Canadian Contractor

By Richard Lyall   

Feds removal of GST on new rental buildings aids industry

Canadian Contractor

The federal government’s decision to remove the GST on construction of new rental apartment buildings – and the province’s proclamation it will do the same with the HST – is good news for the residential building industry and renters as it will spur construction of more purpose-built rentals.

With more than 300,000 new rental homes needed in the Greater Toronto Area alone in the next decade, there is simply no time to waste. Other changes are also critical to make up the housing shortfall.

The rental housing deficit in the GTA is expected to increase in the next 10 years to 177,000 units, which means construction of purpose-built rentals will have to more than double the current pace.

Rents are rising, making it difficult for many who work in Toronto to afford to live in the city. The average cost for a condo rental in Toronto climbed to $2,786 in June, up from $1,866 in 2016.

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The measures announced by the feds will provide full relief of the five-per-cent GST while the provincial component will remove the eight per cent HST. On a $500,000 home, that amounts to $65,000.

The change is needed now more than ever as residential builders have been hit with a perfect storm of inflation, interest rate hikes, material and labour supply shortages, and rising fees and development charges.

The new federal legislation will apply to purpose-built rental housing, such as apartment buildings, student housing and senior residences built specifically for long-term rental accommodation.

Before the change, the feds provided a 36 per cent rebate on the 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 restrictions, though.

The enhanced rebate will apply to projects that begin construction on or after Sept. 14, and on or before Dec. 31, 2030, and complete construction by Dec. 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.

At RESCON, we have been calling on the feds to take action on rental housing construction for many years. Now that they and the province are taking action, we need municipalities to do the same.

Systemic issues at the municipal level, such as lack of digitization and failure to allow higher density around transit hubs, are slowing down the construction of new housing. Exceedingly high taxes, fees and development charges are also preventing developers from moving ahead on projects.

According to the Canadian Home Builders’ Association, municipal development taxes have gone up 700 per cent over the past two decades, with taxes comprising up to 30 per cent of the price of a home today.

To get more shovels in the ground on homes, municipalities must address the increasing fees and streamline and digitize the development approvals process. Systemic barriers that stymie the construction of new housing must be torn down and replaced with systems that move projects along.

Recently, RESCON asked for a significant increase in transfer payments to municipalities from federal taxes collected from new housing construction to facilitate reduced infrastructure cost pressures on cities and towns which have limited funding tools.

A study by the Canadian Centre for Economic Analysis indicates that taxes, fees and levies on a new house or condo account for 31 per cent of the cost. The feds get 39 per cent of that amount but return only 7.1 per cent in public infrastructure investment.

In other words, they are collecting a lot and giving back little.

The stark and deeply troubling fact is that we are in a housing crisis and face an acute shortage of supply. We need hundreds of thousands more housing units. Over the years, we haven’t built enough purpose-built rentals to accommodate our growing population, yet developers are still saddled with exorbitant taxes.

When encumbered with such formidable financial hurdles, developers often find it difficult to proceed with apartment building projects.

The measures introduced by the feds and province are a step in the right direction. Hopefully, more steps will be taken – particularly by municipalities.

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 media@rescon.com.

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