Canada stopped building purpose-built rentals in the 1980s. Through targeted tax incentives, we can have the very people who serve our communities – nurses, teachers, police officers – afford to live in them again.
Almost a third of renters spend over 30% of their income on housing, while the national vacancy rate has plummeted to 1.5% – the lowest since tracking began in 1988.
By strengthening CMHC programs, revitalizing rental tax incentives, and introducing a renters' tax deduction, we'll make housing accessible for key workers and create communities where essential services can thrive.
Goals
Canada needs to rapidly expand its housing supply to address the growing affordability crisis and ensure key workers can live near their workplaces. Our current approach has led to stagnation in purpose-built rental development, driving up rents and hurting quality of life. Our targets:
- Increase purpose-built rental stock by 300,000 units specifically for key workers within 5 years
- Reduce the percentage of income spent on housing by key workers from 30%+ to under 25% by 2029
Background and Motivation
The rental housing situation in Canada has reached crisis levels. Approximately one-third of Canadian households now rent, up 21% since 20111, yet our rental housing stock hasn’t kept pace with this growing demand. Most of our purpose-built rental buildings (properties built specifically for rental or long-term tenancy rather than ownership) were constructed before 19802.
This shortage, coupled with the high cost of building new housing, has sent rents soaring – the average rent for a Canadian apartment was around $800 in 19903; by 2024 it had almost tripled to roughly $2,196 per month4. This is felt the most in major urban centres like Vancouver and Toronto. One in five renter households now faces a core housing need5, meaning they spend over 30% of their income on shelter, live in overcrowded conditions, or in substandard housing. For 89% of these households, the primary issue is affordability6.
The national vacancy rate has fallen to a record low of 1.5%7, far below the 3% considered necessary for a healthy rental market8. Imagine a renter gets a new job and they want to move closer to their work, but there are little-to-no listings available on the market – they’re now stuck in their current place. Or, imagine a landlord is treating a renter poorly, but the renter is unable to find a comparable place. When vacancy rates drop this low, renters lose choice. The situation is most dire in fast-growing urban centres like Toronto and Vancouver, where vacancy rates often hover around 1% or lower.
This housing crisis particularly affects essential workers – the healthcare professionals, educators, first responders, and service workers our communities depend on. Many now face impossible choices: spend hours commuting from affordable neighbourhoods or sacrifice basic necessities to afford housing near work.
For example, a newly graduated nurse earning $70,500 in downtown Vancouver would need to spend around $2,5009 or approximately 55% of their after-tax income on an average one-bedroom apartment. The alternative – living in a more affordable suburb – might save money but could add 2-3 hours of daily commuting, affecting work performance and personal wellbeing.
The Canada Mortgage and Housing Corporation (CMHC) reports that a 1% increase in house prices in a destination city leads to a more than 1% decline in the number of people moving there10. This limits talent mobility and slows national productivity growth just when we need it most.
This crisis can be addressed through a comprehensive federal approach focusing on three key strategies: strengthening CMHC programs to accelerate workforce housing, revitalizing tax incentives for rental development, and introducing a renters’ tax deduction to create parity with homeowners.
The time to act is now. Every year we delay, the housing shortage grows more acute, placing greater strain on our essential workers and the communities they serve. By implementing these policies, we can ensure that those who care for our communities can afford to live in them.
Real-World Solutions
Germany’s Private Rental Success : Germany has created a thriving private rental market through strategic incentives and regulations. Unlike Canada, Germany makes mortgage interest tax-deductible only for rental properties, not owner-occupied homes. This encourages property investment specifically for rental purposes. Germany also avoids major tax breaks for homeownership (having no equivalent of Canada’s principal residence capital gains exemption), creating a more level playing field between owning and renting. The result is a well-supplied rental market where about one-quarter of rental units are owned by cooperatives or municipal companies with social objectives. Germany’s approach demonstrates that aligning tax policies to encourage rental development while protecting tenants can yield a large, stable rental sector.
Australia’s National Rental Affordability Scheme (NRAS): Australia implemented a targeted program providing tax incentives to developers who built and rented dwellings to low and moderate-income households at below-market rates. The scheme offered approximately AUD $8,000 annually per dwelling for ten years11. Key lessons included the importance of consistent program administration and ensuring incentives remained competitive with market returns. The program particularly succeeded in areas where state governments offered complementary incentives, showing the value of coordinated federal-provincial approaches.
Singapore’s Housing Development Board : Singapore has maintained affordable housing through its national Housing Development Board, which develops and manages public housing accommodating over 80% of residents. While Singapore’s system is more centralized than would be appropriate for Canada, their successful focus on rental units within mixed-income developments provides valuable lessons. Singapore ensures essential workers can live near employment centers through targeted allocation policies and income-calibrated subsidies. Their approach demonstrates that intentional planning for workforce housing creates more functional, economically vibrant communities.
What Needs To Be Done
We must implement a comprehensive federal strategy to increase rental housing supply with a specific focus on key workers through three interconnected policy approaches:
1. Strengthen CMHC Programs to Accelerate Workforce Housing
Enhance the CMHC Affordable Housing Fund (AHF) and Apartment Construction Loan Program (ACLP) with dedicated streams for key worker housing. Provide preferential financing terms when developers commit that at least 30% of units will be rented to key workers at rates not exceeding 30% of median incomes in those professions. Streamline the application process with a specialized “key worker housing” team that provides technical assistance and reduces approval times from months to weeks. Allocate $3 billion for these enhanced programs over five years, with specific performance metrics for units created and affordability maintained.
2. Revitalize MURB-Style Tax Incentives for Rental Housing
Introduce a modernized version of the successful Multiple Unit Residential Building (MURB) tax incentive program. Allow accelerated Capital Cost Allowance (CCA) of 10 years instead of 30 years for new rental projects that allocate a minimum of 20% of units to key workers. Create targeted GST/HST rebates of 100% for projects maintaining affordability for key workers for at least 15 years, representing a significant improvement over the current partial rebate. Establish capital gains exemptions for rental properties that maintain affordability commitments, creating a powerful incentive for long-term investment in the rental sector while discouraging quick property flips that reduce rental stock.
3. Introduce a Renters’ Tax Deduction
Create the first comprehensive federal Renters’ Tax Deduction to achieve greater tax parity between renters and homeowners. Structure the deduction on an income-based sliding scale offering 100% deduction of rental payments for those earning under $90,000 annually, and partial deductions for incomes between $90,000-$150,000, inflation adjusted. Include an additional “Key Worker Bonus” providing enhanced deductions for healthcare workers, emergency responders, educators, and essential service workers regardless of income level. Implement this through amendments to the Income Tax Act, with provisions that specifically recognize rent payments as eligible for tax relief similar to mortgage interest in other countries.
4. Optimize the Federal Lands Initiative for Key Worker Housing
Expand the Federal Lands Initiative to prioritize properties near hospitals, schools, and essential service hubs for key worker housing development. Create a comprehensive inventory of suitable federal lands within a 30-minute commute of major healthcare and education facilities. Develop streamlined approval processes for transferring these lands to developers committed to building key worker rental housing. Structure land transfers as long-term leases with affordability covenants rather than outright sales, ensuring long-term affordability while maintaining public ownership of valuable land assets.
Common Questions
Why focus specifically on key workers rather than all Canadians facing housing challenges? Key workers provide essential services our communities cannot function without, yet many are priced out of the very communities they serve. By ensuring healthcare workers, educators, and first responders can live where they work, we strengthen community resilience and improve essential services for everyone. These programs complement our broader housing initiatives while addressing the specific urgent needs of those who care for our communities.
Won’t tax incentives just increase developer profits without improving affordability? Each program includes specific affordability requirements tied to the incentives. The historical success of the original MURB program demonstrated that properly structured tax incentives significantly increased rental supply. We’ve updated this approach with clear affordability covenants, regular compliance monitoring, and clawback provisions if commitments aren’t maintained, ensuring benefits flow to key workers rather than just developers.
How will these changes help Canadians who are struggling to find affordable housing right now? The Renters’ Tax Deduction will provide immediate financial relief to millions of Canadian renters while our supply-side policies ramp up. By targeting areas with critical worker shortages first, we’ll see rapid improvements in communities facing the most severe housing pressures. Initial projects using federal lands can break ground within months, creating visible progress while larger programs scale up.
Why not focus on expanding social housing instead of private market solutions? We need both approaches working in tandem. While we continue to support social housing expansion, the scale of our rental housing deficit requires significant private market participation. These policies create conditions where private development of workforce housing becomes financially viable, allowing much faster scaling than government construction alone could achieve. This mixed approach has proven successful in countries like Germany, where private rental markets thrive alongside social housing options.
Haven’t rents already started to come down? The rental market is dynamic and there will always be fluctuations in certain markets. However, the massive increases in rents over the last decades and the chronic shortage of purpose-built rentals means that we cannot rely on short-lived corrections to solve for the affordability crisis.
Conclusion
Canada must act decisively to expand rental housing for key workers through a comprehensive federal strategy that combines enhanced CMHC programs, modernized tax incentives, and innovative renter supports. By implementing these targeted initiatives, we can add 300,000 new rental units for key workers within five years while reducing their housing cost burden to sustainable levels. These changes will strengthen community resilience, improve essential services, and create economic growth by ensuring those who care for our communities can afford to live in them.
