GST cut for new homebuyers could mean price hikes, bank warns
OTTAWA — The federal government's plan to eliminate the GST on first-time homebuyers' purchases of most new homes may actually lead to higher prices, a new report says.
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The report, by Desjardins Economics' Kari Norman, found that the federal policy to eliminate or reduce the GST on newly built homes priced up to $1.5 million for first-time homebuyers may cut upfront costs. But without a corresponding increase in the supply of homes to quell the housing crisis, the bank economists say, the federal policy may just boost demand and the home prices that the government intends to help suppress.
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The report also warns that the rebate could distort the market because homebuilders might anticipate homebuyers' increased purchasing power and simply raise sticker prices on new homes. Another possible problem is that the rebate might encourage first-time buyers to rush purchases in anticipation of rising prices, Desjardins says, leading to a short-term sales spike that would likely be followed by a slump.
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With the federal Parliamentary Budget Officer set to release an assessment Wednesday on the fiscal costs of the GST rebate on first-time homebuyers, Desjardins voiced concern that the policy will also mean that the benefits to buyers may be partly offset if the increased demand for homes leads to an increase in the costs of labour and building supplies.
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Instead, Desjardins suggests that Ottawa mitigate the risk of demand outpacing supply by bundling the GST rebate with policies that would accelerate the pace of home building. The report says those other policies include streamlining permitting processes, investing in innovative practices, addressing skilled labour shortages and improving zoning flexibility.
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Paul Smetanin, the president of the Canadian Centre for Economic Analysis, said he agrees with Desjardins' concern about the GST rebate because the policy will increase demand and prices and give developers the chance to simply increase profits.
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Toronto Sun
13 hours ago
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Unfortunately, like many federal housing policies, the proposal to exempt first-time new home buyers from the GST for homes under $1 million, and provide a declining exemption to homes for $1.5 million, does not recognize the realities of the Greater Toronto Area (GTA) and will have little impact on housing supply and affordability in this region. Reviews and recommendations are unbiased and products are independently selected. Postmedia may earn an affiliate commission from purchases made through links on this page. New federal GST/HST legislation must meet the needs of the GTA housing market This advertisement has not loaded yet, but your article continues below. THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY Subscribe now to read the latest news in your city and across Canada. Unlimited online access to articles from across Canada with one account. Get exclusive access to the Toronto Sun ePaper, an electronic replica of the print edition that you can share, download and comment on. Enjoy insights and behind-the-scenes analysis from our award-winning journalists. Support local journalists and the next generation of journalists. Daily puzzles including the New York Times Crossword. SUBSCRIBE TO UNLOCK MORE ARTICLES Subscribe now to read the latest news in your city and across Canada. Unlimited online access to articles from across Canada with one account. Get exclusive access to the Toronto Sun ePaper, an electronic replica of the print edition that you can share, download and comment on. Enjoy insights and behind-the-scenes analysis from our award-winning journalists. Support local journalists and the next generation of journalists. Daily puzzles including the New York Times Crossword. REGISTER / SIGN IN TO UNLOCK MORE ARTICLES Create an account or sign in to continue with your reading experience. Access articles from across Canada with one account. Share your thoughts and join the conversation in the comments. Enjoy additional articles per month. Get email updates from your favourite authors. THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK. Create an account or sign in to continue with your reading experience. Access articles from across Canada with one account Share your thoughts and join the conversation in the comments Enjoy additional articles per month Get email updates from your favourite authors Don't have an account? Create Account A few weeks ago, the federal government tabled its proposed GST/HST reduction measures on new homes. Unfortunately, like many federal housing policies, the proposal to exempt first-time new home buyers from the GST for homes under $1 million and provide a declining exemption to homes for $1.5 million does not recognize the realities of the Greater Toronto Area (GTA) and will have little impact on housing supply and affordability in this region. 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Now, with properly values effectively excluding anyone in the GTA from a GST rebate, and such a narrow federal proposal, effectively 90 to 95 per cent of homes are subject to the GST and receive zero rebate. This means less incentive to move up in new housing as families grow and expand, or down in new housing as seniors age and look to downsize, limiting mobility within existing housing stock and impeding the addition of appropriately sized new supply. As the federal government continues to benefit by collecting billions in excess GST/HST on new homes, the time has come for the federal government's actions to match its rhetoric. A viable solution for Canada must include the GTA and Lower Mainland BC and that means making any GST relief apply to all new homes (including substantially renovated homes — i.e., renewing existing housing stock by replacing greater than 90 per cent of the building) and having dollar thresholds that meet the needs of the region. Dave Wilkes is President and CEO of the Building Industry and Land Development Association (BILD), the voice of the home building, land development and professional renovation industry in the GTA. For the latest industry news and new home data, visit Toronto Maple Leafs Sunshine Girls Toronto & GTA Columnists World
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