Canada is in a housing crisis. We don’t have enough units to meet our current or future needs, and demand outpacing supply continues to put pressure on the cost of a home. Many Canadians are left scratching their heads wondering how and when the prospect of finding an affordable home slipped away.
According to the Canada Mortgage and Housing Corporation, restoring housing affordability will require us to build 3.87 million new homes by 2031 (that’s in addition to what Canada was already expected to build), and it will cost roughly $1 trillion to do so!
Despite the almost $100 billion allocated to the problem via the National Housing Strategy, the 2023 Fall Economic Statement and Budget 2024, government will never get close to the investment needed — nor should it. But it can partner with the private sector to restore housing affordability. Here’s how:
Let the private sector invest and build
Without some measure of tax relief, home builders absorb the cost of taxes during construction. Since production can take years, builders only recover the losses when the project is complete, leading to higher home prices.
Thanks to this system, developers use the money they could be investing in new projects to instead cover the cost of the taxes. As a result, many builders have realized their investments go farther elsewhere, like in the United States, and are taking their business there. However, government can easily enable the private sector to build the homes Canadians need by enabling private sector investment by:
Expanding the GST rebate
The GST New Residential Rental Property Rebate was a good first step to free up capital in rental housing, but if the government is serious about creating supply, they need to be more ambitious and expand the rebate beyond its limited scope. Reducing the tax burden on builders will not only boost supply by enabling them to invest in more homes, but it will also provide relief down the line to renters and buyers.
Allowing deferral of capital gains for reinvestment in new housing
This incentive is available in the United States and has steadily been luring Canadian investment south. Allowing for deferral of capital gains on the sale of a business or investment property — provided the proceeds are reinvested in new housing — would create a considerable incentive for home builders to reinvest. For example, if a company builds and sells a rental housing development, they can defer paying tax on the capital gains by investing the money into another rental housing development project. That alone is a significant incentive to build and reinvest in more projects.
Freezing development charges and reducing permitting times
In Ontario, the tax burden on new housing accounts for 31% of the purchase price. Meanwhile, in Vancouver, permitting data for various housing types shows that in many cases, it can take longer to get approval to build a home than to actually build the home! As government continues to negotiate agreements with provinces and municipalities, it needs to ensure that there are clear and enforceable deliverables that address these two damaging elements that consistently prevent the creation of more housing.
To restore housing affordability for Canadians and ensure that Canada builds more homes that more Canadians can afford, business and government must work together. To learn about the Canadian Chamber of Commerce’s work on this issue, visit the Housing and Development Strategy Council page.
