Homes are expensive in Canada. The population is growing at record levels and supply isn’t keeping up. While there doesn’t seem to be an impending collapse in the price of housing, perhaps to the dismay of some would-be homeowners and doomsayers, the government is implementing new measures in an attempt to ease affordability by bringing new supply to the market.

Recommended reading: The Canadian housing market isn’t a bubble

While the demand side of the equation doesn’t seem to be going down anytime soon, especially with the Bank of Canada pausing rate hikes for the time being, both the provincial and the federal government seem to be trying to increase the supply of housing.

On September 14, 2023 the federal government announced a new rebate for builders to encourage the construction of new rental supply across the country.

Let’s take a look at how this new rebate could affect the supply of housing in the years to come.

The Enhanced GST Rental Rebate aims to encourage new supply

The full proposed legislation offers the complete removal of GST on new purpose-built rental units to be completed between now and 2035. The government highlights that for a “two-bedroom rental unit valued at $500,000, the enhanced GST Rental Rebate would deliver $25,000 in tax relief.”

This should be a welcome incentive to developers looking to build properties with a minimum of 90% of units designated for long-term rent.

Another substantial development is that while previously rental units had to fall within a threshold of valuation to qualify for certain tax rebates, new units that are covered by this measure have no price ceiling.

How will the new builder rebate impact the housing market?

Theoretically any increase in supply should ease affordability in the housing market, though whether this and other supply-stimulating measures will have a meaningful impact on the price of homes remains to be seen. The key factor in determining whether affordability will return to the market hinges on balancing supply and demand. Current outlooks from the CMHC and major banks predict that “affordability will remain elusive” due in part to rapidly increasing demand for homes. While increasing interest rates cooled the housing market in 2022 and most of 2023, the Bank of Canada has paused rates for the time being and may potentially begin to lower them in 2024.

Check out our latest interest rate forecast here.

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