Winnipeg Free Press
April 14, 2003
EDITORIAL - Housing crisis
FEDERAL and provincial housing ministers who start meeting in Winnipeg today should pay attention to a crisis that has been developing in rental housing over the past 30 years as a result of federal taxation policy. While economists and landlords often point to rent controls as the prime reason for the slow rate of building of new rental units, federal tax changes which began in 1972 may well be a far bigger drag on new construction.
In 1972, the federal government took away tax incentives which allowed a proportion of the cost of building rental units to be written off against other income and it made capital appreciation of rental properties subject to tax when they were sold whether or not the investor immediately invested in another property. They also disallowed deduction of some "soft" costs against income which had formerly been permitted. Since then, the imposition of an effective 4.5 per cent GST rate has created a further disincentive to the building of new units.
As a result, the rate of building of rental units built for profit has fallen from more than 60,000 units to 10,000. Forecasts by the Canada Mortgage and Housing Corporation suggest Canada needs around 50,000 new units to be built a year for the next 20 years.
If that doesn't happen, rental units will become more scarce and more expensive. Canadians will become a less mobile society. More and more people could be stuck in areas of high unemployment and low job growth because of the lack of available housing for them to move to in faster growing cities.
The federal and provincial governments can change this by creating a more favourable tax system for owners of rental properties. At least one study, prepared for the Ontario Ministry of Municipal Affairs and Housing suggests that tax changes would result in growth in federal tax revenues if they encouraged 5,000 or more extra starts a year: a fairly modest outcome.
Investors in rental properties are hardly high on a list of constituencies political parties need to please and renters are more interested in rent controls than in encouraging new building even if, in the long term, encouraging new building benefits them more.
Under the tax regime, at the moment, however, investors in rental properties are treated worse than most other investors. The ministers meeting in Winnipeg should ask Ottawa to provide a tax regime which will prevent further deepening of a crisis that is already changing the face of our cities. Capital taxes should be eased, GST fully rebated and disallowed "soft" costs allowed once again.
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