, the burden of tighter mortgage underwriting falls on first-time home buyers. The additional interest rate “stress test” that is now required is particularly constraining. However, we need to remind people regularly that trees don’t grow to the sky and the century-long Canadian housing boom will not continue unabated forever. Younger Canadians are the most exposed to the risk of a sudden and severe housing market correction. Having a home we can afford also means not borrowing to the point of excess.
As it is, qualified first-time homebuyers receive substantial support from the government and we will continue to speak against ideas that contribute to further price inflation. Where supply is constrained — in Vancouver and Toronto especially — making it easier to buy a house can often serve only to push prices higher.
Well-intentioned support for home buyers often proves to have the opposite effect by making affordability worse, merely adding to existing homeowners’ wealth at the expense of younger Canadians. Home buyer support must therefore be balanced against this risk. As a matter of fact, we estimate that the much-maligned stress test has reduced average home prices in Canada by 3.4%.
We are ready for whatever comes in 2019. Aside from being more focused in what we do, our risk management discipline will reach the maturity we have long targeted this year. Our rigorous risk frameworks are operational and are supported by a crisis playbook that we will test in a “tabletop” simulation this spring.
As I write this note in March 2019, we are in the midst of an enterprise-wide reorganization in support of our new strategy. Our Technology and Business Transformation partnership with Accenture will allow us to automate more activities, improving controls and risk management as well as supporting innovation.
We are also transforming how we work in order to give our employees greater autonomy and flexibility. Our employee-inspired Results-Only Work Environment (ROWE) treats us all as entrepreneurs, with clear goals, regular measurement against those goals, and managers who have been selected and trained to make work easier. Effective leadership is essential to achieving our targets; our reorganization conscientiously places a priority on key leadership skills. Consistent with these ideas, we will transform our workplace to promote increased collaboration, innovation and productivity.
CMHC and inclusion
Finally, we will continue to act as a standard bearer for inclusivity. We believe that Canada must be an example to the world as a place where anyone feels they belong. Starting with gender, we are proud that half of our people leaders are women. Much more, however, we will continue to build an increasingly diverse workforce. We use a 14-factor diversity index to track our workforce. And we will also convene a pan-governmental diversity and inclusion conference in June with a focus on the financial sector, where it has proven hard for women to feel fully included.
Ultimately, inclusion starts with a safe place to call home. Housing affordability for all rests at the centre of human dignity. Home is our foundation.
As a company, as a group of colleagues — indeed, as Canadians — we will not rest until everyone in Canada has a home that they can afford and that meets their needs.
President & CEO