The Current - Will Poilievre's promise to remove GST on new homes under $1M work?

Episode Date: October 30, 2024

In response to Canadians struggling to afford housing, the Conservative leader has pledged to remove the GST on newly-built homes sold for less than a million dollars. Economist Mike Moffatt likes the idea, but says that it needs to go further by building more homes. 

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On Drugs is available now wherever you get your podcasts. This is a CBC Podcast. Hello, I'm Matt Galloway, and this is The Current Podcast. It's not easy to afford a home these days. Almost everywhere in the country, the cost seems eye-poppingly high, especially for young people trying to buy for the first time. Conservative leader Pierre Palliev has a new proposal he says will help. He's promising if he wins the next federal election to remove the GST on all newly built homes sold for less than a million dollars. He says the move would save Canadians tens of thousands of dollars

when they sign that mortgage. The Conservative leader says his proposal would prompt more housing and additional 30,000 homes in Canada next year and each year thereafter. And he says he'll pay for the lost tax revenue in part by axing to liberal housing programs aimed at cutting red tape

and building more infrastructure. Common sense conservatives will stop giving the money to bureaucrats, instead leave it in the pockets of home builders and home buyers. Mike Moffitt is an economist who specializes in housing. He advises politicians at all levels of government, including in the past, federal liberals. He is the founding director of The Place Center, a housing-related think tank based at the University of Ottawa. Good morning. Good morning. You know, anyone who's been shut out of the housing market might be a bit skeptical that this plan or any plan will make a big difference to them, will it? Well, it will certainly help. There's no one single policy that's going to

solve the housing crisis. We need to be doing hundreds of different things, but this will certainly help. There is an existing GST housing rebate, but it hasn't been updated since 1991, and it's basically been eroded away by inflation. So this should certainly help to not have to pay a 5% GST when you're buying a newly constructed home. That's not only going to make these houses more affordable, but it makes it more attractive to buy a newly constructed home, and that should help increase home building. But how would it work? I mean, who gets the money? So the buyer essentially gets the money. And again, we should recognize that this is not a new policy, that the GST new housing rebate already exists, but it hasn't been updated since 1991. That's under $450,000 to get any form of rebates.

And that rebate is only kind of a small fraction of the GST you pay. And in most large parts of the country, you're not going to find a newly constructed home for under $450,000. So this rebate, this existing rebate may as well not exist. So what the conservatives are saying is, let's increase that amount to a million dollars to capture most newly constructed homes. And they're going to make the rebate a full 100%. So you get back any of the G bit of upward pressure on prices because of the increased demand on new homes. But ultimately, it's the buyer who gets it back. And that doesn't change. $800,000 house and that 30,000 new homes could be built every year because of this. How accurate are those numbers? Well, the first one is simple and definitely accurate because it's just 5% of whatever the price is, because that's the level of the GST. So 5% of $800,000 is $40,000. On the second one, we haven't done any advanced modeling here yet. But we would

say that this seems plausible, or at least a reasonable estimate that we've estimated past tax change policies, including eliminating the GST on rental construction. And this is in the same ballpark. So I do think this is a reasonable estimate of how many homes will get created. I think a little bit more work needs to be done to get a more exact number. But, you know, this is in the ballpark. So then there's the question always of how to pay for it. The Conservative leader says he'll make up for some of it with increased income tax generated by building more homes.

But he says he'll also cut two Liberal programs aimed at speeding up construction of new housing, one aimed at cutting red tape and another at creating infrastructure like water and sewers for new home builds. Here's what the housing minister, Sean Fraser, said in response. sewers for new home builds. Here's what the housing minister, Sean Fraser, said in response. A lot of the red tape has been completely cut to make it easier and faster to build homes. If you want to now go back to municipalities and pull that money out, that would make no sense. How is cutting those programs a good idea? How well are those programs working, for example? Well, I think we should keep these programs.

You know, we need a wartime-like effort in order to bring some balance back to the housing market. We need every tool possible. I don't think these programs are working as well as they should. For instance, the infrastructure program requires municipalities to freeze development charges, so taxes on new development. Here in the city of Ottawa, where I am, they have increased development charges twice in the last six months for an increase of about 25% overboard. So I think there's some problems with these programs that municipalities have largely been ignoring, or at least some municipalities have been ignoring the conditions. But I don't think we should get rid of them entirely. I think we need to reform them.

And it does feel a little bit like the Pali government is throwing the baby out with the bathwater here. These programs need to be reformed. But at the core, they're very good ideas and we need them. These programs need to be reformed. But at the core, they're very good ideas and we need them. Do you think that the liberals might take a little bit of this idea and revamp that 1991 GST rebate or do something in the next few months? Yeah, I'm hopeful that they do. I'd like to see that from all the parties. You know, I think how we solve this crisis is a race to the top when it comes to policies where the Liberals, the New Democrats and the Conservatives all try and outdo each other with more and more bold housing policies. So absolutely, I would love to see the government say, OK, you know what, Mr. Polyev has a point

here. We are going to do something similar on the GST while keeping these other programs intact. Just in the minute we have left, you know, its housing is so complex. I don't need to tell you that. Do you think that people waiting for some relief to get into that market, are they going to see any? Will house prices come down, do you think? Yeah, I think we're already starting to see some relief, particularly on the rental markets.

You know, the changes that the federal government has made to international student programs have decreased rents, and we've actually seen home prices fall in a lot of student neighborhoods. So we are seeing some release, at least in part of the country, but there's a lot more work that we need to do. We've dug such a large hole for ourselves that, yeah, having prices and rents go down three or 4% is absolutely helpful, but there's a lot further we need to go. And just lastly, you know, we mentioned he's talking about a million dollars for newly built homes. Does that effectively mean that doesn't work in Toronto or Montreal or Vancouver, even Calgary? Yeah, I think that is the biggest drawback of this plan is that it doesn't really work that well in the greater Toronto and greater Vancouver areas.

So what we've been suggesting is that there should be a phase out where homes between one to one point five million. They don't necessarily get the full rebate, but they should get something. So this isn't a perfect plan. And I do think it needs tweaks for the GTA and GVA. All right, Mike, thank you very much for walking us through that. Appreciate it. Thank you for having me. Mike Moffitt is founding director of the Place Center, a housing-related think tank.