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Calgary Herald

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. Article content 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. Article content Article content Article content 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. Article content Article content 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. Article content 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. Article content 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.