DUE FOR AN UPDATE

New Housing Rebate is in Dire Need of a Renovation

BY TED McINTYRE, WITH OHBA CHIEF EXECUTIVE OFFICER LUCA BUCCI

IN 2010, the Harmonized Sales Tax was implemented in Ontario, raising the tax on multiple goods and services from 5% (GST) to 13%. That included new homes. Thankfully, purchasers were able to recoup some of those taxes through the New Housing Rebate, which was instituted simultaneously, offering new-home buyers 36% of the GST tax portion up to a maximum of $6,300, and 75% of the provincial sales tax total up to $24,000 ($16,080 if you didn’t pay HST on the land the property sits upon).

The $24,000 cap on the PST portion effectively meant the rebate topped out once the home’s after-tax price got to $450,000. That seemed fair enough back in January 2010, when the average price of a GTA home was $409,000. But as of last month that average GTA residence stood at $1,108,606. That means that the Province is reaping nearly triple the income on every new-home sale than it did 13 years ago.

It’s high time we revisit the HST burden on new home sales, suggests OHBA Chief Executive Officer Luca Bucci, and to better align the New Housing Rebate with today’s market.

IS IT SAFE TO SAY THE NEW HOUSING REBATE IS A LITTLE OUTDATED?

LUCA BUCCI: “We have to accept that HST on new home sales is something that happened in the industry and that it’s best to manage it through the rebate. But the realities of the housing market have changed, while the policies have remained consistent. There needs to be a rethink around it. It’s something that we advocated for in our last provincial budget submission and that the government listened to. They said that they’re going to start a conversation with the federal government to look at the HST policy with respect to new homes. That was a big win for our organization and something we were very happy about.”

DO YOU THINK HST ON NEW HOMES IS SOMETHING MOST BUYERS ARE EVEN AWARE OF?

“I actually don’t, because it’s an embedded cost, like gas at the pump, and you lose sight of what you’re actually paying for and how much the taxes are. But I don’t think people are aware of the land transfer taxes that are embedded in the closing cost either. So I think there’s an opportunity here to bring about some consumer awareness as to how much tax they’re paying on new homes and, more important, where that money is going, considering how big a political issue that housing is right now.

“When it comes to financial issues concerning new home building, we want to work with the CHBA, be more active in federal government politics and put an advocacy strategy together with regard to a lot of the monetary issues—everything from the way banks finance new home construction projects to the way that interest rates play into decisions around mortgages, including HST with new homes.”

I TAKE IT YOU THINK THAT $24,000 REBATE THRESHOLD SHOULD BE INCREASED?

“I think it has to be proportional to the increase of the value of a new home since 2010. We will have to consult with our members over it, but if the market has gone up by a factor of 125%, that rebate increase should be in proportion. How we advocate for a change and what percentage makes the most sense is something we’re going to put in front of our members. We’ll have a hard time advocating for something beyond market value, though.

“Scrapping the provincial tax on new homes is not realistic. While it wasn’t through OHBA, there have been conversations with the Ontario government on taxes around new home construction and home purchases concerning the land transfer tax. The Province wasn’t going to budge on that, because the reality of the situation is that governments are revenue-restricted, so won’t willingly part with a significant source of revenue.”

WOULD TAXING RESALE HOMES BE AN OPTION TO HELP INCREASE THE HST REBATE?

“I don’t think so. Our focus is going to be on new home construction. The price of a resale home similarly impacts the market price of a new home, and embedding that tax in a resale home will have the same impact on market conditions. But we are getting to a very dangerous point where the cost of construction of a new home is becoming a little more than the market can bear, so trying to eliminate or offset some of those costs by focusing on things like HST on new homes is a step in the right direction.”

WITH AN ESTIMATED NEED OF 5.8 MILLION NEW HOMES IN CANADA BY 2030, YOU MUST SEE SUCH FEDERAL INCENTIVES FOR HOMEBUYERS AS VITAL?

“Making the price of a new home more affordable seems to be the focus of every level of government, and I think the entire association has benefitted from having a provincial government that understands a lot of the challenges we face at getting new homes into market and what that means for people who are looking to buy homes for the first time. The Ontario government has shown that it is willing to make tough decisions to address the housing issue. Their focus to date has been more process oriented with issues of land development and construction, as opposed to what provincial tools they have to address the financing and taxation of new homes. But now we’re at a point where they can look at the next frontier, which is the monetary aspect of the new home transaction.

“The reality, though, is that a lot of those financial tools rest within the jurisdiction of the federal government. So the best the Province can do is help the federal government understand the need to change policies to reflect the interest of the new-home buyer, because a lot of these policies reflect the market conditions and incomes of 20 to 30 years ago. Things like HST on a new home and the way we allow banks to both finance new-home construction projects and to mortgage the cost of a new home need to be rethought from the perspective of a first-time homebuyer. For example, I can go down to the U.S. and get a mortgage locked in at a specific interest rate for 30 years, which will allow me to have a significant amount of certainty in my cost of financing a new home on a month-to-month basis. Here, even if a mortgage is amortized over 30 years, that interest rate certainty only lasts maybe five years at the most.

“What we’re seeing now is the impact of that policy on a whole segment of first-time homebuyers, who are renewing a mortgage rate that is four to five times higher, and what they calculated as an affordable home payment four or five years ago is no longer affordable, and it’s going to severely affect their lives.”

ANY IDEA WHAT THE TIMETABLE LOOKS LIKE?

“It’s unclear. Now that we have gone through Bill 97 (the Helping Homebuyers, Protecting Tenants Act), we anticipate that there will be another piece of legislation in September. Even though the provincial government has limited legislative tools to deal with the financial situation, there is always a narrative component to a piece of legislation that we can help influence. I think that’s a natural progression for our advocacy efforts. With the help of our partners at the CHBA and some of our more active locals in Ontario, we can put forth a pretty compelling narrative to the federal government so that we can start seeing changes perhaps as early as the next federal government budget.”