Immediate release Ottawa, February 10, 1993 92-007 Notes for an address by the Honourable Don Mazankowski Minister of Finance to the 50th annual conference of the Canadian Home Builders Association Toronto, Ontario February 10, 1993 CHECK AGAINST DELIVERY Canada
Introduction I want to say how pleased and honoured I am to address the Canadian Home Builders Association as you celebrate your 50th anniversary. As my colleague, Perrin Beatty, said on Monday, it is a very different world today compared to 1943, when the National House Builders' Association (as you were first known) was founded. But one thing has not changed - the fundamental role that residential construction plays in the Canadian economy and in the social fabric of our wonderful country. Last year~ the value of residential construction and renovation activity in Canada was nearly $33 billion. That was almost 6 per cent of our entire national economic output. And it was a major factor in providing jobs to almost 700,000 Canadians in the construction sector. But the home-building industry represents much, much more than billions of dollars and hundreds-of-thousands of jobs. Homes are nothing less than the starting point of any community -- the primary infrastructure of any nation. Owning a home is the goal that every family works towards. It is a basic foundation for personal security. When people own their own homes, they can look to the future with more confidence. And when they buy homes, they also buy home furnishings and other services that contribute to our national economy. For all these reasons, the home building industry is a vital engine for economic renewal and growth. That is why our government has taken a number of steps to stimulate the housing industry directly. We have also taken wide-ranging action to put in place solid fundamentals for longterm sustainable growth for the entire Canadian economy. This is action that also benefits your industry, because sustained national growth -- and the new jobs and increased incomes this delivers -- is the key to your industry's enduring success.
- 2. Today I want to talk about some of these initiatives we've taken -- and about the importance of continuing to strengthen Canada's economic fundamentals. Refonning Canada's economy The fact is, as we look towards the 21st Century, the landscape is clearly marked with both challenges and terrific oppo~ties. We must never forget that these challenges and opportunities will determine nothing less than the well-being of individual Canadians -- the construction worker in Toronto, the student in Halifax, the widower in Victoria. In other words, economic challenges and opportunities are meaningful because they affect people. What is most affecting all Canadians today - and the prospects our children face - is the fast evolving global economy. It is a new world order where Canada's main street now runs from Singapore to Stockholm; and where brain power and competitive muscle -- not just natural resources -- are the keys to economic prosperity. Our opportunities depend on how we respond to those global challenges. And if we build on the foundations for renewal that we have already put in place, Canada will be uniquely positioned to be one the world leaders in economic growth, not just this year and next, but well into the next century. Let me highlight some of the policy thrusts our government has taken to deliver that success: In a world where market needs and technologies can change almost overnight, businesses must be flexible. That is why our government has moved to reduce regulation and eliminate barriers that prevent firms from adapting swiftly and innovatively. In an environment where businesses must be more competitive than ever before, firms need governments that work with them - not compete against them. That's one of the reasons our government has privatized over 20 Crown corporations.
- 3 - At a time when finns and jobs are increasingly mobile, a nation's tax system can play a critical role in attracting or driving away business. We've met this challenge by refonning Canada's tax system to bring it more in line with our major competitors. For a country that more than almost any other depends on trade to preserve jobs and create new ones, we've taken concrete steps - through the Canada-U.S. and North American free trade agreements, and our role in the GATT. These actions have given Canadian companies and products more secure access to global markets. And in an era where the nature of work itself is changing -- and skills and education are the key to good jobs -- we are increasing support for worker adjustment and training to $3.8 billion this year. That's over 50 per cent more than it was just three years ago. Inflation and interset rates There is another area of structural change that is of priority importance to your industry -- and to the well-being of Canada's people. That is the firm action we have taken - by setting clear public targets, and restraining public service wages -- to bring down inflation. Inflation is a hidden tax on every citizen, on our children, and on our ability to compete in a global marketplace. It eats up savings -- making it harder for young Canadians to enter the housing market. And it costs us jobs, by pushing up the cost of doing business here -- and making it harder for us to export products abroad. But inflation today is no longer stealing Canadians' savings and killing jobs. For 1992, the annual average rate of inflation in Canada was 1.5 per cent -- the lowest level in 30 years. It was also the lowest rate among the world's seven largest economies. And bringing down inflation has been a success that you can take to the bank -- and walk away with a cheaper mortgage. The simple fact is, lower inflation is the key to lower interest rates.
- 4 - Today, chartered banks' prime lending rate is down by more than half from its 1990 peak of 14.75 per cent And one-year mortgages are down to 7.7 per cent. This means that a $100,000-mortgage today saves a Canadian family about $470 every month compared to 1990 levels. That's more than $5,600 dollars a year. Further action to spur growth The structural changes I have highlighted are delivering real results. Low inflation has not only reduced interest rates; but has also helped bring the growth of labour costs down sharply. This translates into a Canada that is better able to compete in global markets. But the global economy itself has been struggling under the burden of low growth. And this weakness has slowed our own return to economic health -- because of our position as one of the world's most trade-dependent nations. That is why we introduced further direct action last year to build consumer confidence and spur growth. And this included measures specifically targeted to the vital homebuilding sector. We saw that people were locked out of home ownership --not because they lacked the income to afford a home, but because they lacked the downpayment So we took action to help them get over that hurdle: Just prior to the budge4 the Canada Mortgage and Housing Corporation reduced the downpayment required for its mortgage insurance from 10 per cent to 5 per cent; In the February budge4 I announced that Canadians could make withdrawals from their RRSPs without penalty to use as down-payment funding for home purchases; And in the economic statement I delivered last December, I extended this Home Buyers' Plan for another year.
- 5 - Seeing the benefits for housing The actions we have taken -- including inflation reduction, and targeted encouragement for home buyers -- have produced concrete results. And they have establish a firm foundation for continued growth in your sector, and for the Canadian economy overall. By the end of 1992, withdrawals had been made from some 127,000 RRSPs to buy or build a home. The value of those withdrawals was $1.2 billion. Also last year, nearly 69,000 Canadian families purchased a house with the assistance of CMHC-insured mortgages requiring only the 5-per-cent downpayment These results helped boost housing starts last year by 6.6 per cent. And we have also seen a tum-around in housing affordability for Canadians: The sharp decline in mortgage rates has seen the proportion of renters who can now afford to buy a house increase dramatically in most cities. For example, the proportion of renters in Toronto who can afford to buy a home has jumped nearly five times -- from 7.3 per cent in January, 1991 to 35 per cent by October last year. In Edmonton, the number of renters who can now afford to buy a home more than doubled, from 27.3 per cent to 67 per cent over the same period. This progress is also reflected in another measure -- a housing affordability index tracked by the Department of Finance. It shows that average mortgage payments relative to average disposable income are at the lowest level since 1981, when data was :first collected. In other words, Canadians are in the best position in over a decade -- and possibly in a generation -- to undertake home purchases. This is good news for families, for builders and related industries, and for the Canadian economy overall.
- 6 - The outlook for housing As you can see, I feel there is good reason for optimism that your sector will enjoy progress this year and beyond. Yesterday's CMHC forecast sees housing starts in Canada increasing by a further 5.2 per cent -- to 177,000 units -- in 1993. And the Clayton Housing Forecast has been even more optimistic, forecasting 1983 housing starts of over 181,000 units. I should add that a good sign for future housing construction has been the continued decline in newly completed but unoccupied units. This suggests that a larger proportion of new housing sales in 1993 will be met by new starts. The Canadian economic outlook Underlying the continuing growth in the home building sector, of course, will be growth in the Canadian economy itself. Here, too, the outlook seems positive. In my December economic statement, I said I looked to 1993 national growth of around 2.5 per cent. But other leading international agencies are even more bullish. The OECD, in its December 16th outlook, called for 3.2 per cent growth for Canada this year, and 4.2 per cent in 1994. These are levels, the agency says, that will see Canada lead all other G-7 nations. The challenge of debt control I have focused my remarks on some of the actions our government has taken to make Canada more competitive, increase consumer confidence, and spur economic growth - especially those that relate directly to your industry. And I have highlighted the positive forecasts that these actions are helping make possible. But I also want to talk about another key part of the growth equation. That is our government's commitment to making renewed progress at putting the government's fmancial house in order.
- 7 - There is no paradox when I say that deficit reduction is our priority and growth is our focus. The fact is, controlling Canada's deficit is one of the essential foundations to make continuing growth and economic progress possible. The simple fact is, deficit-driven borrowing by governments is one of the factors that puts pressure on interest rates. And it is deficits - involving all levels of government -- that continues to impose a tax burden that remains higher than some of our major economic competitors, such as the U.S. and Japan. That is why, in my December economic statement, I announced wide-ranging measures to rein back government spending by some $8 billion over the balance of this and the next two fiscal years. These include freezing cabinet, MP and public service salaries; reductions in government operating budgets; targeted action on unemployment insurance; and a reduction of 10 per cent in federal grants and contributions. This action was necessary because our federal fiscal situation has been hard-hit by the combination of weaker-than-expected growth and lower nominal income. This has meant that government revenues are well below what was forecast in my February 1992 budget -- while the cost of certain programs, such as unemployment insurance, is much higher. If Canada were to sustain conditions for renewed growth -- including the international investor confidence that is an important part of interest-rate reductions -- we could not let our deficit surge out of control. Today's national debt is not just a mortgage on the future: it's become a second-, third- and fourth-mortgage. We simply can't let this continue to grow. That is why we have taken tough restraint measures. But it is important for Canadians to recognize that deficits and growing debt are not just federal problems. Provincial deficits and debt have surged in recent years - particularly in terms of international indebtedness. And it is this international indebtedness that now costs Canada over $22 billion a year in interest payments to foreign lenders. That is money that cannot be used to help promote Canadian growth or support Canada's social safety net.
- 8 - If we want to control inflation and bring interest rates down further -- if we want to prevent further increases in our national tax burden -- it is vital that all levels of government take the tough action necessary to stop the deficit surge. And that means tough action to bring down government spending at all levels. I am committed to that tough action. Conclusion Ladies and gentlemen, in concluding my remarks, I want to draw upon the spirit and nature of your industry. Home-building is, by definition, an investment in the future. It is the foundation for family security, community well-being and national confidence. And it is these people-oriented values -- and a total commitment to Canada's future - that have been the driving force behind the policies we have put in place. And just like in any construction activity, you have to lay your foundations and build the framework before the finishing work can take place. I am confident that we have laid those foundations of economic progress: we have put up a structure that can give Canadians and their children real success. And this year and in those to come, the benefits will be real. Canada will continue to be a home to its people that is envied around the world.