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Construction crews work at a condominium development site on the north east corner of Cherry and Mill Sts. in Toronto, on April 5.Fred Lum/The Globe and Mail

Jennifer Keesmaat is a founding partner at Markee Developments and former chief planner of the City of Toronto. Mike Moffatt is founding director of the PLACE Centre. Both are members of the Task Force for Housing and Climate.

Canada is suffering from a generational housing affordability crisis. The home-building targets that are necessary to achieve affordability are immense: all in all, we need 5.2 million new homes by the end of 2030, or in other words, we have to build close to one third of Canada’s total existing housing stock. Getting there means tripling our current rate of homebuilding – a tall task at a time when our housing starts are actually slowing for a number of reasons, including labour shortages and the rising costs of raw materials, financing and development charges.

So last week’s announcement by the federal government to eliminate the goods and services tax (GST) on apartment construction is a jolt in the right direction.

Builders call Ottawa’s tax break ‘major needle mover’ on construction of rental units

Make no mistake, Canada is a nation of renters: Fully one-third of Canadians rent their homes, with higher percentages in our major cities. Meanwhile, the vast majority of our already-insufficient rental stock was built before the 1980s and is aging out, making the rental shortage the most acute dimension of our overall housing shortage. It’s this reality that led the Canadian Alliance to End Homelessness and other groups to insist recently that 2 million homes out of the 5.2 million target need to be rental units.

Eliminating the massive structural deficit in the supply of rental homes in Canada will take a whole-of-government approach. Federal, provincial and municipal governments all need to go much further and much faster than they have in recent decades. Eliminating the GST on rental construction through a rebate is an important start.

This policy will help in two ways. First, it improves the financial viability of building new apartments. High interest rates have stalled all home-building in Canada, including apartment projects. Even developments where a significant level of investment has already been made in multiyear zoning approvals have been put on hold. The cost of construction is simply too high. Eliminating the GST on rental construction improves the economics of these projects for builders and should jumpstart new planning, financing and construction.

Eliminating one sales tax on rental construction is good; eliminating two is better. And so it’s laudable that the Ontario government quickly announced it would match the federal government’s initiative and remove the provincial portion of the harmonized sales tax (HST) also. At Markee Developments, we calculated that these actions could combine to reduce project costs on a typical multifamily apartment building in Ontario by upward of $50,000 per unit – which scales to, say, a discount of $500,000 on constructing a 10-unit building. These are the kinds of savings that can tip projects into viability.

Canada needs 3.45 million more homes by 2030 to cut housing costs as population grows, CMHC predicts

The other important outcome of these government announcements is to level the playing field between rental construction and condominium construction. Up until now, the economics have incentivized the development of condominium projects, which have monopolized a cripplingly scarce labour supply while doing little for housing affordability. Last week’s announcements should rebalance those economics and draw developers and workers back toward rental projects.

While eliminating the sales tax on new rental construction is an important step, there’s more that can be done to reach our rental housing target. The federal government must reinvigorate its rental and affordable construction financing programs by lowering the effective borrowing rates. Provincial governments should follow Ontario’s example and act quickly to remove the provincial portion of HST. Jurisdictions that levy development charges on new housing can waive those costs on rental and affordable housing projects. Municipal governments can expedite approvals processes for projects that have significant affordable and rental housing components, end exclusionary zoning practices that have made it illegal to build new multifamily housing, and implement as-of-right permissions for rental housing specifically.

Most importantly, all levels of government can commit to prioritizing housing development in existing built-up areas, whether urban or suburban. Building in these areas is inherently more cost-effective because the water mains, the roads and the transit are all in place. It’s also inherently more safe and sustainable from a climate perspective. We need our flood zones, our wetlands, our farmland and our forests to continue to provide crucial buffers between extreme weather impacts and our communities.

It’s going to take a wartime-like effort to address Canada’s housing shortage. Frontloading our focus on the shortage of rental housing, in particular, is the right approach. The policy announced last week is a smart step, and one we hope will be quickly replicated and built on across Canada.

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