Greater Vancouver gets compared to the Greater Toronto Area frequently, since they are the two most expensive housing markets in the country. A group of British Columbia real estate organizations recently made recommendations to the leading federal parties to help address housing issues in the province, and there are a couple ideas that seem like they might work in the GTA too.
The BC organizations making the recommendations include the British Columbia Real Estate Association, the Canadian Mortgage Brokers Association – British Columbia, Landlord BC, the Mortgage and Title Insurance Industry Association of Canada, the Real Estate Board of Greater Vancouver, and the Urban Development Institute.
One of the recommendations is to revisit the mortgage stress test and bring back 30-year insured mortgages. They say the stress test should account for income growth throughout the mortgage term, and that the stress test should be eliminated for transfers and switches. This isn’t a new idea, real estate organizations and pundits across the country have been saying this for a while now.
One new idea is to remove GST on new rental housing. According to the BC group, “Under GST rules, a builder pays GST on the ‘self-supply’ of a purpose-built rental building when construction is completed. This means that when rental developers intend to keep, manage and operate new purpose-built rental homes, GST rules require that they pay GST on the market value of the building and property at completion as if they’ve sold it. This is essentially a sales tax on an artificial transaction that adds millions of dollars to the cost of new rental buildings, even for non-profit home builders.”
The BC group cites a recent study on a 117-unit rental project in Vancouver, and says that removing the GST would decrease rents by approximately 3% to 6%. In theory, removing the GST would make purpose-built rental development more enticing, profitable, and affordable.
As you may know, Toronto is currently struggling with rental supply. As of the end of 2018, the city had a deficit of 9,100 rental units, and not nearly enough units are in the pipeline to satisfy growing demand. Perhaps a GST rebate would help.
One other interesting recommendation by the BC group is to link federal transit investments with federal housing targets. Basically, land use guidelines need to be updated so that future transit investments take into account the requirement for new housing near major transit nodes.
This makes a lot of sense since real estate developers already target transit corridors as prime areas for development. The new home industry has to build where people will be or will want to be, and that is usually dictated by public transit. If transit and housing were linked from the onset, it would be easier and more efficient to bring new supply to market.
We’re eager to see if any of the federal parties take these recommendations into consideration.