‘Sharply higher taxes’ on new-home purchase, renovations inevitable, builders’ study says
Peter Simpson
Sun
The older I get the more concerned I am about the home ownership prospects of younger people.
My vexation over the proposed harmonization of the federal and provincial sales taxes contributed to this furrowed-brow disquietude, but a recent move to new office space really got me thinking.
In the course of packing I took down from my office wall a framed poster, from the 1980s. On the poster is a photo accompanied by a simple question. The photo shows two young children; the reads, ”Where will your childrenlive?”
The poster was designed to focus attention on the need for government to mitigate the growing tax burden on home buyers, as well as counter the not-in-my-backyard mindset of folks who resist any attempt to provide affordable-homeownership opportunities in their neighbourhoods.
A few years after that thought-provoking message was introduced, the federal government rolled out a brand new tax — the goods and services tax, the GST.
Today, buyers of a $450,000 new home pay $22,500 in GST, regardless if they are cash-strapped first-timers or seniors.
Those two poster kids today are in their mid-20s, perhaps one or both considering taking that first step onto the property ladder. Maybe they are married with children of their own. Who knows.
Which brings me to fresh evidence that the application of HST on new homes is also wrong-headed.
The Canadian Home Builders’ Association of B.C. asked Toronto-based Altus Group Economic Consulting to provide a detailed analysis of the HST’s impacts on B.C.’s new-homes sector.
The independent research firm also examined the impact on home renovation, but I will get to that in a future column. Suffice it to say, HST will fuel an already burgeoning underground economy.
Peter Norman, a noted economist and Altus principal, said the main finding of his report is that HST will not be tax neutral. We have, time and time again, ever since the HST announcement was made in mid-July, asked the premier and finance minister to ensure HST is tax neutral on new homes. In other words, buyers of new homes should not pay any more tax under HST than they currently do.
“Harmonization will introduce sharply higher taxes on new housing and renovation investment, which will have far-reaching negative economic and equity implications for B.C.,” said Norman.
Following are the main Altus bullets on HST’s impact on new housing investment:
– Harmonization will reduce new housing demand and thus the volume of new housing activity, which will be deleterious to economic activity and employment growth in B.C.
– Some 57 per cent of owners of newly built homes in B.C. own homes valued at more than $400,000 (the HST exemption limit). Therefore, the vast majority of potential new-home buyers will be subject to sharp tax increases once the new tax is implemented.
– B.C. has a wide housing-price distribution, with large variations in median price by area within the province. The sharp tax increases on homes priced above $400,000 will introduce significant regional disparities. Generally, denser areas like Vancouver will shoulder the majority of the new tax burden. This new tax will effectively be a tax on density – running contrary to provincial efforts to promote more compact patterns of development.
– The median house price in B.C. is $437,575. A significant proportion of new-home buyers in the province will not qualify for a full rebate under the proposed HST.
– In B.C., about 60 per cent of owners of newly built homes valued at more than $400,000 have total household incomes below $100,000. These households can be considered middle class. The new HST burden will be disproportionately borne by the middle class.
– The additional tax on new homes through the proposed HST will further stress middle-income, middle-class families who have already been battered by the rising cost of living and effects of the economic slowdown.
Based on the 2006 census findings for the number of newly built, owner-occupied homes in B.C. by value, Norman believes the introduction of HST would generate some $165 million in additional revenues for the provincial government from new homes alone (based on 2009 dollar values).
“This number is expected to increase dramatically to $298 million in 2019, due to the effects of normal housing-price appreciation. In the absence of a formula to index the threshold values for the HST rebates, the tax burden on B.C.’s middle class will rise dramatically over time,” said Norman.
The HST exemption threshold should be raised to at least $600,000 from $400,000 to reflect the high cost of housing in parts of B.C. relative to other jurisdictions. And while the number crunchers are at it, they might want to take a look at removing from new-home sales the property transfer tax.
So, where will your children live?
Peter Simpson is the chief executive officer of the Greater Vancouver Home Builders’ Association.
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