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Rental crisis cries for return of investor tax incentives

The 45-year-old MURB program harnessed the private sector to deliver many of the affordable rental apartments still in use today

Forty-five years ago Canada was facing a rental housing shortage. Unlike today, the federal government took decisive action, launching an innovative tax incentive that harnessed the private sector to deliver rental apartments in the thousands.

The Multi-Unit Residential Building (MURB) program ran for five years to 1979 and created 195,000 rental apartments across the country, homes that still represent most of the affordable rental inventory in Vancouver and other cities. 

Today, when the federal government talks about affordable rental housing, it invariably means huge public-sector expenditures. Examination of the subsidized housing being delivered this year shows that the typical project requires about half a million dollars in initial subsidies for each apartment created. A recent federally subsidized rental project in South Surrey, B.C., received $415,000 per suite in taxpayer money, yet the resulting rent is not much lower than in the current market. On Vancouver’s Downtown Eastside a social housing project restricted to women will cost taxpayers an average of more than $560,000 for each apartment, plus perpetual public support for staffing and maintenance, for tenants who pay $375 per month.

This is not a sustainable situation for taxpayers who are also paying the highest housing costs in history for their own heavily taxed homes.

The MURB program was different. It was aimed at investors, allowing them to deduct development costs and rental losses from their taxable income. Developers would start a MURB and seek investors to purchase rental units in the building. The development costs for land servicing and utilities were aggregated and assigned to investors on a unit-by-unit basis. These costs could then be written off against income. In most cases, this would result in the investor receiving a large tax refund in the initial year of ownership.

Once the project was finished, rental revenues were pooled, as were expenses like interest, taxes, insurance and repairs. The property manager would provide an annual accounting for the building and for each unit. Investors could then claim their share of the rental subsidy as a loss that could also be deducted from their income. 

The MURB program fizzled out due to a combination of factors, among them the reluctance of municipalities to zone sufficient land quickly enough to allow the program to reach its full potential; a lack of oversight that allowed some substandard construction; and a change in government. 

MURBs were not perfect but a modern fine tuning of a national strategy that puts the focus on encouraging the private sector to deliver rental housing would likely prove far more effective and less costly to taxpayers than the erratic, extravagant public funding being used today.