Canadian homebuilders remain cautiously optimistic about the year ahead as they put 2009 behind them and shovels in the ground for new developments across the country in 2010. That’s the national view at home in Durham Region from Victor Fiume, General Manager of Durham Custom Homes, who assumed the presidency of the Canadian Home Builders Association (CHBA) at a ceremony in Victoria early in March 2010. Assuming leadership of the Canadian Home Builders Association, while prestigious, is just the latest honour bestowed on the affable Mr. Fiume and Durham Custom Homes. Earlier this year, he was given an EnergQuality Hall of Fame Award for his advocacy of sustainable building practices and he’s a past-president of the Durham Region Home Builders Association and the Ontario Home Builders Association.
Mr. Fiume expects 2010 to be a transition year for homebuilders nationally—with a projected 160,000 housing starts, slightly below the 175,000 averaged annually—as economic conditions improve. But the industry faces some potential headwinds, which the CHBA hopes to address to maintain housing affordability and spur growth.
The Canadian Home Builders’ Association (CHBA) called on the federal government to lead efforts that would “lay the groundwork for new, more effective approaches to the full range of tax and regulatory issues that challenge housing affordability and choice”.
Mr. Fiume said that “the strong performance of the housing sector through the recession has been tied primarily to two factors: abnormally low interest rates and price discounting by builders on their projects and inventory”. “Neither of these factors is sustainable”, noted Mr. Fiume.
“When we talk about housing affordability”, Mr. Fiume continued, “we must focus on fundamentals – on what a home actually costs – not on conditions that are artificial or temporary.” However, Mr. Fiume noted that governments have yet to “get it” in terms of the costs they impose on new home buyers.
“Across Canada, government-imposed costs on a new home range as high 18%, and continue to rise, as municipalities increase their taxes, fees, charges and levies. The introduction of HST in Ontario and B.C. will add to this, for homes priced above the rebate threshold.
“As a result, I expect that we will see an increasing number of communities where government-imposed costs are more than 20% of the total price of a new home”, Mr. Fiume noted.
As one step in addressing the impact of government-imposed costs on housing affordability, the CHBA has called on the federal government to take action to restore fairness in how GST is applied to new homes and home renovations.
Mr. Fiume restated the CHBA’s recommendation that the federal government, “adopt the single threshold/full rebate approach for the GST New Housing Rebate across Canada, and a commit to review and adjust the threshold level over time”, and that it “introduce a permanent 2.5% GST Home Renovation Tax Rebate available to all homeowners”.
Mr. Fiume also pointed out that the financial crisis and recession have left the residential construction industry, and Canada, with many challenges, including: sustaining economic recovery as governments wind down their stimulus programs, confronting the impact of more normal interest rates, and the growing need for governments to rein in budgetary deficits.
“These are elements of the ‘new normal’ that our industry, governments, and consumers must adjust to. To understand fully what the ‘new normal’ means, we have to focus on the singular importance of housing affordability”, he said.
Mr. Fiume called on the Minister responsible for Canada Mortgage and Housing Corporation, the Honourable Diane Finley, to initiate a “high level intergovernmental body, or forum” that would, “address the big picture” in relation to housing, and “help to ensure that federal and provincial policy is better integrated and better informed”.
Mr. Fiume was clear that this intergovernmental forum would need to recognize that “the assumption that public costs can be underwritten by dramatically increasing real estate values in perpetuity has been put where it belongs – in the economic trash heap.”
Mr. Fiume noted that a permanent 2.5 per cent GST Home Renovation Tax Rebate would also address the massive problem in Canada of billions of dollars in tax revenues lost
He said one of the significant lessons from the “stunning success” of the Home Renovation Tax Credit is that homeowners will respond to a modest tax break by getting written receipts for renovations. A permanent rebate “will boost government revenues at the expense of tax cheaters and illegal underground cash operators.”
He said the Department of Finance estimates as many as 4.6 million households took advantage of the tax credit. This is a “remarkable response” that proves homeowners will pay attention when government acts to reduce the cost of maintaining and improving their homes.
Turning to the environment, Mr. Fiume thanked the federal government for supporting the industry’s leadership in building homes that are substantially above government-mandated requirements, a system that supports innovation and allows for the incorporation of 0-5pnew technologies as they mature.
He said there is a need to reach out to other levels of government. “Without better research and information, particularly in terms of the integrated ‘big picture’, our progress on the environment front risks being unfocused, ineffective and undermined by governments working at cross-purposes. Unfortunately this is already happening.” He proposed a second new intergovernmental body to focus on technical and analytical support, working with the industry, to help build greener communities and cities. He suggested creating such a capacity within the National Research Council (NRC), given its current mandate and expertise.
Background Note on the GST New Housing Rebate
The GST New Housing Rebate is available in full only to purchasers new homes priced up to $350,000. It is phased out progressively for new homes priced between $350,000 and $450,000. New homes priced at $450,000 or more are ineligible for any portion of the rebate. In 1991 the
government made a commitment to revise the thresholds in line with market prices to protect housing affordability over time. The Technical Paper on the GST says: “The government will review these thresholds at least every two years and adjust them as necessary to ensure that they adequately reflect changes in economic conditions and housing markets.” The rebates have never been adjusted.
Upon implementation of the Harmonized Sales Tax (HST) on July 1, 2010, British Columbia has set a threshold of $525,000 – purchasers of new homes up to that amount will be eligible for a 71.43 per cent rebate of the provincial portion of the HST paid on a new home to a maximum of $26,250. Homes above $525,000 will receive a flat rebate of $26,250.
In Ontario, the rebate threshold is $400,000. Buyers of new homes will be able to claim a rebate of 75 per cent of the provincial portion of the HST paid on the purchase of a new home to a maximum of $24,000. Homes above $400,000 will receive a flat rebate of $24,000.