Speaking Notes for Evan Siddall, President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Canadian Club of Toronto
Sheraton Centre Hotel
123 Queen Street West
Toronto, Ontario

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Thank you; it’s a pleasure to be here.

In 1945, Hugh MacLennan wrote a great Canadian novel called Two Solitudes about the tension between English and French identities in our country.

Today, I would argue, the two solitudes prevailing across the globe are the gap between the very wealthy and the deeply poor – a gap that is widening every day.

Inequality threatens the very fabric of modern western society. As Professor Richard Florida of the Rotman School of Management notes in his book, The New Urban Crisis, unexpected referendum results in the U.K. and election results in the U.S. are indicative of this growing divide.1

After a year of broad consultations, the Government of Canada and our Minister, the Honourable Jean-Yves Duclos, have asked CMHC to lead the development of a National Housing Strategy, a once-in-a-lifetime opportunity to ensure Canadians have the housing they need and that they can afford.

I will be so bold as to suggest that the Strategy is being created precisely to diminish the inequity that we see growing in our communities daily – to close the gap between the “haves” and “have nots.” We contrive to solve this problem so many others ignore – because we are Canadian.

I’d like to advance the idea today that affordable housing is essential to a growing economy and to a healthy society. I’d also like to assert that our National Housing Strategy is inherently, deeply Canadian. We have deliberately invested it with Canadian values like tolerance, diversity and social inclusivity. These qualities are in fact central and not at all frivolous.

In short, our plan isn’t really about housing at all. Our objective is not just to build more houses, although that is big part of what we will do. In fact, we have been far more ambitious than that.

People, rather than buildings, are at the heart of our program design. As Harvard sociologist Matthew Desmond writes in his Pulitzer Prize winning book Evicted, “The home is the wellspring of personhood. It is where our identity takes root and blossoms ...”2

Housing Affordability and Economic Growth

Buildings are full of people with their own identities and their own stories. Along with BC Housing, we supported construction of a transitional shelter that recently opened in Coquitlam. One of the residents is a gentleman called Mike. Here's his story:

Mike’s story is one of 95 at 3030 Gordon Street. We could see all that he has to his name in that video. We built Mike a place to live, for now. However, in Greater Vancouver, like here in the GTA, the cost of housing is just another factor keeping people at the margins of society.

Research suggests that housing values exacerbate the gap between rich and poor. Our own research has found a very strong relationship here in Toronto between wealth and income inequality and house prices.

Our observation echoes the work of Matthew Rognlie at MIT.3 Rognlie shows that the share of net income generated by housing has risen in all G7 economies since data became available after World War II. “Observers concerned about the distribution of income should keep an eye on housing costs,” he writes.

Housing has helped the rich get richer, as the poor get poorer.

That's true for Mike and it can be true for entire economies as well. I’ve talked before about the relationship between high house prices and household debt and the increased potential for economic weakness.4 An attempt to quantify that drag on the economy has now been made.

Economists looked at the experience of 54 economies from 1990 to 2015 and found that every 1 per cent increase in the household debt-to-GDP ratio tended to lower growth in the long run by 0.1 per cent.5

While household debt provides a temporary boost in consumption, mostly for less than a year, the negative long-run effects on consumption tend to intensify as household debt-to-GDP exceeds 60 per cent. The overall drag on GDP growth tends to intensify when the ratio exceeds 80 per cent.

Today, Canada sits well over both thresholds at more than 100 per cent.

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While household debt provides a temporary boost in consumption, mostly for less than a year, the negative long-run effects on consumption tend to intensify as household debt-to-GDP exceeds 60 per cent. The overall drag on GDP growth tends to intensify when the ratio exceeds 80 per cent.

Source: BIS, Calculations by CMHC. Study: BIS Working Papers No. 607, “The Real Effects of Household Debt in the Short and Long Run” by Lombardi et al, Jan. 2017.

Emerging Social Pressures: The Threat of Gross Inequality

A YouTube video on “Wealth Inequality in America” paints a worrisome picture.6 Now with almost 20 million views, the video explains that the top 1 per cent own 40 per cent of America’s wealth while the bottom 80 per cent hold only 7 per cent.

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A visual from the YouTube video on “Wealth Inequality in America” showing that the top 1 per cent own 40 per cent of America’s wealth while the bottom 80 per cent hold only 7 per cent.

Artistic reproduction of chart from “Wealth Inequality in America”

Nelson Mandela said that, “As long as poverty, injustice and gross inequality persist in our world, none of us can truly rest” (emphasis added). Mandela meant this in sympathetic terms, but there is a menacing side to his statement as well. As a matter of fact, the last time this level of inequality existed, fractures emerged in our society, the world ultimately went to war and the Great Depression followed.7

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Graph spanning from 1913 – 2011 showing the top 1 per cent income share including capital gains in the United States is nearing historic highs.

Source: Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, 2013. "The Top 1 Percent in International and Historical Perspective," Journal of Economic Perspectives, 27(3): 3¬20.

Stimulating Housing Supply to Confront Affordability

As I mentioned earlier, it turns out that housing has aggravated our inequality problem. Conversely, therefore, affordable housing can help provide a solution.

Emerging clouds call for governments to act. We must first identify the causes behind the housing affordability problem we're trying to solve. Policy should be made based on evidence and rigour, not anecdotes about who is buying what houses in what neighbourhoods.

CMHC has recently conducted extensive economic research on the causes behind house price escalation in Canada’s major cities, particularly Vancouver and Toronto. We weren’t surprised that over the long run, the usual economic suspects were the principal factors: first, economic growth and job creation and, second, population growth and immigration. Those two cities lead Canada on these measures. And thirdly, low interest rates provide further stimulus.

Vancouver and Toronto are increasingly in the company of world class cities. House prices in major cities are decoupling from their home countries and increasingly behaving more like each other.8

Cities are our economic engines and urbanization is predicted to continue. Cities currently account for 54.5 per cent of the world’s population and are expected to be two-thirds by 2050, doubling the urban population and reflecting a full reversal of the urban/rural proportion in 100 years.9 House price pressure in Canadian cities will therefore continue to build.

Three other factors are meaningful to short-term price appreciation, and can aggravate price volatility. They are: (1) speculation and investment activity, (2) the wealth and income effect I mentioned earlier, and (3) supply.

As to the first of these, despite hearsay about foreign investment driving prices up, all of the data confirm that the majority of investment activity is still from domestic sources. In its annual review of the Canadian economy, the IMF labelled taxes on foreign real estate transactions as "discriminatory". While foreign investment is increasing, policy must address the impacts of speculation whatever the source.

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There has been an increase in the number of homes resold within 12 to 24 months of purchase in the Greater Toronto Area.

Source: Teranet

In fact, governments cannot fully contain the combined sources of increased housing demand in Toronto and Vancouver. And policies that further stimulate demand only push prices higher, making the problem worse.

Demand-side support seems appealing but can be counterproductive. Mortgage insurance and the capital gains exemption on the sale of primary residences both add to primary demand for housing in Canada. In the absence of responsive supply, policies like these tend to make sellers wealthier, exacerbating a divisive inequality gap.

Affordability challenges therefore call for a supply-based policy response. And that's exactly what we’ve done: Canada’s National Housing Strategy aims to increase rental supply by up to 80,000 units and to modernize another 250,000 units over the next 11 years. The Strategy will stimulate roughly $9 of supply for every $1 of demand it aids.

In addition, our recently launched Rental Construction Financing initiative will give preference to projects in municipalities that accelerate approvals and waive fees. We are incentivizing more and faster supply.

Over time, housing construction in Canada has diverted away from purpose-built rental housing. Yet, core housing need – a measure of housing affordability that asserts that having to spend more than 30 per cent of your pre-tax income to access adequate, suitable local housing is onerous – among renters sits at 26.4 per cent compared to 6.5 per cent for owners.10

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Core housing need is a measure of housing affordability based on having to spend more than 30 per cent of your pre-tax income to access adequate, suitable local housing.  
Severe core housing need is having to spend more than 50 per cent of your pre-tax income to access adequate, suitable local housing.

Our aim with the National Housing Strategy is to address this rental gap: vacancy rates in Toronto (1.3 per cent) and Vancouver (0.7 per cent) manifest the shortage of rental housing for people who need it most.11

A National Housing Strategy for All Canadians

Our National Housing Strategy sets out a vision for housing in Canada, that:

Canadians have housing that meets their needs and that they can afford. Affordable housing is a cornerstone of sustainable, inclusive communities and a Canadian economy where we can prosper and thrive.

After extensive consultations in 2016, we have designed programs that together are intended to channel multiple efforts into a coherent, integrated, people-based housing strategy. Many of these initiatives were outlined in the recent federal budget, which included an historic commitment of $11.2 billion in federal funding for housing over the next 11 years.

Of this amount, $3.2 billion will by cost-matched by the provinces and territories to target the different housing needs people have across Canada.

A further $2 billion has been committed to tackle the persistent problem of homelessness, to be delivered by our colleagues at Employment and Social Development Canada.

The Government has also committed $6 billion of funding to be delivered directly by CMHC to address national housing priorities.

This includes investments of $300 million in northern housing, $225 million for a new Indigenous off-reserve housing program, $200 to make surplus federal lands and buildings available for affordable housing, and $241 million to improve housing data collection and analytics.

But the bulk of this funding – a full $5 billion – will be devoted to a new National Housing Fund.

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Budget 2017: Toward an inclusive National Housing Strategy  
$3.2B renewed federal provincial territorial partnership
$5B National Housing Fund
$300M Targeted support for northern housing
$225M Social housing for Indigenous Peoples (off-reserve)
$2.1B Homelessness Partnering Strategy
$202M Federal lands for affordable housing
$241M Housing research

National Housing Fund

The National Housing Fund is at the centre of the federal government’s leadership in housing. It takes advantage of the government’s role as a national convenor. We will use it to unify and breathe energy into the housing efforts of others.

And it’s more powerful than it appears. Our aim is to use the $5 billion National Housing Fund to stimulate over $16 billion of investments over 11 years.12

Beyond the long-term funding commitment, the National Housing Fund enables us to re-imagine how to “do housing.”

Importantly, a significant portion of the Fund will be dedicated to a co-investment initiative that will empower CMHC to form housing-related partnerships with municipalities, housing co-operatives, non-profit housing providers and private companies to drive people- and place-based housing innovation.

Working with provinces and territories, we will co-invest with proponents so that housing can complement other socio-economic priorities such as health, education, housing for seniors, at-risk youth, women’s shelters and so on.

We will be making loans and capital investments to create energy-efficient, healthy, affordable housing that is better connected to transit and jobs, with integrated services and social supports, and that promotes social diversity and inclusion. Renewing existing social housing infrastructure will contribute to the economic productivity and social vibrancy of communities, making them places where businesses want to invest and people want to live, work and play.

Funding in lieu of Expiring Operating Agreements

The Government has also committed definitively to sustain several billion dollars of funding to CMHC as long-term social housing operating agreements expire in the coming years.

CMHC has been asked to consult our partners and propose ideas on how these funds can be directed to where they are most needed.

Indigenous Organizations

And while more work is yet to be done, Budget 2017 also included a $4 billion Indigenous Infrastructure Fund that will have a substantial housing component.

Unprecedented Investment in Affordable Housing

All in all, combining Budget 2016 and 2017, the Government has committed over $30 billion to housing in Canada from 2016-17 until 2027-2028, on top of the $18 billion previously committed. We can confidently call that a renewed federal leadership role in housing.

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Federal funding for housing: 2016-17 to 2027-28
Budget 2016 $5B
Budget 2017 $24B – leveraged*
Ongoing funding $18B

*Total public and private investment enabled by Budget 2017

* Total public and private investment enabled by Budget 2017

Minister Duclos will formally launch the Strategy later this year once we have fleshed out some program features and implementation details with provinces, territories, Indigenous leaders and stakeholders.

Investing for Results: Reducing Core Housing Need

As I’ve said, we know that Canada’s housing affordability challenge will only get worse without more and faster supply. Urbanization is a global trend and Canada’s embrace of immigrants will add to the future need for housing, particularly in our cities.

It's a management truism that you get what you measure. We are targeting transformational results to anticipate these pressures.

We estimate that these historic investments will yield tangible results over 11 years, including up to a 50 per cent reduction in core housing need among renters, which will mean better, more affordable housing for as many as 500,000 Canadian families. This includes 135,000 of our neediest households who are in severe core housing need, paying more than 50 per cent of their before-tax income to access acceptable local housing.

The National Housing Strategy also targets a 50 per cent reduction in chronic and episodic homelessness.

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National Housing Strategy targets
50 per cent reduction in chronic and episodic homelessness.
Up to 50 per cent reduction in core housing need of renters.

We have already made good progress toward these targets through the housing investments announced in Budget 2016.

The Budget 2016 funding committed to date will help more than 115,000 households. Among these are more than 93,000 low-income households whose homes are being renovated, including 3,300 First Nation families.

No Solitudes: Canada as a Model for Social Inclusion

These investments will benefit us in other ways. Housing added $368 billion to Canada's Gross Domestic Product in 2016 – roughly 18 per cent of GDP.13 And the construction sector alone accounts for about seven per cent of total employment in Canada.

Importantly, a 2012 study by the Mowat Centre at the University of Toronto noted that each $1 increase in residential building construction investment generates an increase in overall GDP of more than $1.50 as the investment continues to multiply through the economy. Downstream costs to society – for healthcare, social services and the justice system, for example – are also reduced.14

And the impact goes beyond economics. The Mowat Centre study drew clear linkages between affordable housing and positive socio-economic outcomes.

Building on other research in Canada and abroad, it demonstrates that housing matters – in fact, it matters a great deal.

When people have good housing, they tend to have better health.15 And healthy children and teens living in stable home environments have better educational outcomes.16

A place to call home and the dignity it confers rests at the centre of Canadian society. Our National Housing Strategy will help hundreds of thousands of Canadians to feel fulfilled as productive, welcome citizens of this great country. Think of Mike’s warm bed in Coquitlam and the fact that he didn't have to spend this past winter in a lean-to in the forest.

I really do think Canada’s uniqueness echoes MacLennan’s “great social secret” and rests on our values of tolerance and inclusivity, our tonic for solitude and isolation. People feel safer here.

We still can do better but the fact that people have far more social inclusivity and mobility in Canada than in the U.S., for example, is strong evidence that we are getting something right.17

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A graph showing that people have significantly more earnings mobility in Canada than in the United States.

Source: U.S. Council of Economic Advisors, 2016. Economic Report of the President, Figure 1-5 “Intergenerational Earnings Mobility,” page 32, February 2016.

By far the most striking experience I have had as CEO of CMHC occurred on a visit to the Tsartlip First Nation in Brentwood Bay outside Victoria. I sat across from a dour and imposing member of council who had very little to say. As we got up to leave, however, he interjected with a story about his family.

This massive man was reduced to tears, as was I, as he thanked me for his home that had been built with CMHC's support. It was, he said, the turning point for his family: Sunday dinners in his home, a place for his daughters to study, a source of great pride for him as a father. That moment between two fathers cemented my commitment to do better. With our National Housing Strategy, we will do far better.

Let's end there. As Matthew Desmond says, "... without stable shelter, everything else falls apart."

And the opposite is true, too: stable housing leads to all sorts of good things. We have a long way to go and our work will not be done until all Canadians, most notably those who have been here the longest, can have a place they call home.

Thank you all very much.

I am indebted to numerous colleagues at CMHC – too many to mention – for their work on our National Housing Strategy. I am especially grateful for the outstanding work of the Housing Needs division over the past year, with the help of teams in Assisted Housing, Legal, Finance, Insurance, Securitization, Risk and Public Affairs.

1 Richard Florida, 2017. The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class – and What We Can Do About It, Basic Books, 2017.

2 Matthew Desmond, 2016. Evicted: Poverty and Profit in The American City, Crown, 2016, page 293.

3 Matthew Rognlie, 2015. “Deciphering the fall and the rise in the net capital share,” The Brookings Institution, Spring 2015.

4 Evan Siddall, 2016. “Housing in Canada and the Imaginary City: Addressing Vulnerabilities, Data Gaps and Affordability,” (speech at the Greater Vancouver Board of Trade), 30 November 2016.

5 Marco Lombardi, Madhusudan Mohanty and Ilhyock Shim, 2017. “The real effects of household debt in the short and long run,” Bank for International Settlements Working Paper No 607, January 2017.

6 Wealth Inequality in America, published on YouTube, 20 November 2012.

7 Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, 2013. "The Top 1 Percent in International and Historical Perspective,Journal of Economic Perspectives, 27(3): 3­20, Summer 2013.

8 Hites Ahir and Prakash Loungani, 2016. “Is it time to worry about house prices again?”, World Economic Forum, 14 December 2016.

9 United Nations, 2014. “World’s population increasingly urban with more than half living in urban areas,“ New York, 10 July 2014.

10 Canada Mortgage and Housing Corporation, 2016. “What Is Core Housing Need?”, Housing Observer Online, 23 March 2016.

11 Canada Mortgage and Housing Corporation, 2016. Rental Market – Canada Highlights, 28 November 2016.

12 The $16 billion figure Includes estimated incremental CMHC direct lending of $8 billion and $2.9 billion of matching co-investments.

13 This includes investment in new residential construction, transaction costs from purchasing existing homes, as well as rent, renovations and repairs.

14 Noah Zon, Melissa Molson and Matthias Oschinski, 2014. “Building Blocks: The Case for Federal Investment in Social and Affordable Housing in Ontario,” Mowat Research #98, School of Public Policy and Governance, University of Toronto, September 2014.

15 David Hay. 2005. Housing, Horizontality and Social Policy. Canadian Policy Research Networks, Family Network, 2005.

16 Selected references include:

Evan Siddall, 2015.  “Why Housing Matters,” (speech to the Board of Trade of Metropolitan Montréal) 3 December 2015.

Canada Mortgage and Housing Corporation, 2013. “Building Families’ Futures and Opportunities Through Habitat Homeownership,” Research Highlight, Socio-economic Series 13-004, April 2013.

Charles Waldegrave and Michaela Urbanová, 2016. “Social and Economic Impacts of Housing Tenure,” Report for the New Zealand Housing Foundation, Family Centre Social Policy Research Unit, November 2016.

17 U.S. Council of Economic Advisors, 2016. Economic Report of the President, Figure 1-5 “Intergenerational Earnings Mobility,” page 32, February 2016.

Date Published: June 1, 2017