GST removal: Too little too late?
Recent measures taken by the federal government, aimed at addressing the pressing housing supply across Canada, have stirred conversations among industry professionals. However, from the vantage point of a commercial real estate broker and investor, there is skepticism about whether these measures go far enough. Is it simply a small band-aid on a deepening wound?
Let's take a deeper dive.
The GST Conundrum: A Promising Step or Just Another Policy?
When Prime Minister Justin Trudeau announced the removal of the GST on new rental construction, the news was met with initial optimism. However, as details emerged, industry professionals began to question the long-term impact of this initiative.
The "enhanced GST rental rebate" is neither permanent nor all-encompassing.?
This nuanced policy brings forth a question: Is the federal government being adequately responsive to the real estate sector's multifaceted challenges?
Last week we mentioned that the most recent CMHC report had revealed that, by 2030, Canada will require a staggering 3.5 million additional homes to restore housing affordability to levels reminiscent of 2004 and that the nation also confronts soaring rental costs with the country’s average asking rent having touched an all-time high of $2,117 in August.
A more inclusive and comprehensive approach could possibly serve the industry better, ensuring that all types of housing projects are incentivized and encouraged.
Canadian Housing Starts: An Uncertain Horizon
Another pressing concern is the trajectory of Canadian housing starts. The Canada Mortgage Housing Corporation (CMHC) data paints a mixed picture: a mere 1% drop in the monthly seasonally adjusted annual rate (SAAR) of total starts, and a marginal 0.8% month-over-month rise in the six-month moving average of the monthly SAAR.
Bob Dugan , Chief Economist for CMHC, sheds light on this by remarking that housing starts have been under significant pressure in 2023. Though multi-unit starts seem to be a glimmer of hope, it's pertinent to note the geographical disparities. Cities like Toronto and Vancouver, historically real estate powerhouses, have seen a decline in housing starts. On the brighter side, Montreal has witnessed a surge, thanks to a boom in multi-unit starts.
These trends underscore the complexities of the Canadian real estate landscape. With regional disparities and the looming impact of high interest rates, a more robust national strategy could be the need of the hour.
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The Elusive Dream of Affordability
Perhaps the most critical issue in the current climate is the long-standing problem of housing affordability. While the GST removal might seem like a step towards easing the financial burden on rental construction, will it truly make housing more affordable for Canadians?
Canada has other social issues it must deal with in order to regain control of its housing supply notably rising population and workforce dynamics. So while the removal of the GST might be a step in the right direction to spur the construction of rental housing, the tidal wave of rising demand might already be too high.?
Leading economists have voiced their concerns in the same direction. RBC Economist Rachel Battaglia points out the current rental vacancy rate in Canada is the lowest it's been in two decades. While increasing supply could, in theory, alleviate rental prices, the time required for this supply to materialize might mean continued high prices for the foreseeable future.
BMO's Chief Economist Douglas Porter puts forth another significant aspect. The challenge doesn't just lie in affordability; it also involves the capacity to build. With the real estate sector operating at near-maximum capacity, and with homeownership increasingly dominated by investors, relying solely on supply to address affordability might be a tall order.
We tend to agree with BMO’s point of view since the current and widening gap between supply and demand only pushes higher property and rental values.?
Wrapping Up: The Road Ahead for Commercial Real Estate
The recent measures, while well-intentioned, appear to be a patchwork of solutions. They might address some surface-level problems, but the deeper, systemic challenges in the real estate sector remain largely untouched. Coupled with a growing population, this will trigger a surge in demand and consequently, an increase in the value of multi-family properties.?
For investors, the current landscape might seem daunting. However, challenges often come with opportunities for those well-versed in navigating the intricacies of the market.
Seize the Moment with Votre équipe Immobilier
In this dynamic environment, knowledge and foresight are paramount. Whether you're a seasoned commercial real estate investor or a newcomer to the sector, having a seasoned team by your side can make all the difference.
That's where Votre Equipe Immobilier steps in. With a wealth of experience and a finger on the pulse of the market, we are poised to offer guidance, insights, and strategic advice. Our team believes in finding the silver lining, even in the most challenging situations.
Trust in real estate professionals to build a legacy that stands the test of time.?