I hope you all enjoyed your Halloween!
I know I did, I got to see my nephew dress up for his first Halloween. His costume wasn’t too far fetched, dressing up as a construction worker. I’m sure he will have a fair bit of experience on the tools, like the rest of the family, in no time!
October came with lots of good news and events in the new construction space, which is amazing news for many of us. However I’m sure it was very spooky for the NIMBY’s!
Ontario is removing the PST on purpose built rentals!
The removal of PST is fantastic news for those in the industry. The 8% PST will no longer be charged on purpose built rentals whose construction began after this past September.
Not every newly built rental property will qualify however, the project has to have a minimum of 4 units or 10 private rooms. Also 90% of all of the units need to be for long term rentals.
Currently the provincial government is planning to run the program until 2030. We will have to see if they have spurred the amount of housing construction they want in order to end the program at that point. Personally I believe that with our current housing shortage it is unlikely, however, only time will tell.
Severance changes implemented in Durham Region
The audit of Durham Region to see what can be done to improve the speed of housing development has already enacted its first change. Severance applications will now be processed by each city through their committee of adjustments.
What does this do?
Moving this application down to the city level speeds up development applications. Minor variances and land division will be processed at the same time, in the same meeting. This not only makes submissions less complicated, it will decrease the development timeline for many projects by several months.
It will be great in the long run, however for those of us applying for severances currently, we have no way to have our applications processed. It will take some time for the city’s to get their process established, and during that time all we can do is wait.
Short term pain for long term gain.
Ajax looking to allow up to 4 units, as of right
It looks like the Town of Ajax will be the first in Durham to allow four units as of right. This is great news, and hopefully more city’s follow suit. Hamilton already allows four units, and Toronto allows up to five. The Housing Affordability Task Force recommended that 4 units be allowed, as of right. It is great to see this enacted as 3 units as of right may not create enough density to support the demand on increased construction of housing units.
Changes to CMHC
There is a lot of talk currently about some potential changes coming to the CMHC. It is looking like there is a chance of the implementation of a 24 month stabilisation period after re-positioning an asset, before you can enter a CMHC product. These changes will not apply for any new construction projects looking to enter CMHC, after construction is complete.
This will be unfortunate for many investors as the timeline for completing the repositioning of existing assets will increase significantly with these changes. This In turn reduces the overall rate of return per year and increase the level of risk on these projects. These changes seem to be part of a carrot and stick approach by the government towards the investment community in order to funnel more capital into new construction.
Likely, from the government’s perspective, repositioning existing buildings is not a very beneficial activity in the current climate. These real estate investment dollars aren’t going towards increasing unit count, and they are eliminating more affordable housing units from the market. If the government can make this business model less desirable, it will likely be seen as a positive outcome from policy makers.
Improving the risk adjusted returns of development and new construction options will be a net positive in Canada. With some of the changes we have seen this last month, we are certainly moving towards these pursuits being easier and more profitable.