The federal government’s decision to remove the GST on construction of new purpose-built rental apartment buildings was long-overdue but very welcome news for builders and those in need of housing.
The move is already having an impact and leading to more affordable rental units being built in Canada. Some condo projects are also being re-evaluated for rental housing. It will make it more feasible for stakeholders to overcome obstacles and shoulder the costs of building those types of units.
Developer Dream Unlimited Corp., for one, has announced plans to develop 5,000 new purpose-built rental apartment units in Toronto, Ottawa, Calgary and Saskatoon, in light of the new legislation.
Company president and chief responsible officer Michael Cooper noted in a press release that Dream can now move forward on the units because of the changes.
“The housing crisis has impacted every urban centre from coast to coast,” he stated. “What this legislation unlocks is our ability to get shovels into the ground quickly at a time when it’s never been more critical to build new homes.”
On September 14, the feds announced that the five-per-cent GST would be removed on construction of new purpose-built housing such as apartments, student housing, and senior residences built specifically for use as long-term rental units. The government is encouraging all provinces to follow the lead. In Ontario, the government announced it plans to follow suit by removing the eight-per-cent HST.
Previously, the feds provided a 36-per-cent rebate on taxes for construction of rental units with a fair market value of $350,000 to $450,000. The threshold is being removed and the rebate is being hiked to 100 per cent. There are some caveats, though.
The rebate will apply only to projects that begin construction on or after September 14, and on or before December 31, 2030, and complete construction by December 31, 2035.
To be eligible, rental buildings must have at least four apartment units or at least 10 private rooms, and 90 per cent of the units in a building must be designated for long-term rental. The GST rental rebate will not apply to single-family homes, duplexes, and triplexes. It will also not apply to housing co-ops, owned houses situated on leased land, and residential trailer parks. These forms of housing will continue to qualify for the 36-per-cent GST rebate.
In RESCON’s opinion, there should not be an expiry date for the rebates. They should continue beyond 2035. The excessive taxation of shelter, which is a need, was wrong to begin with. Housing is a must-have item, like food. It is not a discretionary item like alcohol or cigarettes. Therefore, it should not be taxed in the same manner.
And the need for action was dire. Many people who work in Toronto, for example, can no longer afford to live there because of recent rent hikes. The average cost for a condo rental in Toronto climbed to $2,786 in June, up from $1,866 in 2016.
More than 300,000 new rental homes are needed in the Greater Toronto Area alone in the next decade. In the next 10 years, the rental housing deficit in the GTA is expected to increase to 177,000 units. This means that construction of purpose-built rentals will have to happen at more than double the current pace.
While a step forward, and appreciated, still more action is needed to tackle the housing crisis.
RESCON, for example, would like to see the GST removal extended to owner-occupied market housing, as it makes perfect sense to do that. Doing so would spur construction of the new home and condo markets which are also feeling the effects of inflation, interest rate hikes, and labour and supply issues.
Presently, taxes, fees and development charges on new housing are much too high and prevent developers from moving on projects. In a study, the Canadian Centre for Economic Analysis indicated that taxes, fees and levies on a new house or condo now account for 31 per cent of the cost.
According to the Canadian Home Builders’ Association, municipal development taxes have gone up 700 per cent over the past two decades.
To get more shovels in the ground on homes, municipalities must address the increasing fees and tackle systemic barriers at the municipal level, such as lack of digitization and failure to allow higher density around transit hubs, that are dramatically slowing down the construction of new housing.
A recent report from CMHC, indicates that Canada needs 3.5 million more homes than it is on track to build, with 1.48 million of those in Ontario. We must look for more ways to build housing quicker.
While the action on purpose-built rental apartment buildings is a step in the right direction, it is going to take a concerted effort by all three levels of government and the industry to bring about the change that’s needed.
Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at email@example.com.