ANALYSIS: Political Parties Propose Bolder Solutions to Improve Housing Affordability

Housing affordability has reached a crisis level, says CIBC’s deputy chief economist Benjamin Tal
ANALYSIS: Political Parties Propose Bolder Solutions to Improve Housing Affordability
A new housing development being built in Ottawa is seen in a file photo. The Canadian Press/Sean Kilpatrick
Rahul Vaidyanath
Updated:
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Ottawa is taking more proactive steps to build more rental properties and deal with the lack of affordable housing. Housing affordability has reached a crisis level, says CIBC’s deputy chief economist Benjamin Tal, and the opposition Conservatives are taking the opportunity to put forth their own solutions.

Mr. Tal also says the responsibility falls on all three levels of government and that it is incumbent on them to all work together on solutions.

A federal government spokesperson confirmed in an email to The Epoch Times on Sept. 18 that the estimated cost to the budget of Ottawa’s Sept. 14 announcement to eliminate the GST from purpose-built rental construction is $4.565 billion over six years. 

This is a significant budgetary impact that is almost as much as Budget 2023’s expenditures of $5.2 billion from fiscal year 202223 to 202728 for making life more affordable and supporting the middle class. 

“I think that if it means cutting somewhere else, so be it. But I think that clearly we need the rental solution to this crisis. I think that the government will basically realize that there is no choice but to do so,” Mr. Tal told The Epoch Times in a Sept. 19 interview.

Housing experts like Mr. Tal say that purpose-built rental units like apartment buildings and student housing are the type of housing most needed to ease the affordability crisis.

He added that he has been advocating for the removal of the GST on purpose-built rental construction. The Conservatives also propose to remove the GST on the building of any new homes with rental prices below market value.

“I think it’s a good idea. It’s a step in the right direction,” Mr. Tal said.

The Department of Finance said that for a two-bedroom rental unit valued at $500,000, the removal of GST would deliver $25,000 in tax relief.

Apartments not Condos

RBC economist Rachel Battaglia said the 5 percent GST on new rental construction discouraged developers from building purpose-built rentals, but eliminating the tax isn’t likely to lower rents in the near term.

“Developers have long preferred to build condominiums over rental housing projects on the basis of higher profitability and the possibility to reinvest proceeds into subsequent construction projects,” she said in a Sept. 15 note.

Battaglia explained that with condos, the GST is offloaded onto the new homebuyer and the developer isn’t left holding the tax bill as in the case of rentals, since tenants aren’t obligated to pay the 5 percent GST on top of regular rent.

The Canadian Home Builders’ Association (CHBA) said in a news release on Sept. 14 that it is “very pleased” to see the elimination of the GST for purpose-built rental construction and that it had been calling for this response for years.

“It will now be very important that provincial governments follow suit with their own taxes on purpose-built rental. Also very critical is the need for municipalities to reduce their development taxes on not only purpose-built rental, but all housing,” said CHBA CEO Kevin Lee.

Rahul Vaidyanath
Rahul Vaidyanath
Journalist
Rahul Vaidyanath is a journalist with The Epoch Times in Ottawa. His areas of expertise include the economy, financial markets, China, and national defence and security. He has worked for the Bank of Canada, Canada Mortgage and Housing Corp., and investment banks in Toronto, New York, and Los Angeles.
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