How to Fix the Housing Crisis in BC

run-down-house

It seems that every year there are fewer and fewer places to rent, and as everyone knows, decreased supply invariably means increased rents. This has an especially negative impact on those at the bottom 30% of the economic spectrum.

The latest stab at fixing the problem comes via the federal government as they promise to blow another 4 billion on housing over the next few years.

In addition to the money, governments and the public have been trying to coerce homeowners into renting out their places, but to no avail. Renting out your place incurs risk that many homeowners don’t want to take. Bad renters are rampant, the law is often against the landlord when things go sideways.

This stick approach will not solve the problem. All it does is kick the can down the road, and saddle the next generation with even more government debt.

If they want to solve the rental shortage in a real way, they need more carrot and less stick. That is say, find ways of providing benefits to the landlord without hurting renters. Here’s one idea: eliminate income tax on rental income, at least under a certain threshold.The last thing they need to do is increase the tax burden on Canadians looking at renting out their basements as the feds are keen to do now. This will only restrict supply either further. Make no mistake about it, any extra costs the government puts on landlords will be passed on to tenants in the long run.

At the very least, the government needs to bring back the incentives available 30 years ago that lead to the apartment housing boom in the first place. Affordable housing is driven by apartment buildings, and most of those in use today were built in the 1970s and 1980s. Many of these buildings are nearing the end of life, so the crunch will only get worse without real incentive to invest in housing.

Back in the 1980s rental apartments were shooting up like mushrooms because the federal government provided incentive to developers to expand the rental market, which in turn drove down prices for low income people. The old provisions of the Income Tax Act allowed investors (not real estate developers) to acquire (or build) qualifying rental units.

Under the program investors could take generous capital cost allowance losses of 10% per year, and apply these loses to other income that the investor had earned. From the government’s perspective, too many investors eventually became more interested in the tax breaks than actually maintaining housing for the most vulnerable in society.  As a result, the program was cut back over the years until being turfed entirely in 1988. But there’s no question the policy worked. Large swaths of housing projects were built, and even today most relatively affordable apartment buildings in use are surviving on the backs of this legacy.

This tax change was at the federal level, but provincially, policy has not been much better. British Columbia has some of the most expensive rents in Canada thanks to Bill Vander Zalm, who created the Property Purchasers Tax.

In addition to going back to the 1980s, let’s try a new approach to increase the rental supply. Eliminate all sales taxes on house related services — contractors, roofers, painters, etc. as is the case with food. This in turn lowers the costs of operating housing.

And most significantly, bring back the generous CCA similar to that of the 1980s. History shows us that this would incentivize builders to favour rental apartments over the more expensive housing we see going up today.

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