As part of a wider set of efforts to address the rising cost of living, the federal Liberals have introduced funding for a housing accelerator program and announced they will drop GST on new purpose-built rentals. Here’s what to know.
What is the Housing Accelerator Fund?
The Housing Accelerator Fund is a multibillion-dollar program that provides federal funding to create a greater supply of housing that is affordable. It was announced in the 2021 election by Justin Trudeau’s Liberals.
According to the government’s website, the fund will “fast-track at least 100,000 new homes for people in towns, cities, and Indigenous communities across the country.” The fund, the site says, was launched to “cut red tape, fix outdated local policies like zoning, and build more homes, faster.”
The program’s aim is to get more houses built, faster. The program will run until 2026-27.
When was it announced?
The Housing Accelerator Fund was announced in the 2021 election and booked in the 2022 budget. At the time, the government said $150-million would roll out last year and $925-million this year. This month’s spending announcement – $74-million in London, Ont. – is well short of where the government said the program would be by now.
Last week, Trudeau announced targeted local funding – starting with London – to speed up construction. But the Prime Minister offered no specifics and declined repeated requests to clarify whether the revised plans would close the 3.45-million-unit shortfall in housing identified by the federal housing agency.
In the 2022 budget, the government planned for $4-billion over five years, to speed up development and create 100,000 new housing units. That budget also proposed sending $1.5-billion over two years to the federal housing agency to extend the Rapid Housing Initiative, with the expectation that at least 6,000 new affordable housing units get built. (The Rapid Housing Initiative gives cities and housing providers funding to build or buy units that could be quickly turned into affordable housing.)
At the time, provincial and municipal governments praised the federal budget for its focus on the housing crisis. Toronto’s then-mayor, John Tory, said the budget’s moves to boost housing supply should help reduce home prices, and its cash for affordable housing and homelessness initiatives were also welcomed.
Which cities are included?
So far, only London. The city will get $74-million to fast-track the construction of 2,000 housing units within three years.
In a statement, Trudeau said this is the “first of many” agreements between federal and municipal governments.
What did the Liberals do about GST?
The Liberals have repeatedly promised to do more to address the housing affordability crisis. It was a driver in the government’s July cabinet reshuffle and topped the agenda for the August cabinet retreat. The affordability crisis has been driving down the government’s popularity in public-opinion polling.
On Sept. 14, Trudeau announced Ottawa will remove the GST from new purpose-built rental apartment buildings, effective Thursday. This was a pledge in the party’s 2015 election platform, but was then dropped and not included in their 2019 or 2021 platforms. The 2015 platform estimated that removing the GST would cost the federal treasury about $130-million a year between 2016 and 2020.
Housing Minister Sean Fraser told reporters that the government is looking at measures that will “change the financial equation for builders,” whose projects are being delayed by higher interest rates. He also said the federal government wants to change how cities build homes, through permitting and zoning reforms, and find ways to cut work force costs, for example, by building homes in factories so that it’s done more efficiently.
GST charges are “one of the most significant barriers to delivering new rental homes,” according to a recent report from the Urban Development Institute, which found that the federal tax is “the largest single tax or fee in a rental project budget.” For example, in Vancouver, GST can account for almost 10 per cent of the average unit’s starting monthly rent, the report said.
The federal government has estimated that the GST elimination will cost the treasury $4.6-billion in its first six years. Ottawa did not disclose how it will recover the lost revenue.
Quebec and Nova Scotia have said they were reviewing the federal decision. British Columbia does not charge provincial sales tax on the sale of purpose-built rental buildings and Alberta does not have a provincial sales tax.
How is the industry reacting?
Real estate companies say the GST break will spur them to develop thousands of new rental units by offsetting rising financing and building costs. It’s a huge win for the building industry, having lobbied for the GST elimination and other measures to cut costs.
“There were projects on the books that got shelved and our members are saying this can provide the solution to get those projects going again,” said Kevin Lee, chief executive officer of the Canadian Home Builders’ Association, the national construction industry group.
Non-profit housing groups have also been calling for the elimination of the GST on new construction. Habitat For Humanity Canada, which builds new homes and helps families buy them, said the tax break will significantly increase the supply of rental units. It would also like Ottawa to expand the rebate to new home construction.
“The GST rebate will help. We really need more purpose-built rental housing,” said Canada Mortgage and Housing Corp. deputy chief economist Aled ab Iorwerth.