Examining: Political Parties Leverage Bold Solutions in Efforts to Enhance Housing Affordability
According to CIBC’s deputy chief economist Benjamin Tal, housing affordability has become a crisis, prompting Ottawa to take proactive measures in building more rental properties and addressing the lack of affordable housing. Mr. Tal emphasizes that all three levels of government have a responsibility to work together on finding solutions. The federal government’s recent announcement to eliminate the GST from purpose-built rental construction is estimated to cost $4.565 billion over six years, a significant budgetary impact. Mr. Tal believes that this rental solution is necessary, even if it means budget cuts elsewhere. He advocates for the removal of the GST on purpose-built rental construction, a move supported by the opposition Conservatives who also propose the removal of GST on new homes with below-market rental prices. Removing the GST on new rental construction could provide tax relief of $25,000 for a two-bedroom rental unit valued at $500,000. However, RBC economist Rachel Battaglia notes that the elimination of GST may not immediately lower rents, as developers have preferred constructing condominiums due to higher profitability. Nevertheless, the Canadian Home Builders’ Association (CHBA) welcomes the elimination of the GST for purpose-built rental construction, calling for provincial governments to follow suit and reduce development taxes. The Conservatives also plan to incentivize municipalities to build more homes by linking federal infrastructure funding to home construction targets. The party’s “Building Homes Not Bureaucracy Act” also offers bonuses to municipalities that exceed the housing construction target. However, regardless of these policies, Mr. Tal stresses the need for better coordination across all levels of government. He emphasizes the impact of Ottawa’s immigration policies on housing demand. The housing affordability crisis, according to Mr. Tal, is a consequence of prolonged inflation above the target and underscores the importance of low and stable inflation. Housing starts decreased by 1 percent in August, leading to a 6 percent deficit in comparison to the previous year and further exacerbating the housing supply deficit. Economists and the industry argue that lower interest rates are necessary for increased building activity, but this may not occur until 2024. Meanwhile, house price appreciation has slowed down, indicating a cooling trend in housing markets.
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