In the 1978 Provincial Budget, Darcy McKeough, then Ontario’s Treasurer announced:
“The Ontario economy is steadily adapting itself towards energy conservation. To assist in this process, I propose to remove the retail sales tax from storm windows and storm doors, effective March 8, 1978. This measure will cost $15 million in 1978-79 [$63M today] and bring the Government's total package of energy conservation exemptions to $25 million per annum.”
In the 1970s, the only thing bigger than “Disco” was the Oil Crisis, and one of the ways governments responded was through “energy conservation exemptions.” In 2021 we have a Climate Crisis and a Housing Crisis, and I wonder whether “exemptions” are worth another look.
I have no interest in this. I am not a landlord, and nor do I advocate for landlords. I am also not an economist or a tax expert. There are likely a million reasons this can’t be done – but I think the question is worth asking.
Our present “Housing Crisis” is regularly referenced by builders and developers as a “Supply Crisis”. Naturally, they want more land to be made available for residential construction, and they want municipalities to speed up their approval processes. Builders and Developers will also (I think quite rightly) point to rent controls as one of the reasons that we don’t have enough rental housing. Businesses where the Government tells you how to price what you are offering for sale, do not attract investment.
Based on 2016 Census Data, there are 12.3M vacant bedrooms across Canada, and our “under-housing” crisis would be solved if we found 2.09M bedrooms.
Based on 2016 Census Data, there are 12.3M vacant bedrooms across Canada, and our “under-housing” crisis would be solved if we found 2.09M bedrooms. While new development will always be a part of the solution to me, more significant issues are:
- illiquidity – houses take too long and are too expensive to buy and sell (not canvassed here); and
- the issue canvassed here – we stigmatize rather than incentivize – renting.
My wife and I own one of those homes with empty bedrooms. Let’s assume we wanted to rent one to a Sheridan College student. Let’s do the pure economic analysis, which importantly ignores the “softer” issues like “Do we really want to do this!” Assume we wanted to earn $500/month and, to make the math easy, our marginal tax rate is 50%. Ignoring any existing deductions and allowances, etc., we’d need to charge our hypothetical student $1,000/month to net $500. One assumes many more Sheridan students are willing to rent at $500 than there are at $1,000.
Now let’s expand the thought. Assume developers did not have to pay income tax on residential rental income the way homeowners in 1978 did not have to pay retail sales taxes on storm windows and doors. I’m aware the numbers are very different, but there are a slew of existing deductions available to real estate developers. Capital loves the thought of tax-free return, meaning purpose-built rental projects of the variety and size demanded by market forces would sprout like mushrooms. Over-supply of rental housing would drive rents down, meaning this would not be a pure windfall for landlords. More people renting at lower rental rates would reduce consumer debt burden. On the assumption, if rents were lower than debt service costs, consumers would be left with more money to invest with stimulative implications.
I’d make the exemption conditional. One condition would be municipal licensing. Municipalities need some say on the location, size and type of rental project permitted. Municipalities are best suited to inspect for health and safety purposes. Municipalities are also in desperate need of sources of revenue other than regressive realty taxes. What if the exemption was conditional on bi-annual inspection and licensing by the Municipality?
Back to storm windows and doors. After Oil & Gas Extraction and Transportation, the Housing sector is the third-largest carbon emitter in the Country. We have a lot of leaky houses in a country with significant heating and cooling demand. Incredible new technologies and materials are being developed daily that move construction toward “net-zero”, but we don’t do much to incentivize the use of these (expensive) materials and technologies. As we drive by all the new residential construction in Oakville, we should wonder how many of the homes are “Net-Zero”. One suspects not enough.
Maybe we make the full rental income tax exemption conditional on the home, townhome, condo, or apartment building being “Net-Zero”.
It seems to me this is worth costing.
