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Remove GST To Solve the Housing Crisis, And Other Things Benjamin Tal Told CBRE’s Market Outlook

March 17, 2023 3 Minute Read

Jon Ramscar and Benjamin Tal talking at CBRE Real Estate Market Outlook 2023



The housing crisis was top of mind at CBRE’s Canadian Market Outlook in Toronto on February 28. And featured guest, CIBC World Markets Deputy Chief Economist Benjamin Tal, wasted no time in floating his suggestion for how the federal government could help solve it:

Eliminate the Goods and Services Tax on purpose-built rental projects and the development charges that go along with them.

“Purpose-built rental development is one of the only solutions to the affordability crisis we have,” Tal told CBRE President and CEO Jon Ramscar in a one-on-one conversation at the Metro Toronto Convention Centre.

“We need rental units. Therefore I believe we should eliminate the GST on purpose-built and DCs – I speak to many builders about this. And the government can afford (the GST cut) if you designate this as a crisis, which it is. And it’s getting worse.”

“The only way to solve it is to improve productivity, build differently, introduce changes to the immigration system to bring in more trades, and clearly make purpose-built more affordable and more economical. Right now it isn’t.”

There is simply not enough housing supply to accommodate the 1 million newcomers Canada is expecting in 2023.

“Nobody is carrying their house on their back,” Tal said. “I think we need to start thinking in terms of emergency measures to house them. The government that set the immigration quota must be a big part of the solution to house them. The private sector can’t do it by itself.”

Homebuyers can expect a bit of help from the pricing correction that is under way, Tal said. “The correction isn’t over, and it’s a very healthy correction. After housing prices rose by 46% in the two years during COVID, you need a correction otherwise we’re in a bubble.

“This is not a freefall,” he added, “it’s the reallocation of activity because during COVID we front-loaded activity; borrowed activity from the future.

“I’m announcing now that the future has arrived.”

Kill Inflation Dead

Tal told Ramscar he’s optimistic about where inflation is headed, with wages and fuel prices trending downward. “Housing inflation not so much.”

He said he believes Canada could reach 3.0% month over month inflation by this spring, en route to hitting the 2.0% the Bank of Canada is targeting. “If you look at core inflation, it’s approaching 2.0% on an annual basis.”

The Bank of Canada should stop raising interest rates, Tal said (and the BOC appears to have heeded his call, maintaining the current rate at its most recent meeting on March 8), but should also make sure that inflation is “absolutely dead” before beginning to cut interest rates. “Remember the 70s and 80s!,” Tal said. “We had a double dip recession because of monetary policy easing that was premature.”

The BOC will want to keep interest rates (currently at 4.5%) higher longer “just to buy some assurance that inflation will not reappear.” Tal said he expects the BOC will wait until 2024 to cut rates. “Then when you cut, the question is by how much? I say go to 3%,” almost double what it was before the rate hikes began.

Why maintain a higher rate? Tal said because there are four major inflationary forces “cooking in the background”: Deglobalization; just-in-case inventories replacing just-in-time inventories; rising wages; and increased expenses for  green initiatives.

“All of these forces are inflationary,” Tal said. “So the target is 2%. I speak to the Bank of Canada all the time, and I can tell you, they are not going to change the target.”

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