Ottawa’s housing strategy falls short
ADRIAN ROCCA ADRIAN ROCCA IS CEO AND FOUNDER OF FITZROVIA, CANADA’S LARGEST RENTAL DEVELOPER.
The federal government’s 2023 fall economic statement places emphasis on a crucial issue facing Canadians — housing affordability. The government proclaimed housing starts are improving and reintroduced initiatives that fall woefully short of making a substantial impact on our nation’s severe housing deficit.
We are seeing a dramatic decline in new supply, and it’s only getting worse. Housing starts are typically a lagging indicator, meaning 2023’s down-market will likely have an outsized impact on next year’s housing starts.
The $15 billion for the Apartment Construction Loan Program, starting in 2025-2026, will not alleviate the housing crisis. New homes won’t be delivered until 2028 onward and the program typically requires a minimum percentage of affordable units.
The economics of developing under this program are currently not feasible in major markets. Additionally, while these loans are priced lower than traditional financing, the rates are still dramatically higher than the past several years. It’s simply adding more funding, while ignoring the root causes of the issue.
The $1-billion Affordable Housing Fund over three years, also commencing in 2025-2026, is a drop in the bucket nor is it realistic to provide the promised 7,000 new homes. More affordable housing is better than less, but this amount is grossly insufficient.
The $20 billion per year to fund Canadian Mortgage and Housing Corp. (CMHC) loans will also not alleviate the housing crisis. This funding simply ensures existing CMHC programs can continue. However, these programs have not spurred new housing, so how can we expect a different result? The mention of “low-cost financing” is a stretch.
The Housing Accelerator Fund is an interesting attempt at removing red tape. I remain skeptical, but open to seeing it in action. What we need to see is the largest municipalities in Canada, which have the greatest supply deficit, to sign on and demonstrate their commitment to working collaboratively with the private sector to break the barriers to development, as I have previously written.
Of course, the federal government’s largest announcement was the “reannouncement” of September legislation to remove the GST from new rental supply. When combined with the provincial abatement, this makes a difference in rental development economics. However, at best, this change only partially offsets the increase in interest costs. Businesses and individuals alike are feeling the same pain of rising interest costs, and it is something we all need help with to keep moving forward.
This GST reannouncement also does not address short-term challenges. It needs to be equally applied to all rental projects under construction, not just projects that started construction after September 2023.
There are thousands of rental units currently under construction aiming to deliver in 2024 and 2025, but cannot be counted as already secured. These projects are facing significant budget overruns and challenging economics, with the very real threat of converting to condo or stopping construction. Typically permits are issued for residential use, and at any time prior to occupancy the project may be flipped to condo.
I remain optimistic we can solve this housing crisis and the federal government’s efforts are well-intentioned. However, it is going to require a lot more than the actions we saw last week. We need our leaders to implement bold action to drive radical change.
Another such bold action? All three levels of government should collaborate to implement longterm property tax abatements for all new rental projects, which will increase property level valuations by 25 to 30 times for every dollar developers can save in property tax. When compared to the dollars being committed for other programs, this is a relatively affordable way to meaningfully improve the economics and create meaningful supply
We are out of time; bold action needs to happen now, and it needs to be steadfast in nature.
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