CMHC’s Evan Siddall prepares what could be his final acts as the most important person in Canadian housing
The Financial Post takes a look at 11 people and companies we’ll be watching closely in the new year.
It’s Casual Tuesday at Canada Mortgage and Housing Corp.
That’s my impression, anyway, as chief executive Evan Siddall arrives for an interview dressed like a Shopify Inc. executive, not the leader of a 73-year-old Crown financial institution.
He takes a look at me in my second-best suit and decides an explanation is in order. The former investment banker is wearing a half-zip sweater under his sports jacket instead of a shirt and tie because he’s taking his senior managers on a mindfulness retreat. “We’re doing yoga as a way to open the doors on a bunch of conversations we need to have,” he said.
It’s Nov. 19, five years and 31 days since former prime minister Stephen Harper’s government appointed Siddall to a five-year term as the most important person in Canada’s housing nexus. In the spring of 2018, he agreed to stay an additional two years.
But unless something extraordinary happens, there will be no more extensions. Among the conversations Siddall would be having with his lieutenants was how to “make sure the team is as tight together as it can be” heading into a leadership transition, “an environment where there are natural tensions that can emerge.”
The end of the public-serve phase of Siddall’s career is nigh.
“My term ends at the end of 2020,” he said. “The board and I haven’t decided on the exact timing of that. It depends on whether there’s a financial crisis and what’s going on … the choice for me is: do I step up and actually reapply for my job because that’s the process? Or use this opportunity to have a proper transition? The bias is the latter.”
A “proper transition” for Siddall means making sure the cultural change that he was asked to lead is permanent. CMHC was insular, cautious and at least somewhat captured by the housing industry when he took over five years ago. Today, the organization is the opposite of those things. The transformation is so impressive that it’s produced two separate casestudies in the Harvard Business Review.
“If this is all about me as a leader, the CEO, then I have failed,” Siddall said. “It’s the transformation of this entity that this is all about.”
Many in Ottawa will be sad to see him go. Real-estate lobbyists won’t be among them. Siddall has disrupted their easy relationship with the elected men and women who have an incentive to at least be seen to be doing something to help satisfy our most superficial desires, including owning a home.
It’s somewhat counterintuitive, but CMHC’s leader has made it his mission to dispel the notion that there is something special about homeownership. In particular, he is an aggressive champion of the stress test that the Justin Trudeau government imposed on borrowers in 2018 to deflate a household credit bubble that had ballooned to nearly 180 per cent of disposable income.
“Beware those who will stop at nothing, and expose young home buyers to financial ruin, by selling the myth of the ‘dream of home ownership.’ Renting works too,” he
Home ownership isn’t the only path to financial security, as some want you to believe. Beware those who will stop at nothing, and expose young home buyers to financial ruin, by selling the myth of the “dream of home ownership.” Renting works too.https://t.co/rFAiyA4IlO
Siddall has published multiple tweets like the one above in recent months and he appears ready to go out in a blaze of glory. Unlike virtually everyone else in Ottawa, including cabinet ministers, Siddall has no issue with calling out special-interest groups and lobbyists by name on social media, in parliamentary testimony and during interviews.
His adversaries, understandably, dislike it.
Paul Taylor, president of Mortgage Professionals Canada and an occasional target, said he respects Siddall, but added it’s “inappropriate” for a public servant to hector lobbyists in public the way he does. “We’re serving a market that has a desire,” he said. “We’re not stoking that desire.”
Michael Bourque, chief executive of the Canadian Real Estate Association (CREA), said he likes Siddall and called him a “super smart guy.” But, “it doesn’t help when you hear comments like we’re just trying to keep the party going,” he said. “I just don’t see how the rhetoric of pitting homeowners against renters helps anything.”
If this is all about me as a leader, the CEO, then I have failed. It’s the transformation of this entity that this is all about
The Canadian Home Builders’ Association declined to comment on its relationship with Siddall, though he said it was a “bit cynical” of the CHBA to create a website called affordability.ca while at the same time advocating for policies that would stoke demand and put upward pressure on prices.
“That’s just rich,” he said.
For such industry groups, these past few years must have been like watching a friend turn into a foe.
CMHC, which was created to help build houses for veterans returning from the Second World War, used to be a reliable ally in the housing industry’s efforts to advance homeownership rates.
Karen Kinsely, the previous chief executive, knew nothing but real estate. She was working for a property developer in Toronto when she joined CMHC in 1987 and began climbing the ranks, claiming the top position in 2003. She and the industry got on well. The Canadian Home Builders’ Association presented her an “award of excellence” in 2004, and Mortgage Professionals Canada inducted her into its Mortgage Hall of Fame a couple of years later.
Siddall joined CMHC as an outsider. His background was international finance as a dealmaker at Goldman Sachs Group Inc. and Lazard Ltd., two of the world’s biggest investment banks. He also worked at Irving Oil Ltd., one of Canada’s biggest industrial companies. Immediately before CMHC, Siddall had been working at the Bank of Canada as an adviser on financial regulation.
It’s important to remember that he was also handed a new mission.
The financial crisis was still a visceral memory in 2013. Harper’s government, especially finance minister Jim Flaherty, wanted someone who had a grasp of the bigger picture. The collapse of the United States housing market had pushed the global economy to the brink of a depression, and government-backed housing agencies in Washington had helped inflate the bubble. There was resolve to keep Canada off that path.
“Regrettably, CMHC became something rather more grand I think than it was intended to be,” Flaherty, who died in 2014, said around the time of Siddall’s appointment.
Your view of Siddall will depend on how you think Ottawa should work.
If you think senior bureaucrats and the heads of Crown corporations such CMHC and Export Development Canada should rarely be seen and almost never heard, then you probably see Siddall as an arrogant technocrat. “Arrogant” was the word Conservative member of Parliament Ron Liepert used during an exchange with Siddall at the Finance Committee in February 2017.
However, if you think democracies work best when policies are aggressively debated out in the open, rather than privately at caucus meetings or in the even smaller confines of the Office of the Prime Minister, then you might hope that Siddall inspires other public servants to follow his lead.
If not for Siddall’s alleged arrogance, there would have been less consideration over the past few years of the real-estate lobby’s contention that tighter mortgage rules were hurting the economy and unfairly punishing first-time buyers.
“Housing is too big a part of our economy and we’ve made it too easy to invest in housing, so that’s taking money out of the productive economy that otherwise would go there,” Siddall said during an interview that lasted the better part of an hour.
“All this comes back to my view that our job here at CMHC, and people think this is ironic, is to help people understand the perils of too much housing. You can have too much blood pressure. You can have too much housing.”
Canada spends considerably more on housing, an asset that generates little innovation and productivity, than it does on research and development. That’s what happens when you make a particular investment essentially risk-free.
You can have too much blood pressure. You can have too much housing
CMHC backs most of the banks’ mortgage lending, allowing them to engage in price wars to gain market share. You can use a Registered Retirement Savings Plan to buy a first home, but not to invest in your college roommate’s first business. You pay capital gains taxes when you sell equities, but not your home.
Governments have been making a progressively bigger mess of the real-estate market for decades. In 2006, Kinsley’s CMHC said it would insure mortgages with 40-year amortization periods and no downpayment. That’s generally considered the apotheosis of the federal government’s experimentation with housing subsidies, the moment policy-makers became pushers instead of enablers. Even the real-estate industry thought it was too much. “Everyone would agree that was lunacy,” Taylor said.
The aftermath of the crisis opened the door to sanity. In 2008, the maximum amortization period for an insured loan was dropped to 35 years, and a minimum downpayment of five per cent was imposed. In 2011, amortization periods were shortened again, to 30 years, and then again a year later to the current 25 years.
None of it was enough to offset the attractiveness of ultra-low interest rates. The credit binge didn’t end until the beginning of 2018, when the Office of the Superintendent of Financial Institutions ordered regulated banks to ensure that mortgage applicants for uninsured loans could still make their payments if interest rates spiked by two percentage points.
In April, Toronto-Dominion Bank estimated that OSFI’s new B-20 rules, which include the stress test, had reduced home sales by some 40,000 units between the fourth quarter of 2017 and the fourth quarter of 2018.
“This policy has pushed a significant share of households to the sidelines in order to accumulate a higher downpayment,” TD economists said in the report. “From the standpoint of regulators and the central bank, the B-20 guidelines have been working to improve mortgage quality, slowing credit growth and stabilizing household leverage.”
Pendulums, however, swing back.
The big housing lobbies lament Siddall’s treatment of them, but they haven’t exactly struggled to get politicians’ attention. In March, the Trudeau government apologized for the stress test by increasing the maximum that can be withdrawn from RRSPs for a first home to $35,000 from $25,000. It also created a new sop, the First-Time Home Buyer Incentive, which allows households with less than $120,000 in annual income to apply for a shared-equity loan from CMHC to help with an initial downpayment.
In the election campaign, both the Conservatives and the New Democratic Party said they would allow first-time buyers to amortize their home loans over 30 years. Andrew Scheer, the Conservative leader, also said he would review the stress test.
The Liberals, meanwhile, said they would tweak their shared-equity program to let buyers in expensive cities get bigger loans. That program is mostly harmless, since the federal government shoulders the extra debt, rather than stretched households.
It appeared that Trudeau had resisted the pressure from the housing industry to roll back the stress test. But then in December he released Finance Minister Bill Morneau’s mandate letter and among the marching orders was a command to “review and consider recommendations from financial agencies related to making the borrower stress test more dynamic.”
The housing lobby was pleased.
“We don’t agree with (Siddall’s) analysis of the stress test,” CREA’s Bourque said. “We’d like to see it reviewed in a transparent way.”
His group would like to see requirements eased for regions where price appreciation has been milder, arguing that someone buying a $200,000 home in Saint John, N.B., should face fewer restrictions than a buyer in Vancouver or Toronto.
The stress test is squeezing people out of the market, denying them a chance to build equity
Paul Taylor, president of Mortgage Professionals Canada
Mortgage Professionals Canada wants the rate at which borrowers must prove they can still make future payments lowered to three quarters of a percentage point above the offered rate, down from the current two percentage points. “The stress test is squeezing people out of the market, denying them a chance to build equity,” Taylor said.
That last comment highlights how intractable Morneau’s review of the stress test could become. What the housing lobby describes as a defect — “squeezing people out of the market” — is actually evidence that the policy is working.
Because interest rates are so low, and because the Bank of Canada feels that it must keep them low to counter the trade wars, something must be done to keep household debt from spiralling out of control again. If a buyer in Saint John couldn’t make mortgage payments at a more typical interest-rate setting, then he or she probably is undeserving of the loan.
Siddall’s campaign really is about drawing a line. His biggest achievement at CMHC might be the way in which he’s refocused the organization on our housing needs, not our wants. His final test will be attempting to achieve something similar on Parliament Hill.