Against the backdrop of the housing crisis and the overheating of the resale market, affordability is being undermined like never before by an insufficient housing supply. While much more should be built in order to relieve pressure on rental prices, the surge in construction costs since the onset of the pandemic is complicating matters considerably since the price of new homes is also exploding. The federal and provincial governments are rightly trying to intervene to calm things down, but the problem is complex. There is of course no miracle solution, but we could at least start with the simplest.
Posted at 5:00 p.m.
There are sales taxes (5% GST and 9.975% QST) on new homes. Not just on single-family homes and condominiums sold, but also on new rental units. Whether these new units are offered for rent directly by the developer or sold to an individual or a company, they are considered taxable property.
Review thresholds
It was on the basis of the principle of not harming the affordability of new homes too much that the federal and provincial governments introduced a partial tax refund, in 1991 for the GST and in 1994 for the QST. There are price thresholds above which no tax refund is granted.
The problem is that the price thresholds giving the right or not to a tax refund have not been revised for a long time and are no longer adapted to today’s reality. This is particularly true for the refund of the QST, for which the full amount of the tax now applies to the vast majority of units built.
It is high time to review these thresholds. The Association of Construction and Housing Professionals of Quebec (APCHQ) even suggests completely rethinking the terms of tax reimbursement for new rental housing.
Exceeded scales
Revenu Québec has two different rules under which the dwelling is intended for owner occupancy or for rental1.
Take the case of rental housing. The QST reimbursement rate is 36% when the value of the dwelling is $200,000, then decreases until it becomes nil for a value of $225,000. Note that we are talking here about the market value including the land. However, if before the pandemic we could still manage to build entry-level rental housing at less than $200,000 per door (outside Montreal), today, with the meteoric rise in construction costs, it becomes virtually impossible to build one for less than $225,000, even in the outlying suburbs.
So, forget about the partial QST refund. The promoter or the purchaser of the units must pay the full QST, which adds a minimum of $25,000 per dwelling. And of course that amount is inevitably going to be reflected in higher rents, so ultimately it’s the tenant who pays the tax.
Worse still, even if the buyer is a housing cooperative or an NPO, the QST is billable. Because of their status, they will be able to recover part of the QST according to other methods, but they will still pay part of the tax.
Eliminate QST and GST
If the provincial government really wants to promote affordability, why not completely eliminate the QST on new rental housing that respects affordability? Such a measure would be quick to implement and would also be very inexpensive to administer compared to any other program aimed at subsidizing the construction of rental housing by an equivalent amount. It goes without saying that we invite the federal government to follow suit and completely eliminate the GST on “affordable” rental housing.
It would also be advisable to examine the situation with regard to dwellings for owner occupiers (single-family and condominiums). In this case, the current QST reimbursement rate is 50% for a property sold for less than $200,000, then the rate decreases until it becomes nil for a price of $300,000 (still including the land) .
But try to find a new house today for less than $300,000 in an urban center in Quebec. The mission is almost impossible. Even for condominiums, this threshold is easily exceeded in the central neighborhoods of Montreal, while households are encouraged to choose a more dense housing mode.
A vicious circle
Sales taxes artificially widen the price differential between new and existing (non-taxable) properties, reducing demand for new homes and increasing demand for existing homes. As a result, this only exacerbates the overheating of the real estate market and fuels the price increases of existing properties and the inability of young households to access property. These are condemned to rental, thus accentuating the overheating of rental prices.
We are fully aware that these measures alone would be clearly insufficient to resolve the situation of the housing market and that it will therefore be necessary to deploy other programs. But let’s start at the beginning.
1. The federal government does not make this distinction. Regardless of the mode of occupancy, the GST rebate rate is 36% when the value of the dwelling is less than $350,000, then decreases until it becomes nil for a value of $450,000.
* Co-signatories: Marie-Claude Lavoie, President of the APCHQ Board of Directors − Lac-Saint-Jean region; Sylvain Pichette, Chairman of the APCHQ Board of Directors − Outaouais-Abitibi-Témiscamingue region; Gilles Matteau, Chairman of the APCHQ Board of Directors − Mauricie-Lanaudière region; Jean-Sébastien Tremblay, Chairman of the APCHQ Board of Directors − Metropolitan Montreal Region; Carl Bolduc, Chairman of the APCHQ Board of Directors − Quebec region; Jean-Michel Larouche, Chairman of the APCHQ Board of Directors − Saguenay region; François Lajeunesse, Chairman of the APCHQ Board of Directors − Quebec region; Sylvain Nadeau, Chairman of the APCHQ Board of Directors − Beauce-Appalaches region; Christian Miron, Chairman of the APCHQ Board of Directors − Montérégie-Suroit region; Justin Dionne, Chairman of the APCHQ Board of Directors − Est-du-Québec region; David Moreau, Chairman of the APCHQ Board of Directors − Centre-du-Québec region; Luc Perreault, Chairman of the APCHQ Board of Directors − Haute-Yamaska region; Mathieu Courtois, Chairman of the APCHQ Board of Directors − Bois-Francs region