Would a provincial sales-tax rebate lead to more affordable housing? Opinions vary

Some housing researchers and a developer say that a provincial sales tax rebate wouldn't spur the type of development needed in New Brunswick and would not benefit affordability. 

In September, the federal government removed the GST from the construction of new rental apartments to stimulate development and asked provincial housing ministers to follow suit.

Nova Scotia, Newfoundland and Labrador and Prince Edward Island all announced the elimination of their portion of the tax last fall, but not New Brunswick.

Willy Scholten, president of the New Brunswick Apartment Owners Association, said recently that not providing the tax incentive makes the province less competitive and delays projects.

"In all of the other Atlantic Canadian provinces, they've eliminated the PST portion of the HST, which is 10 per cent," Scholten said, adding that developers are not just delaying projects because they're not getting a tax break, "but are deciding instead to stop building altogether in New Brunswick."

And local developer Percy Wilbur said that the province choosing not to provide tax-based incentives to developers is a barrier to the completion of his residential project on King Street in uptown Saint John.

Wilbur's project is still an empty lot. It's been that way for nearly three years — a notorious eyesore for residents and nearby businesses.

Willy Scholten, president of the New Brunswick Apartment Owners Association, says the province choosing not to eliminate PST for developers will make New Brunswick less competitive for rental project development than surrounding provinces. (Shane Fowler/CBC)

Julia Woodhall-Melnik is the Canada Research Chair in Resilient Communities based at the University of New Brunswick in Saint John.

She said rebating the provincial sales tax to developers wouldn't bring the province the development that it needs, and it also doesn't benefit tenants or affordability, particularly in a province with no rent control.

"If you look at the Maritimes, P.E.I. and Nova Scotia have rent stabilization mechanisms right now, so they have rent caps," she said.

"So we're already diverting from housing policy across the Maritimes, so it's not overly surprising that we would have a diversion here as well too," Woodhall-Melnik said.

"Generally speaking, when we reduce taxation, those savings aren't passed along to tenants."

Delaying projects over taxes?

Saint John-based developer Erik De Jong said he doesn't know of anyone withholding a project over provincial sale tax. He said if developers are delaying projects, it comes down to the viability of those projects.

"I don't know if people are delaying projects … I would say anybody that's not moving forward with their project is not doing so because the investment model doesn't work," De Jong said.

"There's no hard rent cap, but there's a theoretical cap on the number of people that can afford expensive rental units. If your project is not viable from a financial perspective, the developer doesn't go ahead."

But De Jong also said that rebating the provincial sales tax could increase the viability of a project and potentially lead to lower rents for tenants.

Housing policy researcher Carolyn Whitzman says tax rebates are not a magic bullet to housing development and will likely not have an impact on affordability. (Kate Porter/CBC)

"Rebating the provincial taxes would decrease the cost of building. So in essence, the landlords can charge less rent for the same product and get the same return," he said.

"It would also stimulate more construction in the market because projects that were on the margin of being viable now could become viable."

To soon to tell benefits

Ottawa-based housing policy researcher Carolyn Whitzman said it will take time to see development-based benefits.

"You can't sort of look at a change that happened in the fall and go, 'Yep, construction is just booming because of that, or not, because of that. GST is just one set of taxes in relation to construction. Will it make a difference? Yeah, it'll make a difference. Is it sort of the magic bullet? No."

Whitzman said that when it comes to affordability, tax incentives could lead to affordable rentals, but indirectly, by increasing the vacancy rates, and that non-market investments are key to affordable housing.

"The supply of apartment buildings helps determine how inexpensive they are, and it is without a doubt that if there's a high vacancy rate, generally rents go down, and if there's a low vacancy rate, generally rents go up," Whitzman said.

But she doesn't see it having much of an immediate impact on affordability.

"Most of the market apartment buildings that are being built are not affordable to low-income people."