The removal of GST for rentals in Canada by the federal government is a positive step towards increasing housing affordability. However, experts believe that its impact on rents will not be immediate. Prime Minister Justin Trudeau recently announced the removal of the five per cent tax, a promise that was initially made during the Liberal Party’s 2015 campaign. According to Matti Siemiatycki, the director of the Infrastructure Institute at the University of Toronto, this move shows that the government is playing catch-up in addressing the housing crisis that has been decades in the making.
Siemiatycki acknowledges that the removal of GST is a positive first step, but emphasizes that it is coming a little late considering the time required to increase housing supply. He also mentions other factors that could impact housing affordability, such as increased demand from immigration, inflation, and interest rates. The Canada Mortgage and Housing Corporation predicts a shortage of 3.45 million homes in Canada by 2030. The Canadian Home Builders’ Association supports the government’s decision, stating that it addresses a long-standing issue that has hindered the construction of rental housing.
When asked why it took so long to remove the GST, Trudeau explained that now is the right time due to low interest rates and the challenges faced by developers in building apartment buildings. He mentioned that separate initiatives for funding construction were believed to be sufficient, but now the government recognizes the need to remove the federal GST on purpose-built apartment buildings.
Siemiatycki suggests that housing has become a pressing issue, forcing the Liberals to take action as other parties prioritize it. He highlights the need for a substantial construction boom to address the rental housing shortage. Additionally, RBC economist Rachel Battaglia explains that developers have favored building condos over rentals due to the upfront returns from investments. The removal of GST on rentals may encourage developers to shift their focus, but there are still other obstacles such as rent control and tenant protection laws that may discourage rental housing creation.
Battaglia emphasizes that the GST on rentals poses a financial burden, whereas GST on condos is typically included in the purchase price. The removal of GST is a welcome change that can help, but it is unlikely to have a significant impact on rents. Overall, it will require a comprehensive effort to address the rental housing crisis in Canada.
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