Canada is grappling with a significant rental housing crisis as there is a shortage of new affordable units being constructed. Despite efforts made through the National Housing Strategy’s programs, only 17,000 units were delivered over a four-year period, showing minimal improvement in Ottawa’s housing track record over the past three decades. For example, between 1996 and 2013, less than 7,000 new units were provided by provincial and federal governments.
In contrast, the United States built 3.5 million subsidized rental units between 1987 and 2021. Adjusting for population, this is equivalent to Canada building 11,000 units annually. While both countries have decreased tax benefits for rental real estate, the U.S. introduced the Low-Income Housing Tax Credit (LIHTC) to assist renters with low to middle incomes.
Tax credits through efficient resource allocation for profit and nonprofit rental housing owners
If Canada were to implement its own LIHTC, it could offer an alternative federal funding opportunity leveraging private sector expertise in owning, constructing, and managing low-income rental housing. This program would grant tax credits to both for-profit and nonprofit rental housing owners, allowing nonprofits the option to sell these tax credits.
Efficient resource allocation would be a key component of the program, achieved through creating tax credit competition among developers and utilizing a market-based assessment for the necessity and feasibility of low-income housing.
An addition to current renter supports utilizing syndicators to advise on credit pricing
This program could supplement existing renter supports like housing allowances, local government initiatives, and rent supplements. Developers would receive tax credits, which they could offer to investors to offset income tax.
The funding for credits would come from the federal government and distribution would be based on provincial criteria. The program would have a set limit, with each region receiving an annual credit allocation based on its population. The Canada Revenue Agency (CRA) would ensure that projects meet program requirements.
To fund projects, developers would engage syndicators to advise on credit pricing. Currently, at least two major Canadian banks are involved in the U.S. process and could apply their knowledge to a Canadian program. In the U.S. program, the tax credit is spread over 10 years. Individuals with substantial, consistent taxable incomes would benefit from a similar program.
By implementing a Canadian LIHTC, there could be a significant increase in the creation of affordable rental housing utilizing resources and expertise from the private sector. Canada has the opportunity to learn from the successful U.S. model to establish a more efficient and effective system that not only addresses the current housing shortage but also provides long-term advantages for low- and middle-income renters across the country.
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