The

October 21, 2011

Your Window to REBGV Government Relations

OPEN House
Volume 6 Number 10

Talking to the provincial government about taxes

ach year, the BC Governments Select Standing Committee on Finance and Government Services travels around the province seeking input about spending and taxation priorities for the upcoming provincial budget.

The Committee reviews and summarizes this information and reports its findings to the Finance Minister, who uses it as input in his budget deliberations. For 2012, the Real Estate Board put together a submission that communicates what REALTORS would like to see included in the revamped PST and also in the HST/PST switchover transitional rules. On October 14, representatives of the Board had the opportunity to make recommendations. This is our written submission:

HOME ECONOMICS: A TAXING IMBALANCE

Extraordinary taxes for everyday families
Throughout Metro Vancouver, REALTORS are hearing the same story. The level of taxation on housing is unaffordable, unsustainable and harmful to our economy. Prospective new home buyers are reluctantly sitting on the sidelines, waiting to see what the Harmonized Sales Tax (HST) transitional rules will bring. Saving 7% on the cost of a new home is significant. Home sellers wanting to spruce up their home for sale and owners wanting to renovate are sitting on the sidelines hoping to save the HST on goods and services such as energy audits, inspections and repairs. Home buyers wanting to trade up or down face an additional Property Transfer Tax (PTT) that adds more than $10,000 to a home priced at $627,994, the benchmark price of a Lower Mainland home.1

Sales decline, government revenue stalls

What are the consequences of high taxation?

When home buyers dont buy, housing starts decline. There are fewer jobs in construction, and fewer jobs in all areas associated with home buying and selling, from carpenters and landscapers to home inspectors and surveyors. This slowdown spreads across the economy, reducing government revenues.

How are taxes affecting this market?

Provincial tax policy is making it increasingly difficult for ordinary, middle-class families to buy a home anywhere in the Lower Mainland. For the past decade, real estate has been one of the top performing sectors in Metro Vancouver, reliable and reasonably solid. But for 2011 the market is showing clear signs of instability. Buyers are already concerned about jobs and the weak economy. The growing tax burden and the reversal of the HST have introduced a significant element of uncertainty into the housing market, causing development to stall and buyers to hold back.2,3 New home sales are forecast to decline 26% this year compared to 2010.4

Why are home sales important to our economy?

Real estate activity is a key economic driver, generating much needed jobs and spin-offs as a major component of our GDP. This is
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Home Economics: A Taxing Imbalance continued

being threatened by unsustainable taxes which, in turn, threaten BCs economic recovery.

Affordability problems are widespread

What do taxes cost buyers in traditional family neighbourhoods?
Community Housing Type
Detached Attached Apartment Coquitlam Detached Attached Apartment Maple Ridge Detached Attached4 Apartment4 North Vancouver Detached Attached Apartment Port Coquitlam Detached Attached Apartment Port Moody Detached Attached Apartment Richmond Detached Attached Apartment Squamish Vancouver (Eastside) Detached Detached

GDP by selected industries ($ millions)

Forestry High Tech Housing (construction, real estate) Mining Oil and Gas Tourism
Source: BC Stats, 2010. Tourism and High Tech, 2009.5

$7,578 $9,345 $10,212 $1,060 $3,517 $6,309

Burnaby

Benchmark Price1
$949,389 501,257 370,244 725,525 473,694 289,924 452,516 317,468 244,455 973,469 617,579 377,261 561,750 407,505 254,705 803,474 402,565 312,337 1,077,967 543,914 355,992 473,104 841,509

PTT

Total Cost

Annual Income Required2

$183,000 96,441 71,136 139,760 91,117 55,621 87,027 60,942 46,839 187,651 118,910 72,491 108,126 78,333 48,819 154,816 77,379 59,951 207,836 104,681 68,383 91,003 162,163

Average Family Income3

$74,413

$16,988 8,025 5,405 12,551 7,474 3,798 7,050 4,349 2,889 17,469 10,352 5,545 9,235 6,150 3,094 14,069 6,051 4,247 19,559 8,878 5,120 7,462 14,830

$966,377 509,282 375,649 738,036 481,168 293,722 459,566 321,817 247,344 990,938 627,931 382,806 570,985 413,655 257,799 817,543 408,616 316,584 1,097,526 552,792 361,112 480,566 856,339

82,934

What does real estate activity contribute to our economy?

83,185

Home sales and construction are good for the economy, generating significant economic activity, jobs and government revenue. Every time an MLS home changes hands, the transaction generates $42,000 in economic spinoffs and 2.8 jobs. Every 100 MLS residential sales generate $660,000 in provincial taxes, $300,000 in federal taxes and $32,000 in municipal taxes.6 In 2010 in the Real Estate Board area, 30,595 sales generated $1.28 billion in economic activity and 8,567 jobs.7 The 16,300 housing starts and $4.4 billion in home renovations expected this year in Metro Vancouver will create 70,000 jobs and generate about $3.5 billion in wages.8

114,553 (District)

87,965

95,175

74,790

What about housing, construction and real estate jobs?

81,139 72,052 (Vancouver Kingsway riding)

The BC Jobs Plan identifies eight sectors as vital for growth: natural resources, forestry, mining, natural gas, agrifoods, knowledge based, transportation and international education. Missing is the housing, construction and real estate sector, which has proven to be the backbone of the provincial economy for the last decade. Many of the jobs of tomorrow will continue to be in this sector.

Attached Apartment

558,693 341,572

9,174 4,831

567,867 346,403

107,535 65,597

Home buying is good for our communities

1 Benchmark represents a typical property within each market. Resale and new homes combined, HST not included. September 2011 benchmark prices. 2 Currently 95% loan, 5% downpayment. Amortization period 25 years or 300 months. Interest rate of 4%. 3 2006 Census data (newest available). 4 Attached and Apartment properties are for Maple Ridge and Pitt Meadows combined.

Governments in Canada have supported home ownership in many ways and have recognized the benefits of home ownership through initiatives such as government-backed CMHC mortgage insurance and home renovation incentives. Overall, home ownership improves the quality of a familys life and the quality of a neighbourhood. Home owners move less often than renters, leading to improved neighbourhood stability, and owners taking better care of their property which reduces crime.9
Footnotes: 1 Real Estate Board of Greater Vancouver. Statistics Package, October 4, 2011. 2 Concert Properties announced September 26, 2011 that it would delay the preview opening of the Era development because of ``uncertainty regarding the reversal of the HST. ``Preview Opening Delayed at Era in Victoria, Media Release, September 26, 2011. 3 Peter Simpson, ``HST angst stifling construction industry: Will British Columbians sit on their wallets for the next 18 months? Its anyones guess, Vancouver Sun, September 26, 2011. 4 Central 1 Credit Union, ``B.C. Housing Forecast 2011-2013, Economic Analysis of British Columbia, September 2011. 5 Calculations by Central 1 Credit Union. 6 BC Real Estate Association, Multiple Listing Service Residential Sales (Spin-offs), September 2, 2008. 7 Real Estate Board of Greater Vancouver. 8 Peter Simpson, ``Clarity needed on transition from HST, Vancouver Sun, September 24, 2011. 9 Canada Mortgage and Housing Corporation, ``Housing and the Economy, Canadian Housing Observer, 2010.

Recommendations
1. Consultation a. Conduct a major public consultation on the future of the PST. b. Include a representative from the Real Estate Board of Greater Vancouver on the new Jobs and Investment Board. 2. HST/PST Transitional Rules a. Immediately remove the provincial portion of the HST on new homes and the provincial portion of the HST on goods and services associated with home buying and ownership including renovations completed by renovators registered for the HST. b. As soon as possible, provide transitional rules so that home buyers of presales have more certainty. c. Move up the date when the HST/PST changeover occurs, preferably to the beginning of the calendar year, not mid-year, to facilitate ease of business transition and budgeting. 3. PST Implement input tax credits on the PST. 4. PTT a. Increase the 1% PTT threshold to $525,000 from $200,000 in expensive markets. b. Annually index the 1% PTT threshold of $525,000.

The Open House

October 21, 2011