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Province of Ontario drops HST to spur housing

Falls in line with federal government on rental construction
Rental Housing | Adrien Olichon Unsplash
Rental Housing | Adrien Olichon Unsplash

The province of Ontario has removed the provincial component of HST on new rental construction, as urged by the federal government, in an attempt to incentivize more rental housing supply and affordability.

Provincial government says they are, "taking steps to remove the full eight per cent provincial portion of the Harmonized Sales Tax (HST) on qualifying new purpose-built rental housing in order to get more rental homes built across the province."

The reduction in cost brought about by the federal government's GST removal will help to offset rising interest rates and high development charges, according to industry spokespeople.

The enhanced rebate would apply to qualifying projects that begin construction between September 14, 2023 and December 31, 2030, and complete construction by December 31, 2035.

"It goes a long way in making these projects more viable," said one commentator. "In any case we definitely give them a point for this action," he said.

Prime Minister Trudeau, when announcing the change, urged the provincial government to remove the PST so that there would no longer be any HST on new rental construction, and the announcement to harmonize with the federal initiative by the province will significantly offset some of the other financial barriers which have held up supply of new rental housing units.

This is a pressing problem for the country, which is dealing with significant immigration to fill its labour requirements, but lacks the infrastructure to support the growing population.

"There has never been a greater need to get rental housing built across the province. This is why our government is taking steps to tackle the housing crisis so that all Ontarians can have an affordable place to live," said Peter Bethlenfalvy, Minister of Finance.

The positive response from the development industry suggests that both levels of government have hit the mark here. Applying to all new residential rental construction, the removal of the tax also cannot be called out for favouring one set of developers.

This was a concern for other initiatives ostensibly aimed at increasing housing supply, such as Ministerial Zoning Orders and reclassification of lands previously in the Greenbelt.

It is encouraging to see moves aimed at increasing supply and lowering costs, rather than such initiatives as homebuyer incentives, which drive up demand ahead of supply. 

Full marks to the province for supporting the federal initiative. This is something that should, given time for the market to react, make a genuine difference to housing supply and affordability.

A full report on this new policy can be read on Ontario's website here.