For construction companies considering affordable housing projects in Ontario, there are several key factors to consider when building a business case. While these projects may present unique challenges, recent government initiatives and tax incentives have created new opportunities in this sector. In addition, the Provincial Planning Statement announcement this past August stated that all cities will be required to set minimum targets for affordable housing starting in October, 2024.
Enhanced GST/HST Rebates
One of the most significant recent developments is the enhancement of GST/HST rebates for purpose-built rental housing (PBRH) projects:
- The federal government has increased the GST rental property rebate to 100% for projects where construction begins on or after September 14, 2023;
- Ontario has aligned with this change, offering a full rebate of the provincial portion of HST (for a total 13% HST rebate) on qualifying projects.
This represents a substantial reduction in costs for builders, as it eliminates the GST/HST burden on new rental housing construction. When developing financial projections, companies should factor in this significant tax savings
Development Charges in Ottawa
On June 1, 2024, the City of Ottawa implemented specific provisions for affordable housing projects when it comes to development charges:
- Affordable housing built by non-profit developers is exempt from development charges;
- The city defines affordable monthly rents for different unit types as follows:
- Bachelor unit: $1,172
- 1-bedroom unit: $1,415
- 2-bedroom unit: $1,713
- The city defines the affordable purchase price of a detached house, semi-detached house or row/townhouse to be $438,300.
These thresholds are used to determine eligibility for development charge exemptions or reductions for affordable housing projects.
Government Support
Various government programs provide funding support for affordable housing development:
- The National Housing Strategy offers low-cost loans and capital contributions for affordable rental projects;
- Ontario’s Affordable Housing Program provides capital funding for new rental housing construction;
- Purpose-built rental properties may qualify for more favorable property tax treatment compared to condominiums in some jurisdictions.
These programs can significantly offset construction costs and improve long-term project viability.
Risk Mitigation and Social Impact
While affordable housing projects carry some unique risks, socially responsible companies can mitigate these and still have positive impact on stable long-term occupancy. Consider:
- Careful tenant selection and property management practices;
- Diversifying one’s portfolio with a mix of market-rate and affordable units;
- Utilizing government loan guarantee programs to reduce financing risk.
Financial Modeling
When building the business case, companies should develop comprehensive financial models that account for:
- Enhanced GST/HST rebates and other tax incentives;
- Potential development charge deferrals or reductions;
- Government funding contributions;
- Long-term property tax implications;
- Projected occupancy rates and rental income;
- Ongoing operating and maintenance costs.
Opportunities for Trades in Affordable Housing Projects
The recent changes in Ontario’s affordable housing policies create new opportunities for trades working with home builders.
Affordable housing projects may have different requirements compared to market-rate housing. For example, market-rate housing will:
- Focus on cost-effective building methods and materials;
- Place emphasis on energy efficiency to reduce long-term operating costs;
- Leave potential for modular or prefabricated construction techniques;
- Develop skills in retrofitting existing buildings for affordability.
Affordable housing projects often emphasize long-term affordability:
- Focus on durable materials and construction methods;
- Increase attention on energy-efficient systems installation;
- Ensure potential for ongoing maintenance contracts.
By carefully considering these factors, construction companies can build a compelling business case for affordable housing projects in Ontario. While challenges exist, recent government initiatives have created a more favorable environment for these socially impactful developments.
By understanding these aspects of affordable housing development, trades can position themselves to benefit from the growing opportunities in this sector. Stay informed about local policies and develop relevant skills.
This article was first published in the Ottawa Construction Association’s Monthly Magazine.
