Vancouver – (Opinion From British Columbia Real Estate Association, the Canadian Mortgage Brokers Association – British Columbia, Landlord BC, the Mortgage and Title Insurance Industry Association of Canada, the Real Estate Board of Greater Vancouver, and the Urban Development Institute)
Many British Columbians struggle to find an affordable home to rent or own because of a lack of housing options. Nearly six in ten uncommitted Canadian voters cite access to affordable housing as a top election issue, according to an August 2019 Angus Reid survey.
The next federal government has the opportunity to improve affordability by reducing taxes on new rental homes, encouraging housing supply to match transit targets and changing mortgage underwriting rules.
Six organizations representing the BC housing sector have partnered to make housing affordability recommendations that focus on much-needed solutions.
The participating organizations include the British Columbia Real Estate Association, the Canadian Mortgage Brokers Association – British Columbia, Landlord BC, the Mortgage and Title Insurance Industry Association of Canada, the Real Estate Board of Greater Vancouver, and the Urban Development Institute.
1. Remove GST as a major barrier to new rental housing
British Columbia has a rental housing shortage. Metro Vancouver’s
overall rental vacancy rate has hovered around one per cent or lower for
the last five years. CMHC estimates the region has had a net loss of
6,000 purpose-built rental units since 1991. At the same time Metro
Vancouver’s population has grown by over one million people and is
forecast to grow by an additional million in the next 20 years. This
scarcity of rental housing has resulted in increased rental prices and
stress for renters, a situation that will continue unless decisive
action is taken.
A barrier to addressing the lack of new rental options is the punitive
application of the five per cent GST on new purpose-built rental
buildings. Under GST rules, a builder pays GST on the “self-supply” of a
purpose-built rental building when construction is completed. This
means that when rental developers intend to keep, manage and operate new
purpose-built rental homes, GST rules require that they pay GST on the
market value of the building and property at completion as if they’ve
sold it. This is essentially a sales tax on an artificial transaction
that adds millions of dollars to the cost of new rental buildings, even
for non-profit home builders. A recent analysis of a 117-unit project in
Vancouver showed how removing the GST could reduce monthly rents
between 3.04 and 6.06 per cent. This additional tax negatively impacts
renters, because rental providers must recover the costs through
increased rents.
Removing the GST would make purpose-built rental projects more
financially viable and could provide lower rental rates for affordable
housing projects.
We recommend:
- fully rebating or exempting the application of GST on new rental housing.
2. Link federal transit investments with federal housing targets
The federal government can encourage effective land use and
transportation decisions by linking the need for more housing options
with the significant federal transit funding that is planned. Setting
new land use guidelines with housing targets for transit investments
would unlock additional home options by supporting regional and local
transportation plans.
We recommend:
- leveraging contributions to local rapid transit projects by requiring housing targets,
- providing preferred terms/rates to projects within CMHC’s Rental Construction Financing initiative that are within a specified distance from a current or planned frequent transit network,
- topping up federal cost-share ratios for rapid transit projects, currently up to 50 per cent of non-land related capital costs, by a modest percentage for projects that meet or exceed housing targets, and
- working with provincial and local governments, including Metro Vancouver, to explore a transit-oriented affordable housing fund to encourage more purpose-built rental housing, with a deeper level of affordability, near existing and new transit.
3. Adjust the mortgage stress test and amortization rules
In 2018, the federal government enacted new mortgage rules that require
borrowers to qualify for a mortgage at the higher of either the rate
they’ve negotiated with their bank plus two per cent or the Bank of
Canada’s five-year rate. This B-20 stress test has had a pronounced
impact in BC, causing an estimated $500 million in lost economic
activity.
The B-20 stress test should be a flexible policy that is adjusted regularly to respond to economic trends.
B-20 is now due for an adjustment for the following reasons:
- the debt burden has increased for people unable to access conventional financing who must resort to more expensive alternative mortgage financing,
- personal incomes nationally have risen by 12.5 per cent over the last five years, and
- a borrower’s equity position increases throughout the term of a mortgage due to principal payments.
Changing the stress test would help achieve the government’s goal of
ensuring Canadians don’t take on more debt than they can bear, while
acknowledging ongoing economic trends.
We recommend:
- reinstating 30-year amortizations for insured mortgages to make monthly payments more manageable,
- qualifying all borrowers at their contracted amortization period (e.g., 30 years) instead of a 25-year period, and
- excluding the stress test for mortgage transfers and switches, which better enables borrowers to shop for competitive mortgage terms at renewal time, and
- employing flexible stress tests that reflect the level of risk posed by the terms and conditions of the particular mortgage, including amortization period, fixed vs. variable rate and how interest rates are forecasted to change over the term of the loan.
For a PDF of the release, click here.
To learn more, visit bchousingaffordability.ca.