Could tax cuts mean more purpose-built rentals? Some Toronto advocates hope so

Toronto housing experts areapplaudingthe federal government's plan to remove thegeneral sales taxon all new rental construction as a way to spur development, but caution more needs to be done to address the housing crisis.

Prime Minister Justin Trudeau announced the cut on Thursday, amid a spate of proposals aimed at easing the rising cost of living. Shortly after, Ontario's government promised to follow suit.

Theprovince will"will work closely with Ottawa" to cut its 13 per centharmonized sales tax for all long-term rentals, also known aspurpose-built rental housing, said Municipal Affairs and Housing Minister Paul Calandra in a post to X, formerly known as Twitter.

The two announcements could prove a tipping point for some projects made unviable by rising development and interest costs, said Jennifer Keesmaat, a partner at Markee Developments and Toronto's former city planner.

"Right now we have developers who build housing ...who have, you know, folded up their hands, have laid down their pencils and are sitting it out because there are too many risks,"Keesmaat told CBC Radio's Metro Morning.

"[The announcement]needs some other policy layers layered in, but it will absolutely begin to play a role in addressing that supply challenge and hopefully get developers building again."

Keesmat and other development expertsagree removing taxes is a great first step. However, they say other measuresare needed to get in front of the housing crisis, such as finding ways to cut red tape around project approvalsand focusing on building in areas that are already developedrather than building from scratch on Greenbelt land.

WATCH | Cutting tax can encouragedevelopers to build rental units quickly:

How cutting the GST can help fix the housing crisis

1 year ago

Duration 7:45

Jennifer Keesmaat, the former chief planner for the City of Toronto, explains how the federal government's decision to remove the GST on purpose-built rentals can help alleviate the housing shortage across the country by encouraging developers to build rental units quickly.

But some caution a different approach to tax cutswould do more and faster to get housing projects off the ground.

Direct funding to municipalities to build housing would be more effective, said Parkdale-High Park Coun. Gord Perks, the chair of the city's planning and housing committee. His committee has been tasked byMayor Olivia Chow to help the city act as a developerandhelp it achieve the municipality's largertarget ofbuilding285,000 homes by 2031.

The tax cut is "helpful," Perks said, but only "a small part of the cost of building housing."

"It won't change our practice at the cityfrankly, unless we get access to capital so that we can helpnot-for-profits and co-ops and public housing get built."

Beaches-East York councillorand chair of the housing committeeBrad Bradfordsays the tax cuts mean an unfortunate loss in revenue at a time when all levels of government are dealing with "massive budgetary pressures."

But the payoff is worth it, particularly if city councils do their part in expediting project approvals, he said.

"That's the sort of stuff that we need to do to get shovels in the ground faster," said Bradford.

How far behind is the GTAon rental units?

More than 300,000 rentals are needed inthe GTA over the next decade to accommodatepopulation growth, according to aa report released Februarybythe Federation of Rental Housing Providers of Ontario,theBuilding Industry and Land Development Association, consultant firm Finnegan Marshall, and real estate research firm Urbanation.

"The need for more housing of all types is dire. It really does require almost a wartime response," saidTony Irwin, president and CEO of the Federation of Rental Housing Providers of Ontario.

Irwinwelcomed the twin tax announcements,notingthe industryhas been calling for the five per cent GST cutfor some time since government fees can be anywhere from 15 to 25 per cent of an overall project's cost.

"We simply need that supply and we need to be able to provide options for Canadians," said Irwin, who's also the interim president of theCanadian Federation of Apartment Associations.

Purpose-built rentals are specificallyimportantas theyare among themost affordable options for renters and aregeared towardfamilies, seniors and newcomers, Irwin said. However, he says the majority of the existingunits were built 40 years ago, and theindustry has largely shiftedtoward condo development.

That's because governments in the 1990s largely choseto "de-invest" in community-based housing and non-profit housing, said Ray Sullivan, executive director of theCanadian Housing and Renewal Association.

"[That has]had a big contribution to the crisis that we're facing right now," he said.

For affordability's sake, Sullivan says he hopes the tax cuts are paired with measures that increase access to housing benefits and double the supply of community housing.

When can we see results?

Colleen Bailey, a director with advocacy group More Neighbours Toronto, says purpose-built rentals are more useful to renters as they're managed by professional companies and don't come with the "variability" that comes with singularlandlords.

"The hope is that this will get more units onto the market ... both for people who are looking for their first place to rent, and then also for existing tenants who might be in bad tenancy situations and looking to move out," said Bailey, who's also atenant.

And while it may take a few years to see new units from the initiative in the housing market, Bailey says the group recognizes it was necessary to build more supply. The next step would be to create more targeted supports for non-profit builders specifically,who may need loans or other benefits to get projects through the pipeline.

"Just this measure isn't going to be enough," said Bailey.