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Prime Minister Mark Carney tours a new modular home being built by Caivan Homes, at an announcement for the new federal agency Build Canada Homes, in Ottawa on Sept. 14.Justin Tang/The Canadian Press

The federal government is considering changing the tax code to attract large foreign investors to domestic real estate developments, with support for such reforms coming from the head of Build Canada Homes, the new federal agency tasked with building affordable housing at scale.

Ana Bailão, who was appointed chief executive of Build Canada Homes in September, has been travelling across the country for weeks, appearing on panels and at conferences to show the government’s commitment to solving the affordable housing crisis.

On Monday in Toronto, she was asked about solutions for the crisis and went beyond the oft-cited examples of lowering municipal development charges and reducing red tape. Ms Bailão argued that Ottawa also needs to tackle tax reform.

“We need more capital in the housing system, and we need some changes in the way we tax these projects, the way we finance these projects,” she said on a panel at the Canadian Club, adding that she supports “some tax reform to attract more capital to this country.”

Ms. Bailão also said she believes developers should have access to more low-cost financing programs, such as the Apartment Construction Loan Program offered by Canada Mortgage and Housing Corp. that lowers the rate they pay on construction debt.

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Ms. Bailão did not elaborate on what types of reforms she would like to see, but a source familiar with the negotiations said there are two common requests from large foreign investors: changes to the withholding tax on income earned in Canada, and tax incentives to invest in rental apartment construction.

The Globe and Mail is not naming the source because they are not authorized to talk publicly about the discussions with Ottawa.

Attracting foreign capital has been a focus of Prime Minister Mark Carney, who has travelled across the globe to pitch foreign institutional funds on investing in Canada, with the goal of weaning Canada off its economic dependence on the United States.

However, many foreign institutional investors face a withholding tax when they put money into Canadian real estate. When they invest in a project here and earn a profit, they are subject to a withholding tax, sometimes around 25 per cent, before they can repatriate the money.

Currently, Canada has tax treaties with a number of countries, such as the U.S., that lower their withholding tax rates, but sovereign wealth funds in places such as Singapore and the United Arab Emirates often do not pay lower rates.

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Ottawa is also keen on attracting foreign capital to fund rental apartment construction, but at the moment some foreign investors think the returns are not adequate.

Historically, these investors were enticed by large returns on Canadian condominium projects, and they liked that they could often get their money out of condo projects in five years.

Lately, though, the condo market has crashed and buyers of these units have disappeared. Developers are now trying to pivot to rental apartment buildings, but for financial backers, the returns and timelines are much different.

Because rents are now falling in cities such as Toronto and Vancouver, development yields on rental projects are now around 4.5 per cent, The Globe recently reported, and backers can have their money tied up in the projects for decades. (Condo developments, meanwhile, returned their cash when the building was completed and condo unit buyers took ownership.)

With rental development yields so low, institutional investors have many other options to earn similar returns, including U.S. Treasury bonds, which offer similar returns for much less risk. Tax reforms, however, could boost the returns and make Canadian rental apartment development look more attractive to foreigners.

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Beyond tax reform, Ms. Bailão also argued for “alignment” between all levels of government to help solve the housing crisis, because they often counteract each other. “You can’t have the federal government removing the HST on rentals and then municipalities increasing their development charges,” she said. The two measures offset each other.

Fellow panelist Jaime McKenna, president of Fengate Real Estate, which oversees $20-billion worth of real estate across North America, also stressed that all parties – developers, governments, investors – need to move past whining and pointing fingers. In September, she and Ms. Bailão were on another panel together and they were astonished by the bickering. “We’re not going to get anything done if everyone just sits here and complains about the problems,” she said.

As proof of what can get done when everyone works together and creative solutions are offered, Ms. Bailão pointed to the Prime Minister’s announcement early Monday to build up to 3,000 mixed-income and affordable housing units in Ottawa. To get it done, the city of Ottawa will reduce or waive development charges, permit fees and property taxes on 2,000 mixed-income and affordable housing units on federal lands, and Build Canada Homes will offer financing for 1,000 affordable housing units from the city’s slate of housing projects.

Too often, she said, municipalities come to Build Canada Homes and simply want money. Ottawa, meanwhile, “came to the table, not only with a pipeline, but something to offer.”