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Revitalizing the MURB Program – What Past Mistakes Can Teach Us

12 May 2025

Rental housing policy has been a persistent challenge in Canada for more than five decades, shaped by two key forces. First, efforts to close federal tax “loopholes” in the early 1970s discouraged private investment in rental housing, making it financially unviable. As a result, private sector participation in rental housing has been negligible for more than 25 years.

To address the shortfall, the federal government increased spending on social housing at various points. However, due to fiscal constraints, it began stepping back from this role. By the early 2000s, most support was provided through a CMHC-funded program offering lower-cost, long-term mortgages. It has since come to an end.

Over the past 25 years, rental housing stock has been provided through two main channels. First, small investors purchased condominiums and rented them out. Over time, this stock has become undersized and overpriced. The second source has been non-conventional rental housing, mainly through the creation of basement apartments. Much of this housing stock has not complied with building codes.

Reimagining the MURB program

The government is looking to encourage more private sector investment by reintroducing the Multi-Unit Residential Building (MURB) program, originally implemented in the early 1980s. The MURB program offered many of the tax incentives that existed before the 1972 reforms to the Canadian Income Tax Act, making investing in rental housing more financially attractive. This included accelerated capital cost allowances and the ability to write-off soft costs against other income.  

A March 1981 report from CMHC estimated that “at the end of 1980 there was a total of 170,000 MURB dwelling units either completed or under construction in Canada.” While the program spurred activity, the report also noted that it was a stopgap measure that failed to address the fundamental underlying issues of high development costs and low rental yields.

Since the 1980s, the development landscape has changed significantly. Back then, most MURB-related projects were greenfield developments – largely stick-built townhouse developments that could be quickly constructed. Initially, the program offered a higher capital cost allowance (CCA) for this type of development than for steel-frame projects like mid- to high-rise developments, making it more financially attractive. Over time, the program was revised to provide only the lower CCA rate, reducing the economics of the incentive.

Although the Department of Finance managed the MURB program, a compliance certificate from CMHC was required. A key condition was that construction had begun – defined as the point when footings were poured. This emphasis led to a focus on projects where there was no subgrade development, since being able to claim soft costs as soon as possible improved the economics for investors.

The challenge for a renewed MURB program is that its economic value will depend on completing projects quickly and at sufficient scale. In most urban centres, greenfield opportunities are scarce – let alone the ability to assemble enough land to support the kind of large-scale development that attracts investment capital. When I worked on MURB townhouse projects around Edmonton during summer jobs, development typically involved 200 to 400 units. If today’s development involves a teardown and, for example, a six-storey building on an existing urban lot, achieving sufficient scale becomes a challenge from an investment perspective. 

Compounding this is the length of time it takes to complete multi-unit housing. Development timelines can stretch to seven or eight years. Even if townhouse developments are faster, there is still a long lag before footings are poured and construction is officially deemed to have started – delaying when tax benefits can be claimed and reducing the value of the investment. 

Market conditions have changed enough that MURBs present an even riskier investment for retail investors than when the program was first introduced.

Proposed amendments

While the government has expressed interest in bringing back the MURB program, it should first consider other actions that could improve the long-term economics of rental real estate investing, including:

  • Allowing investors to defer CCA recapture and capital gains on proceeds from the sale of rental property when those proceeds are reinvested in another rental property within a reasonable timeframe (as allowed in the US Federal tax system);
  • Extending the GST/HST rebate to major renovations of existing rental projects, ensuring private rental projects are treated the same as social housing;
  • Allowing all investors in rental housing to deduct CCA losses against other income; and
  • Expanding the range of allowable ‘soft costs’ that can be deducted in the first year of operation for new rental properties.

The MURB program was beneficial because it rolled back several aspects of the 1972 tax reforms that made rental construction financially unviable. However, targeting individual investors as the primary source of capital proved problematic. By focusing on tax changes without specifically targeting individual investors, we can create a sustainable, long-term framework that supports rental housing and avoids the pitfalls of the original program.

 

Independent Opinion

The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.

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