Honourable members, I'm thrilled to be here with you today.
My presentation picks up on a series of themes that have been introduced by others in the context of their deputations.
I would like to put on the table a tangible solution to address the housing supply issue, as well as the cost of housing that we see in the Canadian context, by looking specifically at how we address taxation. We know that Canada's housing system is broken. You've heard that again and again this morning. We see it every day in the newspaper, but this is facilitated partly by government policy that this committee can address.
Just to put this in context, over the last 20 years in Toronto, where I live today, the average home price has increased by more than 440%. A home that you could have bought for about $230,000 in 1999 now costs $1.3 million in 2022.
If housing prices had risen by only the rate of inflation over the same period, that house would cost $368,000, just to put a fine point on the fact that our largest household expenditure by a long shot is housing. In fact, that is where we're seeing the most dire inflationary issues today.
Recent data shows that investors now account for one-fifth of all home purchases in Canada, with an even higher percentage in some cities. We should really ask the question, how can we prevent that dynamic? This isn't really surprising, because housing is a great place to make money. We have truly financialized housing.
The question is, how do we reverse that? Government policies, as I'm going to outline, can play a critical role in shifting housing from an asset class for investors to necessary infrastructure within Canadian cities. Just think about that as a framework change. Housing as an asset class for investors; that's what we have today. We can shift that to be housing as necessary infrastructure within Canadian cities and towns that is essential for sustainable and more equitable economic growth.
The undersupply issue has been already talked about quite a bit today, so I'm not going to speak to that significantly, but, for example, just in Toronto alone, we have a rental stock that must expand by more than 50,000 new rental units over a two-year time frame, and by more than 10,000 in Vancouver and Montreal, just to give you a sense of the magnitude of the gap. We are currently building approximately 4,000 units a year, so not only are we already in a deficit situation when it comes to housing supply, but it is getting worse. Over the decades that we've been talking about this problem, it is getting exponentially worse on an annual basis.
This chronic undersupply of housing, coupled with sustained population growth, which we know is expected to continue, means that the problem will get worse before it gets better, and we need substantial interventions.
I'm going to speak today about two specific interventions. High immigration levels are essential to economic growth, but will worsen the housing affordability crisis if we do not engage in a significant housing building boom, particularly affordable housing.
I'm putting on the table specific recommendations related to new supply and, in particular, affordable supply. We want to discourage housing from being used as a financial asset for investors, and we should differentiate this from owner-occupied housing as a financial asset. We also want to drive down the costs of construction by redirecting the construction industry to less expensive, market rate housing that is being used by investors, and more toward the delivery of affordable housing.
The first recommendation is that we need to create a tax that will tax capital gains in housing as you would employment income. As it stands today, we know that investors are not taxed on condos as for employment. This is why it's such an alluring business model, but we can fix that by shifting the way taxation takes place.
The revenue from this taxation could be used to incentivize and subsidize affordable housing. It would likely create a recalibration within the marketplace that would take a couple of years, but then our construction industry would be focused on building affordable housing as opposed to building an asset that is a financial tool that primarily delivers incredible returns rather than providing housing for Canadians.
This second critical recommendation is the establishing of a program or a suite of programs to incentivize the creation of a new affordable housing supply. In particular, a specific example of this would be HST forgiveness on affordable units.
I'll give you an example of a project we're working on where the project's pro forma is not viable. We would like to build 25% affordable housing. The project's pro forma included an estimated $18 million of HST revenue. A simple forgiveness of a portion of the HST on this project would tip the project back into viability.
Moreover, the fact that the project is not viable without some sort of incentive means that it will not move ahead as is, which means that it will not—