The federal government’s plan to remove the GST from the construction of new rental projects will trim thousands of dollars off the cost of building new units and could help provide welcome relief to a supply-starved market, local developers and industry representatives say.
“This is likely the most impactful move that the federal government could have done, especially for rental housing,” Jason Burggraaf, the executive director of the Greater Ottawa Home Builders’ Association, told OBJ Friday, a day after Prime Minister Justin Trudeau announced the measure at a Liberal caucus retreat in London, Ont. “It changes the pro forma and the viability of projects significantly.”
The rebate on the federal goods and services tax comes into effect immediately and will apply to all new construction that starts before the end of 2030 and is completed before the end of 2035. The feds said the measure will not apply to renovations to existing rental buildings but will be available to developers of office-to-residential conversion projects.
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Burggraaf, whose organization represents dozens of local builders, estimated that eliminating the GST on new apartment construction would save developers about $17,000 per unit.
Meanwhile, the Ontario government has also signalled it plans to lift the provincial sales tax from new rental construction. If that happens, Burggraaf said, “then you’re looking at more than doubling that savings. It’s a really important chunk to make projects that might have just been on the cusp of viability, really help them pencil out.”
Claridge Homes chief financial officer Neil Malhotra agreed. He said that while removing the GST won’t be “a magic bullet that creates thousands and thousands of units,” it will help developers rein in costs and could potentially make some projects more financially viable.
“I’m not sure it’s going to spur a ton of stuff instantly on its own, but it definitely makes us look (to see) can we make projects work that we weren’t sure were going to work in this current interest rate environment,” said Malhotra, who figures his firm could save as much as $20,000 per unit in construction costs if the province eliminates its portion of the HST.
Oz Drewniak, president of Ottawa-based CLV Group, called the federal government’s move a “step in the right direction” but said more needs be done to help spur rental construction as developers contend with soaring inflation, rising interest rates that make financing major projects more expensive and long planning timelines that delay new builds.
Drewniak cited a report from the Canada Mortgage and Housing Corp. earlier this week that predicted Canada will have about 3.5 million fewer homes than it needs to restore affordability by the end of the decade.
“It’s going to be almost impossible to build that many homes … without some sort of help,” he said. “To solve the extreme imbalance between supply and demand, the industry needs to see more of this type of support and stimulus through provincial and municipal bodies to bring housing to the market faster and more affordably.
“We hope that Thursday’s announcement is just the start, and a signal of more to come.”
Drewniak said he’ll be “paying close attention” to whether the provincial government ditches its portion of the HST on new rental construction. He also said he expects the City of Ottawa to push ahead with its plan to tap into the federal government’s $4-billion housing accelerator fund.
Earlier this year, the city said it would request $150 million from the federal fund in a bid to boost building permits by 10 per cent over three years.
On Wednesday, Trudeau announced the feds had reached a deal with London that will see the southwestern Ontario city receive $74 million from the fund to build about 2,000 new housing units over the next three years.
Burggraaf suggested municipal representatives here in the nation’s capital might want to rethink their funding request in light of the feds’ agreement with London, which has roughly 40 per cent of Ottawa’s population but is getting about half as much funding as Ottawa asked for.
“To me, it signals that perhaps we have the opportunity to be more ambitious with what our accelerator fund plan could be,” he said.
Burggraaf said the housing crisis has become a hot-button topic that governments are now taking concrete steps to address.
“We’re starting to see an alignment of different levels of government rowing in the same direction and changing policies for the better within the jurisdiction that they have,” he said. “It’s a great signal that every government is getting serious about housing supply.”
