Clarity needed on transition from the HST to PST

Building industry has questions, but it could be folly for consumers to wait to buy new home
By Peter Simpson, Special to The Sun 

If you think British Columbians, in general, are fed up to the teeth with the HST debacle, many members of the residential construction industry are biting through their lips to keep from screaming.
I mean, enough already; when is this stomach-churning, roller-coaster ride going to stop?

First, the provincial government said it would be implementing the HST, when prior to the election it said it would not. Then, despite considerable angst from consumers, the HST was implemented. Things settled down for a while, then talk of a referendum fanned the embers. The referendum was held, the result announced, and we are again mired in uncertainty as transition back to GST/PST is underway.

A transition time frame of 18 months has been announced. During that period, British Columbians will likely still fix a leaky roof, get haircuts, purchase electronic gizmos and dine out, but will they sit on their wallets instead of buying a new home or starting a major home renovation?

No one knows what the transition rules will look like, not even, it seems, our elected officials. A long-serving Liberal MLA called me a couple of weeks after the referendum result was announced. He said he is fielding many calls from his builder constituents who express concern they will not be able to sell any homes during the next year or so, and did I have any details I could share with him. I told him I am just as much in the dark on this issue as everyone else.

Hopefully, provincial Finance Minister Kevin Falcon sees the light and is pressing the feds to quickly draft the transition rules. He has indicated he will work closely with the business community to provide input into those rules, a welcome promise.

It is apparent that very little spadework was done on the transition file prior to the referendum result, so it’s time to pick up the pace. The HST was rolled out in lightning speed, so why can’t it be rolled back just as expeditiously?

Home builders and renovators across the province are sounding the alarm. Before I get into their concerns, here are some points of clarification that might provide comfort to some homebuyers. Resale homes are not subject to HST, but buyers will pay HST on fees from realtors, lawyers, etc.

If you are considering a new home or condo priced under $525,000 there is some impact, but you will not be paying much more for your home under HST than you will under the GST/PST system. Check with your builder or realtor to determine how, if at all, your home purchase is impacted. Some builders are offering incentives.

By the way, it could be folly to wait to buy a new home priced above the $525,000 threshold in order to save the HST. During the next 18 months, it is possible that interest rates, municipal development charges, and land, labour and building material costs could rise, pushing up home prices and offsetting a big chunk of tax savings gained by a return to the GST/PST system. And homes in prime locations will undoubtedly be sold by the time you get around to making a decision.

Although there is no HST on resale homes, new-home construction creates thousands of jobs, and this is where uncertainty over the HST transition rules has a profound impact. I am hearing that some folks considering homes priced above $525,000 are indeed delaying their purchase decisions, not just here in the Vancouver region, but throughout B.C. Homeowners, too, are putting off major renovations until more clarity is provided on the HST transition rules.

Consumer resistance could have a calamitous impact on the economy. For example, in Metro Vancouver, the 16,300 housing starts and $4.4 billion in home renovation expected this year will create nearly 70,000 jobs, generating about $3.5 billion in wages. Even higher numbers are expected in 2012.

As I wrote in an another column recently, a firing-on-all-cylinders residential construction industry is essential to our region’s economic growth and durable prosperity. A member of your family, a neighbour or friend probably earns a living in an industry sector that has a direct or indirect link to residential construction. If the tools are idle, many livelihoods will be affected.

In response to a province-wide survey, the Canadian Home Builders’ Association of B.C. (CHBA-BC) received scores of emails and letters from residential contractors worried about their companies, their staff and the many sub-trades and suppliers they put to work on their projects. The correspondence has been sent to Premier Christy Clark, Housing Minister Rich Coleman, Falcon and other ministers.

Accompanying the correspondence was this message from CHBA-BC president Vicki Gerrits, a small-volume home builder from Summerland: “You will read first-hand testimonials from small-business owners like me who are contributors to the province’s economy. Their correspondence will demonstrate their anxiety. Be bold, we need immediate meaningful action.”

CHBA-BC is requesting two actions: One, remove the PST portion of the HST on new homes, including second homes. Two, introduce a two-per-cent tax rebate on all renovations completed by renovators registered for HST, and four per cent on “green” carbon-footprint-reducing renovations.

I would add one. Reduce the property transfer tax on new homes to a level that neutralizes the current impact of HST. The province doesn’t have to wait for the feds’ transition rules to do this.

The following are excerpts from correspondence from worried contractors around the province:
● “I have a $50-million project going into pre-sales. Purchasers will not want to pay the HST. Should I delay the project and lay everyone off, or can Falcon announce the transition rules now?”
● “The uncertainty of the HST has devastated new home sales. I have two grown daughters who are fed up. One has moved to Alberta, the other one is moving this month. If the HST doesn’t get dealt with soon, there will be huge repercussions in the workplace.”
● “The province needs to bring in some form of rebate immediately and have it run until the PST takes effect, or there will be a severe slowdown in construction that could trigger a provincial recession.”
● “I am a builder who deals with more than 150 trades and suppliers on a regular basis. They rely on me for their employment. Without houses being built, many workers will lose their jobs.”
● “It has been a difficult couple of years for my company and my workers. The introduction of the HST has been a major factor, and now the rescinding of the HST has made things worse.”
● “We have had to lay off 60 employees in the past year and a half, and we are looking at laying off considerably more. Our company does 80 per cent new homes and 20 per cent home renovation.”

And so it goes, more than 60 pages of comments, anxiety the common thread.

On Thursday, Premier Clark announced her job-creation initiative – Canada Starts Here: The BC Jobs Plan. The premier needs to be mindful of the possibility that while she announces employment opportunities at the front door, construction-related workers could be disappearing out the back door.

She might need a new plan.

Peter Simpson is the president and chief executive officer of the Greater Vancouver Home Builders’ Association. Email peter@gvhba.org.
Article Link: http://www.vancouversun.com/business/Clarity+needed+transition+from/5453655/story.html

Courtesy of: Jeff Fraser | Mortgage Specialist, RBC | Royal Bank of Canada | T. 604-340-1809 | F. 604-602-0094 | E. Jeff.fraser@rbc.com

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