On Thursday Sept 14, 2023, Justin Trudeau and the Federal Government announced a new tax policy repealing the Federal GST tax on new construction builds in a bid to encourage the construction of new rental buildings. Some welcome this move, claiming it will be a game changer. Critics remain sceptic, pointing out that it will not make a meaningful impact for renters.
The Prime Minister noted that this reprieve from the GST would only be in effect for the next seven years. “Canadians need more rental buildings,” he declared. Not only will condo rentals qualify for the exemption, but in addition, the new construction of student housing and seniors’ residences will be exempt. Trudeau added that he was, “encouraging all provinces to do the same.” Investors have increasingly chosen the more lucrative opportunity when purchasing properties, to rent out in the Airbnb market as opposed to long term rentals.
This idea has been developed to encourage developers to build more rental buildings rather condos. Developers and builders are welcoming the news. Dave Wilkes, President & CEO of the Building Industry and Land Development Association (BILD) was enthusiastic about the change, “This really is a game-changer and it’s something that we applaud the government for undertaking. This is something that the industry has identified as a barrier for purpose-build rental(s), and we believe that it is a really significant step.” Wilkes notes that in the current business model, purpose-built rental properties are risky for builders. High interest rates and high labour costs as well as the requirement to pay HST up front hampers the developers’ ability to recuperate their costs. It takes years for them to recuperate their investment and make any profit on the rents from the units.
In Toronto, rent for a one-bedroom apartment is currently more than $2500. Even for shared accommodation, rents are typically over $1000 per person. There are few purpose rental buildings, with larger square footage and multiple bedrooms available in the city. Renters are forced to choose tiny condo spaces, leaving families little choice in their housing accommodations.
This new program is developed to incentivize the developers to build more rental buildings with the hope of creating a more affordable market. But it is a long-term commitment some say will take forever. Jacob Gorenkoff, Director of Policy and Government Relations for Canadian Housing and Renewal Association, was more optimistic calling the new policy “an important first step.” The head of this national affordable housing and homelessness organization notes that additional and complementary programs and policies are needed as well to bring more investment from private sector to the affordable housing market. In addition, he would like to see a revamping of national housing-strategy programs.
Geordie Dent, executive director of the Federation of Metro Tenants Association was not enthusiastic. “Every time I think real solutions to the housing crisis are discussed, the industry – real estate industry – tends to steer the conversation towards things that only really work to benefit their profit margins.” He would like to see progression towards nudging developers to build rentals that could accommodate families through focused tax incentives and not more “shoebox condos.”
“Usually those are far more in-depth and far more prescriptive to developers, for example, you might say, ‘Hey, we don’t have a lot of three – or four – bedroom apartments right now and families need those, we’re going to give you money off your property taxes if you build them,’” he said. He notes that those were the kinds of programs that governments used to run. “Unfortunately, this is not that, this is just a giveaway.”
Canadians can hope to see the effects of this new policy within the next couple of years. As Gorenkoff notes, “The average Canadian isn’t going to see any direct benefits yet.”
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