Coalition calls for tax changes

Hey there, time traveller!
This article was published 15/11/2011 (5457 days ago), so information in it may no longer be current.

Reversing a bunch of small and obscure tax changes made more than two decades ago could solve Manitoba’s affordable-housing crisis.

That’s according to a group of unlikely allies — Winnipeg’s Right to Housing Coalition, left-leaning former NDP cabinet minister Tim Sale and developer Alan Borger, whose company, Ladco, built Royalwood and is now developing part of Waverley West.

“That’s the odd thing — the right agrees, the left agrees,” said Sale, whose cabinet roles included health and housing. “If we made these changes, we could bring the cost down by 25 per cent.”

That would allow developers to get a reasonable rate of return on their investments while building apartments someone on a income of $30,000 or $35,000 could afford. Now, it takes an income of about $45,000 to afford a new two-bedroom apartment, putting those units out of reach for single mothers, new immigrants, seniors and others with low incomes.

“The economics are really quite simple,” said Borger, who crunched tax data for the housing coalition. “People who invest in multi-family rental housing are no different from anyone deciding what to do with RRSPs. Investors will only invest if they are sure that will ultimately produce a rate of return that justifies the risks.”

Winnipeg’s vacancy rate has stood at effectively zero for years, and the number of new apartments built annually has dropped exponentially. What little that is getting built tends to be high end.

In the late 1970s, Winnipeg saw thousands of multi-family units built annually, including a whopping 7,200 in 1978. Now, there are only a few hundred built annually. This year, the Canada Mortgage and Housing Corp. says, there will be about 500 rental units built in Winnipeg.

It’s the same story in many Canadian cities, where condos and houses are popping up everywhere, but remarkably few rental units and even fewer affordable ones.

Experts such as Borger and Sale say a wave of tax reform in the 1980s had the unintended snowball effect of discouraging the construction of rental units.

The laundry list of tax changes proposed by Borger and the housing coalition involve all levels of government and includes simple ones such as reducing or eliminating the PST or GST on building costs for affordable units and some not-so-simple ones such as allowing capital gains rollovers.

It also includes expanding the new tax increment financing (TIF) rules beyond the downtown so developers can use the program everywhere in the city.

Borger says that could reduce the cost of each unit by as much as $12,000, savings developers would then pass on to renters.

Sale says the changes wouldn’t cost governments anything, since few apartments of any kind are being built now so there’s little tax revenue flowing into government coffers. In fact, argues Sale, the government would actually earn tax revenue from a mini-construction boom.

The Right to Housing Coalition has pitched its ideas to provincial Housing Minister Kerri Irvin-Ross, the Manitoba Chambers of Commerce and others. The coalition has also fired off letters to federal Finance Minister Jim Flaherty and Human Resources Minister Diane Finley, who is responsible for CMHC. Irvin-Ross would not comment on the ideas but a spokeswoman said the province is committed to exploring all possible ways of boosting the number of affordable housing units.

maryagnes.welch@freepress.mb.ca

Checklist of fixes

A coalition of housing experts in Winnipeg has come up with a list of changes they think could spur private developers to build more affordable housing units. Here’s a smattering:

Builders pay PST and GST on all the materials needed to build an apartment complex, such as lumber, shingles and windows. If the sales taxes were reduced or eliminated for affordable units, that could shrink the cost for each unit by as much as $13,000.

Landlords also pay GST on the cost of running a building day to day, such as advertising, repairs and maintenance, even the cost of checking a would-be tenant’s credit rating. But landlords can’t recoup those costs by charging GST on rent. If Ottawa exempted those day-to-day GST charges, as it does for farmers, that could make building rental units more attractive.

The capital cost allowance lets property owners deduct from their taxable rental income the depreciation of a building — the wear and tear that happens to an asset over time. According to a study by the University of Calgary’s School of Public Policy, that deduction is particularly helpful in the early, risky days of a project. Increasing the capital cost allowance, say from four per cent to 10 per cent, would increase the value of each unit by as much as $8,000. Another hitch: When a property-owner sells an apartment complex, he must often repay the depreciation tax breaks he got in previous years if it turns out he sold the building for more than he paid. Allowing a property owner to roll the tax breaks over into another building or even “pool” a portfolio of buildings, would be other options.

Provincial rent-control rules kick in 20 years after an apartment building opens its doors. Allowing landlords to charge an extra $50 above the rent-control guidelines once they kick in would help developers make a long-term case for a return on their investment.

The province owns land — a lot of it in Waverley West, for example, where there are no real plans for affordable units. If the government sold the land to developers at half its market value, that could make affordable units a go. It’s a quick and simple thing the province could do to create affordable units somewhere other than the core.