Builders working to reduce impact of HST

The controversial new HST rules have been causing quite a stir as their July 1, 2010 implementation date approaches, and nowhere is this more evident than in the realm of the biggest of big purchases, new home sales.

The good news for most Ontario homebuyers is that because of the way the tax is structured, there will be no significant increase in cost for new homes that are priced below $400,000.

"For anything that's under $400,000 it truly is revenue neutral from a buyer's standpoint," says Stephen Dupuis, President of the Building Industry and Land Development Association. "That speaks to the first two thirds of the marketplace right there, particularly first time buyers and condo buyers."

Unlike most consumer products, new home sales have been subject to HST since June 18, 2009. This is a surprise to some buyers who were concerned about what the effect would be following July 1st.

"People think they can beat the HST by buying before July 1st, and that's true in almost every case except real estate and housing because of that special rule that the government passed," says Dupuis. "Anything that's being sold today is actually already HST included because it's going to close after July 1st and the government transition rule goes all the way back to last June 18th. The HST has been priced in and it's business as usual."

Where HST becomes much more of an issue for home buyers and home builders alike is in the $400,000+ range. While these more expensive properties will be affected, Dupuis is pleased with the provincial government's efforts to minimize the impact.

"When the budget first came out, on basically everything over $500,000 that rebate was just getting completely clawed back to zero," explains Dupuis. That would have meant a net tax increase of approximately $30,000 on a $500,000 home. The provincial government responded to the outcry around this issue and implemented a $24,000 rebate that is applicable regardless of the price of the home you buy, bringing the net tax increase on that $500,000 home down to a more manageable $6,000.

"Builders had already slashed costs just to keep the market rolling, so there was no place to hide a big tax increase like that. It's going straight through to the buyer on those more expensive homes," explains Dupuis. "You can't bury a big number like that, particularly in the circumstances in which the HST was introduced, not the strongest of markets."

The government of British Columbia seems to have done to most to minimize the impact of HST on new home buyers and builders, while other provinces are currently adhering to the federal system with no additional rebates.

"We have a very good deal in Ontario, our provincial government was appropriately sensitive to housing affordability and the economic impact on the industry," says Dupuis. "What BILD is advocating for is for the federal government to take the same approach as the Ontario government because the federal government does claw back the rebate and it completely disappears at $450,000."

When HST was first introduced there was some concern that this increased tax burden would drive buyers away from new homes and toward resale homes, but Dupuis notes that these fears have turned out to be unfounded.

"HST is already in effect and it doesn't seem to be slowing anybody down," he says. "What a builder has to do is look at the competitive environment out there, look at the local competition, take into account the tax credits they are going to get relative to the tax they have to charge and put a price tag on it. And the buyer has to decide if they see value there. Right now they seem to be seeing value."