Finance Committee on June 13th, 2024

[The Chair, Liberal, Peter Fonseca]

MP Baker.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Mr. Chair.

Thank you to our witnesses for being here.

I have two brief questions for Mr. Cardinal.

First, can you submit to this committee compiled data on all major work done on rental properties owned by your members, over the past 30 years?

[Paul Cardinal]

As far as I know, we unfortunately don't have this data. However, we can survey our members to verify the information.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

If you could provide us with the best information possible, that would be great.

Secondly, can you provide us with data on the number of owners per rental property?

[Paul Cardinal]

We could probably provide you with partial data. However, the Canada Mortgage and Housing Corporation, or CMHC, expanded their rental survey in 2019, and they asked about the types of landlords in the rental stock.

I'll check with CMHC to see if we can get an average of units per landlord, for example.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you.

I'm going to use the rest of my time to ask questions of Professor Condon.

Professor Condon, thank you for being here.

We have only about two and a half minutes left, so I'll be concise, and if you can be as concise as possible, we'll get to as much as possible.

My colleagues may remember this. Back during our pre-budget consultations, when this committee was travelling in Toronto, we had a gentleman named Joe Polito, who happens to be from my riding of Etobicoke Centre, present to us. He provided a presentation on how we could do more to make housing more affordable.

He explained how he thought that a land value tax could help make housing more affordable. I think he was speaking to the issue of trying to incent those who own land to put it to good use: in other words, to develop it so that there was housing available for folks, rather than sitting on it and speculating on it.

Do you agree with his argument that a land value tax could make housing more affordable? If so, why?

[Prof. Patrick Condon]

Yes, I do agree with that.

That theory or fact goes back to Adam Smith, who said the same thing. He said that since land is not a productive factor of production with capital and labour—land is necessary but not productive—taxes should come essentially as much as possible from that source. Milton Friedman and others have said the same thing.

Point two is that it is a good tax, but it would be politically very difficult to change the taxing strategy that we have. If all of you can figure out how to do that, that would be great, because we don't emphasize land value as a destination for tax. The credible theory for this is that by taxing land instead of income or instead of capital gains, as you're considering, you do not undercut the vigour of the economy, and it ends up making things like housing more affordable, because it will be valued for its use value only, rather than its asset appreciation value.

I promised to be short, so I will say in the next 10 seconds that if it's politically impossible to restructure the world around a land value tax, there are also other mechanisms that have to do with zoning regulations and things like bonus density and so forth and are policy tools that do the same thing. They mitigate what would otherwise have been a land price inflation in the absence of those policy requirements.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker.

I'm going to go to MP Ste-Marie now.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Thank you, professor, for all the answers and elements of analysis you've presented to us. They're very interesting and we'll be looking at them carefully.

Mr. Cardinal, in your presentation, you reminded us that construction costs have risen by 40% in recent years. What's more, the rental housing stock is in need of major renovation, but here too, renovation costs have skyrocketed. Meanwhile, the purchasing power of tenants has not increased at the same rate.

What would be solutions to be able to renovate the rental stock and ensure the construction of rental housing, while preserving tenants' ability to pay?

[Paul Cardinal]

Our view on this is that we need tax incentives, like the good old tax credit. As we've told you, it's difficult for people to renovate rental properties, given that they generate little net income, it costs more and you have to borrow more.

Another advantage of encouraging the renovation of rental housing is that it would greatly improve energy efficiency, and we would greatly reduce greenhouse gas emissions from older buildings, particularly those built before 1980, because the standards were different then.

In Quebec, in addition to this difficulty in renovating housing due to the economic climate, the Tribunal administratif du logement has rules for setting rents that make major renovation work very unprofitable.

To give you an idea of how absurd this is, the payback period for major renovations varies according to the rate of return on guaranteed investment certificates, plus 1%. At the height of the pandemic, this meant payback periods of up to 50 years. But no renovation work has a useful life of more than 50 years. So there's a real pitfall there.

Naturally, it's a provincial provision. On the federal side, we give tax credits or grants to homeowners for renovations that improve energy efficiency. Why shouldn't we offer such incentives to rental property owners too? I think it would all add up.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

That's very interesting, thank you.

The representatives from the Department of Natural Resources will come right after you, as they are the witnesses for the next group. I don't know if we'll have time to hear them, but I'm sure they were able to hear your suggestion.

There's about a minute left, maybe less. Do you have any final remarks you'd like to share with the committee members?

[Paul Cardinal]

I'd just like to come back to what we said earlier about the Quebec model and small rental buildings. For urban planning people who are keeping abreast of this issue, here in Quebec we also have the famous “missing link” that we see in several research works. We have many of these small, low-density buildings located in urban areas, close to services. They're still affordable, and offer much more affordable rents. I think it's important to protect that model.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I thank you very much, once again.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

We'll go to MP Davies.

You'll be our final questioner for these witnesses.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair.

Thank you to my colleagues for indulging this. I think it's important.

Professor Condon, I'm interested in your views on the solution being offered by people to simply add density, particularly market-priced density, as a potential solution to the housing crisis.

What are your views on that?

[Prof. Patrick Condon]

My view is that it's a bit of a dead end.

What we've experienced in Vancouver is this: When we've allowed for additional density, the price of the unit has not gone down in conformance with the so-called law of supply and demand. What has happened is that the price of land goes up. There is currently, nationally and internationally, a push to just add a whole bunch of density as a solution to the affordability problem.

I will again emphasize that it's counterproductive, because what it does is increase land value, to the detriment of rental affordability and first-time homebuyers.

[Don Davies, NDP, Vancouver Kingsway, BC]

You wrote this in 2023:

So, if adding density can't make housing cheaper what, if anything, can be done about this?

One city that solved this problem 100 years ago is Vienna. During its own extreme housing crisis, it adjusted its municipal tax structure.... It then took the money gained from this source and used it to buy land for non-market housing. It worked with its non-profit housing providers and the city's best architects to build affordable housing—supplying land on a competitive basis to community groups anxious to create affordable communities.

Could you outline the impact this approach has had on rent prices in Vienna?

[Prof. Patrick Condon]

What happened in Vienna—of course, they had a number of decades to do it—was because of the strength of the non-market sector. This has had a mitigating effect on the market sector. You can get a market rental in Vienna for about half the price of an equivalent apartment in another major European city like Rome, Paris or wherever else.

This basic strategy suggests our country should probably examine how strengthening the non-market sector also has a beneficial effect in terms of providing an alternative to the market and reducing the inflationary influences on land value.

[Don Davies, NDP, Vancouver Kingsway, BC]

Some people in Parliament say we just need to cut red tape and let the free market build more market-price houses. This will solve the housing crisis.

What's your view on that strategy?

[Prof. Patrick Condon]

My view is that we've tried it for 40 years in Vancouver. You know, a lot of people like me had a lot of faith in that position, but the empirical evidence contradicts the theory in this and many other cases.

It's becoming much more evident that simply adding supply doesn't solve the problem.

[Don Davies, NDP, Vancouver Kingsway, BC]

My final question is this: In the 1992 Conservative budget, the federal government terminated Canada's co-operative housing program.

Can you comment on the impact cancelling that program has had on Canada's non-market housing stock and rent prices?

[Prof. Patrick Condon]

We had a tremendous industry of non-market housing. There were thousands of units in Vancouver, for example. We were already on our way. If that hadn't been discontinued back in the nineties, Vancouver would probably already have about 30% non-market housing inventory in the form of co-ops, non-profit housing providers and so forth. Unfortunately, we stopped that.

It's also important for me to say this was not a taxpayer giveaway. It was financed by some support from the federal government and other entities that guaranteed the loans, but those loans were all paid back, so it paid for itself.

I would recommend we revive that system.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Professor.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Davies.

I'm glad the committee made the wise decision to continue to hold these witnesses to be able to listen to them.

Witnesses, we thank you for your patience and for sticking with us, and for the testimony you've provided our committee on housing. We wish you the best with the rest of your day. Again, thank you.

[Prof. Patrick Condon]

It's been my pleasure.