Removing GST from the construction of new rental apartments will likely help ease housing supply crisis in Canada, according to real estate stakeholders, but some are concerned that the high interest rate environment will hinder the measure’s success. 
Speaking on a Monday panel on the topic hosted by the Urban Land Institute Toronto, Jeff Thomas, group head of development at KingSett Capital, said high rates are weighing down the benefits of the federal government’s plan.
“The economic benefit of that (GST cut) has been pretty much eradicated because of the interest rates," he said.
The federal government introduced its plan to remove GST from new rental builds last month, in the hopes that it will spur faster development of desperately needed rental housing in the country. The Finance Department has said the measure will provide $25,000 of tax relief for a two-bedroom apartment valued at $500,000.
One developer has already announced plans to build 5,000 more rental units and credited the GST plan for making that possible.
But with the Bank of Canada’s key interest rate set at five per cent, Thomas cautioned that the high interest rate environment could dampen investment sentiment in rental housing.
Thomas explained that the costs of building rental apartment buildings have gone up and the return on capital might not be as ideal to investors as it was two years ago. 
“There are a lot of other low-risk investment alternatives to investors right now,” he argued.
He pointed to bonds as just one place where investors could choose to put their capital and expect a higher and safer return. 
The federal government is forecasting that their policy move and new funding will boost rental construction by 30,000 units annually. The Canada Mortgage and Housing Corp. estimates the country needs to build an additional 3.5 million homes — on top of the current pace of building — by 2030 to restore housing affordability. 
Tony Irwin, president and chief executive officer of the Federation of Rental-housing Providers of Ontario, said the GST policy change will not be enough to fix housing affordability on its own, but it’s a start.
“This (the GST removal) is not going to get us to the housing numbers that we need but it will help,” said Irwin, who also spoke on the panel about the GST policy.
He added that the policy change is a major accomplishment that many in the industry thought was impossible. 
"All levels of government need to say yes to purpose-built rental housing," he said. 
With files from The Canadian Press.