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Greater Victoria, BC News

ARTICLE

Date ArticleType
12/11/2015 Published Article
GST and Affordable Housing

Housing affordability is top of mind within our community. We need affordable housing to build healthy communities and to attract and retain the workforce we need today – and tomorrow.

With an anticipated boom in residential housing, the question could be, will this new construction help?

When the Goods and Services Tax (GST) was introduced in 1991, the federal government recognized that it could undermine housing affordability. The GST New Housing Rebate was designed to address this problem.

At that time, the government estimated that over 90 percent of new houses in Canada were priced at less than $350,000. This was the basis for establishing the threshold for the full rebate at $350,000 or less, with a partial rebate available for homes selling for up to $450,000. Homes priced above this level were not eligible for any GST rebate.

In the November Canadian Mortgage and Housing Corporation’s Market Absorption Survey, the average price of a newly-constructed single detached unit in Greater Victoria was $766,576, of which the GST bill would have been nearly $40,000. With only 15 percent of new units selling for less than $400,000, a minority of buyers would have received the full or partial GST rebate, versus the majority as was originally intended.

The GST is increasingly posing a barrier to affordable housing in Greater Victoria. As house prices continue to rise, new home buyers will pay increasingly more GST and housing affordability will deteriorate further.
The impact doesn’t end with new home buyers. Since new and resale homes are competitive products, the high prices of new housing are reflected in higher prices in the resale market as well.

Nor does the impact of GST on residential construction end with home ownership. Since it was introduced in 1991, the GST has discriminated against rental housing by providing a rebate for ownership housing but none for rental units. In addition, because residential rents are classified as exempt rather than zero-rated under the GST, landlords are unable to recover the tax paid on the purchase, repair or improvement of residential buildings.

The taxes on residential construction has resulted in a lock-in effect and an overall decrease in affordable housing. Affordable housing is important to business operations – providing housing for all levels of the employment spectrum, supporting the attraction and retention of a skilled workforce.

Published in Victoria Business Examiner

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