Housing starts in New Brunswick lagging further behind Maritime neighbours in early 2024

The New Brunswick government missed its target for new housing starts in 2023 by a wide margin but says it is still not interested in cutting sales taxes on new apartmentbuilds in 2024, despite provinces that have tried the idea experiencing a surge in new construction.

Figures show Prince Edward Island and Nova Scotia saw construction starton new apartments at a rate three times higher than New Brunswick during the first three months of 2024, after they moved to lower construction costs by cutting taxes.

Kelvin Ndoro, a housing analyst with the Canada Mortgage and Housing Corporation, said eliminating sales taxes on new rental developments does appear to be helping to get housing built more quickly in provinces that adopted the policy, at least in the shortterm.

"The general view from the developing communityis the HST rebates are expeditingongoing projects," said Ndoro.

Last September, Prime Minister Justin Trudeau announced the federal government was making good on a mothballed 2015 election promiseto stop charging 5 per cent GST on the construction of new rental buildingsto encourage faster development of housing.

Trudeau then urged provinces to copy the plan toamplify the effect of the tax change.

"We are going to be removing the federal GST for the construction of new apartment buildings, and I'm encouraging all provinces to do the same," said Trudeau on Sept. 14.

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Why New Brunswick is trailing other provinces in new housing starts

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Federal housing idea rejected by New Brunswick is fueling a surge in construction elsewhere, including Nova Scotia and Prince Edward Island.

A number of provinces agreed to the idea, including New Brunswick's two Maritime neighbours.Nova Scotia and Prince Edward Island both dropped their own portion of the HST charged on new rental property construction, with a variety of conditions,to add to the federal reduction.

Nova Scotia Premier Tim Houston said he was unsure what cutting the sales tax would accomplish but the urgency of getting new housing built in Nova Scotia convinced him to join the federal initiative.

"In the fullness of time, will this particular step prove to have been the most effective?" Houston asked, rhetorically, in announcing the tax cut last fall.

"I don't know that it will but we're going to try everything, including this.It's an idea and we're in the business of trying ideas to solve problems, so we're trying this one."

New Brunswick is equally in need of new housing.HoweverFinance Minister Ernie Steeves rejected the federal idea as too expensive.

Developers can owe millions of dollars in HST at the end of building a large apartment complex, and governments eliminating that charge are hoping stalled or economically marginal projects will become viable and move forward.

Houston acknowledged the initiative could cost Nova Scotia up to $100 million in reduced sales tax per year, or moreif it triggersmore construction than expected, but said cost was not a deterrent.

"In many ways I hope the cost goes up because that means there's more housing starts and more construction happening," said Houston.

The effect of New Brunswick making a different decisionabout embracing the federal initiative than its neighbours appeared to show itself quickly in construction activity.

According to CMHCdata released in April, apartment units that began construction in Nova Scotia totalled 1,735 during the first three months of 2024 under the new tax rules, with an additional 287 started in Prince Edward Island.

It is a rate of new apartment starts of just above 162 units per 100,000 population, in each province, for the three-month period.

That is triple the number in New Brunswick,whichrecorded 467 new apartment units starting construction, a rate of 55 per 100,000 population.

For New Brunswick, it is the equivalentof 900 fewer apartment units beginning construction during the first three months of 2024 than if it had been able to match rates in the other two provinces.

Ndoro said housing is a complex issue with multiple policies affecting construction decisions at any one time but there is little doubt the removal of the HST has been having an effect in the region.

'If New Brunswick was going to apply a similar policy, I would expect positive returns there as well,"he said.

The New Brunswick government has consistently argued that building more places for people to live is key to solving a number of housing problems, including low vacancy rates, high rents and growing homelessness.

New Brunswick has takendifferent steps to try tospur apartment construction in the past, including a controversial decision to cancel rent-cap protections for tenants in 2023 to encourage developers to build.

But in an email earlier this week, Mir Hyder, a spokesperson for the Department of Finance, said the province is not prepared to cut the sales tax on new apartment buildings to encourage development, in part because he said the province is concerned tenants may not benefit.

"Following some analysis by government, it still isn't clear that rebating the provincial portion of the HST for real estate developers of purpose-built rental properties would result in benefits to tenants such as lower, more-affordable rents," wrote Hyder.

However, the New Brunswick government's own housing strategy, released last year, makes the oppositepoint, arguing that any increase in the housing supply benefits all tenants.

According to the strategy document, housing developments of anytype, including high-end developments, are needed to help lower vacancy rates and improveaffordability up and down the income ladder.

"A low inventory of housing at all price points has added pressure to the markets," the strategy document explains.

"Without an ample supply of market-priced homes and rentals, the inventory of affordable housing will continue to be depleted."

The provincial government claims it also has reservations about whetherNew Brunswick builders are capable ofmatching the pace of building that is happenning in Prince Edward Island and Nova Scotia.

Even though housing starts in New Brunswick in early 2024 trailed neighbouring jurisdictions,Hyderwrote that it was still"an all-time high"for the province, with restrictions on how much more can be done.

"In New Brunswick, rental construction is consistently running at, or near, record levels,resulting in limited capacity for further increases in construction in the short term," he wrote.

New Brunswick has a goal of producing 6,000 new housing starts per year tosolve itshousing troubles but has been unable to reach that number.

In 2023, it posted 4,547 new housing starts. That was the lowest rate per capita among the three Maritime provinces and a three percent decline from 2022.