Thank you.

Bonjour, finance committee.

You've already heard a lot about the financialization of housing and its impacts on Canadian families and our economy. You've also heard a lot about the imbalance between housing supply and housing demand and the causes of that imbalance, from red tape to population growth. However, I'm here today to suggest a new way of thinking about this problem and a new solution.

We have a house price crisis in Canada. It's simple: The prices are simply too high. To solve that crisis, we do need more homes, but we also need more financial innovation.

We need to build those homes and we need to build a national market in house prices. We can do both. We have the knowledge. We have the financial infrastructure. We can fix this problem right now. We can build a national market in house prices before I can build a single home in Vancouver.

Our high house prices drive the other factors behind the housing crisis. They magnify the effect of interest rates. They attract speculative demand. For many people, they're the only investment game. High price expectations can constrain supply by inhibiting sales and driving up the cost of construction.

There are two federal policies that keep our house prices high. There's the principal residence exemption, which gives real estate a tax advantage that no other asset class enjoys, and there are CHMC mortgage insurance and securitization programs that give real estate a financial advantage of cheap and abundant credit.

Mortgage insurance thresholds keep moving higher and higher, and keep anchoring our prices higher and higher. It was $500,000, then $1 million, then $1.5 million, and most recently it's moved to $2 million with a secondary suite.

These policies have created a Canadian version of the Greenspan put. Our prices always increase and are always expected to increase because the government is always there to back them up with more cheap credit and tax incentives. Those increases just drive more investor demand. They offer outsized returns with limited risk, and that's why you end up with 34% of condos in my home province of B.C. owned by investors.

The only way to get exposure to that great return is to buy a house. If you want to talk about gatekeeping, it's a great example. The only way to get access to those amazing returns is to buy a house and take on a mortgage. It doesn't have to be this way.

What we call “housing demand” is actually demand for two different goods. There are houses that offer shelter, status and control over land, and there are house prices, which offer those great investment returns supported by government policy. Instead of bundling those two goods together as we have for decades, we can and should find ways to separate them and satisfy the demand for financial exposure to house prices with new financial products.

New financial instruments, futures contracts and house price ETFs would be based on house prices and could give investors direct exposure to the house prices they want without requiring them to buy homes. These products would build on our existing financial and regulatory frameworks. They would build on our tradition of financial innovation. The first ETF was created in Canada. We can keep doing this.

We can already buy ETFs that give us exposure to weird, exotic assets like Bitcoin, Ethereum, and S and P volatility carbon credits, but we can't buy exposure to house prices, the most important asset class in the county.

A house price ETF would absorb speculative demand and would enable young families and new Canadians to save down payments that track house prices. They wouldn't fall behind. They could be held in tax-free accounts to mimic the benefits of home ownership. A renter could combine those two things and get something very similar to owning a home. They would also be compatible with other federal efforts to build more houses, like the accelerator fund.

They'd be different from REITs in two important ways. First, they would not involve the purchase of houses. They wouldn't take any shelter off the market. Second, they would provide direct exposure to house prices, not cash flows of rental properties.

I'm saying to just give the people what they want, because, clearly, what they want is more exposure to house prices.

This committee and the federal government can take steps to advance this concept by expressing interest in and support for new financial instruments that absorb speculative housing demand; studying the concepts in order to identify and resolve technical issues like defining the reference price for this instrument; and mandating the CMHC to provide specific financial support, such as credit support for the underlying swap agreements.

We have a house price crisis. We can solve it. Financial innovation itself is not the problem; we can build houses and a national house price market, and we can do it right now.

Thank you.