Like many renters in Toronto, Paula Alexis spends the majority of her monthly income on rent each month.
Alexis, who works at a non-profit and rents a one-bedroom apartment in downtown Toronto, has little left over for discretionary spending or savings after this one expense.
“I budget really, really hard,” she says. “And sometimes I cross my fingers and swipe the card anyway.”
Alexis says many of her friends have already left the city or moved back in with their parents because of high rents. And those who do live in the city often have near nothing left over to spend on get-togethers.
In an effort to bring down rental costs, Ottawa recently announced that it would waive the Goods and Services Tax (GST) for purpose-built rental housing projects. The GST is a five per cent sales tax, applied individually in some provinces or bundled into the Harmonized Sales Tax (HST) in other provinces.
On Wednesday, Ontario’s finance minister Peter Bethlenfalvy said the province would follow Parliament’s lead by waiving the eight per cent provincial portion of Ontario’s HST for these same projects.
Experts say that while these changes may yield modest boosts in the rental housing supply, the measures won’t deliver anywhere near the projected amount of rental housing necessary to address the shortage and bring down rental prices.
Won’t ‘budge the needle’
Ottawa’s new measure replaces a previous GST rebate, which was only 36 per cent of the GST and phased out for units with a market value between $350,000 and $450,000.
“The enhanced rebate currently only applies to projects that begin construction on or after September 14, 2023,” said Alan Kenigsberg, a partner at law firm Osler, Hoskin & Harcourt LLP specializing in tax law. “As such, there is unlikely to be any positive effects from the enhanced rebate for several years at best.”
All building projects are subject to sales taxes on the self-assessed market value of the building once it is substantially complete. Under Ottawa’s new measure, building owners would be rebated for the entire GST payable on that self-assessed amount. Builders would also continue to receive credit for any sales taxes paid on material and construction input costs.
A unit valued at $500,000 would thus avoid $25,000 if it were eligible for Ottawa’s new GST rebate. And it would avoid an additional $40,000 levy if it were also eligible for Ontario’s HST rebate.
To be eligible for the Ottawa rebate, 90 per cent of a building’s units must be designated for long-term rentals and have at least four private units or 10 private rooms. New apartment buildings, student housing, senior residences and office buildings converted into long-term rental space are all eligible.
The new measure “is not really going to impact [tenants], not for the next 10 years. And maybe it might take a generation before that new supply becomes affordable,” says Douglas Kwan, director of advocacy and legal services at the Advocacy Centre for Tenants Ontario.
In Alexis’ case, 62 per cent of her monthly paycheque goes to rent. She’s among the 15 per cent of Ontarians who spend more than 50 per cent of their income on rent, according to the Canadian Rental Housing Index.
Only 60 per cent of Ontario renters spend less than 30 per cent of their income on housing, which is the amount that the Royal Bank of Canada recommends be spent on shelter.
On the same date Ottawa announced the rebate, the Canadian Mortgage Housing Corporation published projections saying Canada needs 3.5 million more housing units built by 2030 to restore affordability.
The GST rebate won’t produce the number of housing units needed to budge the needle downward on rental costs, says John Pasalis, President of Realosophy Realty Inc. Brokerage.
The “most likely outcome is that builders who can no longer afford or justify building condos because the demand from investors isn’t there, maybe they will start building purpose-built rentals instead,” said Pasalis. “But it’s not a policy designed to lower rent prices directly.”
A key driver of rental price increases in recent years has been population growth, a October 2023 CIBC economics bulletin notes. The measures will not reduce demand for rental units.
Keeping affordable units affordable
Other ways to address rental affordability that do not involve putting shovels in the ground include measures to keep affordable units affordable.
This includes expanding rent control protection and introducing laws that protect tenants from ‘renovictions,’ says Kwan.
In Ontario, units built and first occupied after November 15, 2018 are not covered by rent control.
Alexis says her friends in non-rent-controlled apartments have seen their rents jump by $300 per month. Many receive help from their parents to afford their living expenses.
For those that are covered by rent control, the government sets a maximum rent increase limit each year. In each of 2023 and 2024, the limit in Ontario is 2.5 per cent.
Another measure that can protect renters is rental replacement laws. These give tenants the right to rent an apartment in a landlord’s new building at comparable rates to their original rent, if the landlord demolishes an old complex and rebuilds it.
“Only two municipalities have strong rental replacement bylaws,” says Kwan. “That is Toronto and Mississauga, where they say if you’re going to get rid of excellent affordable units, you have to replace them one for one.”
British Columbia has anti-renoviction legislation, which Kwan would like to see in Ontario. B.C. landlords must apply to the Residential Tenancy Branch to evict a tenant to undertake a renovation. The landlord must prove the work is necessary and that the only way to complete it is to evict the tenant.
But absent much larger policy changes on the supply or demand side, renters will continue to live on tight budgets or worse.
Nearly one in four homeless people found themselves on the street after being evicted from housing, according to a recent Quebec government report. And Ottawa estimates some 235,000 Canadians are living in shelters, Canadian Affairs recently reported.
Alexis wants to live in Toronto, but says that she would have little hope of staying in the city if she ever needed to move.
“There’s nothing easily accessible right now in the market that you can be like, ‘Oh, I can just find another place.’ People are stuck.”
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