Download Canadian Home Builders` Association 2016 Pre

Canadian Home Builders’ Association
2016 Pre-Budget Submission
HIGHLIGHTS
Homeownership is the financial foundation for 70% of Canadian families, representing nearly $4 trillion in
private assets. At the same time, the residential construction industry is Canada’s number one job creator
(900,000 jobs), pays the most in wages (over $50B), and tops the list of sectors in terms of its economic
impacts (over $125B). It also contributes $35B in annual building product exports.
Growing and strengthening Canada’s middle class is a key goal of this government; recognizing that the
middle class is the heart of the Canadian economy and when the middle class does well, the economy
does well. Home ownership is one essential way to grow and strengthen the middle class.
The affordability of homes, whether for purchase or rent, affects all Canadians. It influences where they live
and work, and shapes the economic fortunes of communities from coast to coast to coast. As the next
federal budget is developed, it will be important to carefully consider the current data concerning conditions
in the housing system, focusing particularly on affordability for first-time homebuyers; jobs and innovation;
and the role housing and renovation can play in addressing climate change. Specifically, the Canadian
Home Builders’ Association (CHBA) recommends the following budget measures:
•
Protect access and keep homeownership within reach of the middle class and those working
hard to join it—particularly young Canadians and new immigrants to Canada—by removing barriers to
affordability by: adjusting mortgage rules to support well-qualified first-time buyers; eliminating federal
tax on tax; supporting municipal capital funding requirements for transit and infrastructure; and, fixing
tax regimes that discourage rental housing development and encourage the underground economy.
•
Support jobs and innovation in an in-demand industry by expanding federal training support to all
those pursuing a career as a skilled worker; focus federal support for housing research on cost
reduction; and, harmonize codes, standards, and trades qualifications to reduce unnecessary costs
and support industry productivity.
•
Protect the environment and grow the economy through a refundable and permanent tax credit to
encourage the energy efficient retrofitting of existing homes and support the availability of the
EnerGuide Rating System for home energy performance labeling across Canada.
CONTEXT
According to TD Economics, housing activity has directly accounted for more than a quarter of the increase
in economic output since 2001, and about a fifth of output post-2008. Wealth impacts of home value gains
have also been significant for GDP health - just over 21% of consumer spending growth is attributable to
the benefits of positive housing wealth effects. Housing has added as much as 1.3 percentage points to
real GDP growth in the post-crisis period. It is important to note that this is a strength, not a risk, in the
Canadian economy, as housing activity has remained strong while most other economic sectors have
declined. When other sectors of the economy return to more normal levels, the proportional contribution
from housing will decrease to long-term levels.
Homeownership serves as the financial foundation for most families and is typically their largest financial
asset. Moreover, homeownership has always been a fundamental aspiration of Canadians, and it continues
to be for younger generations – over 80% of Millennials still want to own their own home.
A STRUCTURAL CHALLENGE WITH HOUSING AFFORDABILITY
Across Canada, homeownership has become a challenge, particularly for the Millennial generation and
recent immigrants – groups working hard to join the middle-class. The long-term financial and economic
risks associated with decreased affordability for first-time homebuyers is rightly gaining attention among
economists and in the media. Limiting the ability of younger middle-class Canadians to become
homeowners will clearly have wider economic impacts now and into the future and is an emerging public
policy issue.
Since 2001, Canada has experienced a “baby boomlet” with up to 60,000 additional children being born
annually. Immigration by families adds to the need for more family-oriented housing that is affordable for
working Canadians in both the rental and ownership stock. The bulk of this housing will inevitably come
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from the private market, which supplies accommodation to 94 percent of Canadian households, hence
private market solutions are required.
The two housing markets that remain strong are Toronto and Vancouver, though speculation that this is
due to dramatic overvaluation is misleading. Continuing price momentum in these centres is directly linked
to their prosperous, diverse economies and job growth, and the resultant increasing population and
demand for housing, coupled with a lack of housing supply. These and many other urban centres have
significant constraints on the supply of housing, especially family-friendly dwellings. And when over 90% of
new homebuyers want low-rise housing, but half of what is being built is high-rise housing, simple supply
and demand forces drive up the prices of low-rise family-oriented housing in many markets.
The central factors affecting price increases are these supply-and-demand dynamics; ever-increasing
government-imposed costs on new development; and lags in vital infrastructure investment. For example,
according to Statistics Canada data, municipal taxes, levies and charges alone on new construction have
increased to $6.5 billion annually, at twice the rate of inflation since 2010.
STRONG HOUSING MARKET AND VALUATION
While media focuses on household debt, which is 1.64 times disposable income, it’s important to note that
household net worth is also at a record high of 7.68 times income. The overwhelming majority of Canadian
homeowners are in a strong financial position in terms of debt to assets. At the same time arrears rates are
very low compared to other markets (for example, about one-third of those in the U.S.).
RECOMMENDATIONS
Affordability for the Middle Class, Young Canadians and New Immigrants to Canada
•
Protect affordability for first-time homebuyers and families by increasing maximum mortgage
amortization periods for well-qualified first-time homebuyers to 30 years to prevent middle-class
young people, families and immigrants from being “locked out” of homeownership. This unsubsidized
means of assisting some 80,000 additional households should be restricted to mortgages under
$500,000.
Current rules requiring qualification for a 5-year fixed mortgage are sufficient to safeguard against debt
over-extension. First-time homebuyers are statistically no more risky than any other type of
homebuyer, and permitting them to enter the market where they do—at the lower end—will not impact
overall house price growth. Further, our discussions with mortgage insurers suggest they are the least
risky cohort of all.
•
Improve affordability for new homebuyers and renters by removing GST charged on municipal taxes
on new residential development – this is currently a “tax on taxes” hidden within the costs of land
that stem from municipal and regional taxes (disguised with names like fees, levies and charges),
which have risen exponentially in recent years.
•
Provide federal transit funding of up to 50% of capital costs of regional systems, rather than
requiring a 1/3-1/3-1/3 split among three levels of government. This federal investment will help to
avoid municipalities having to seek their 33% share from development taxes on new homes, further
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undermining affordability. Municipalities already cover a high proportion of the operating costs of
transit, recognizing its importance as a social service to the elderly, lower-income people, those with
disabilities and others, as well as a means of commuting to work for millions.
•
•
Reform the federal tax regime related to purpose-built rental properties (including infill secondary
suites) to eliminate anomalies and encourage affordable market-based rental units. Most of these
revisions to the tax regime are expected to have modest or no net impact on federal revenues,
especially in comparison with alternatives. They essentially “level the playing field” between rental
housing and other similar investments, including retail and commercial development. In one case –
accessory suites – federal tax policies are running directly counter to provincial and municipal planning
and development policies. The proposed measures are:
•
Support increasing the new residential rental property rebate on the GST to 100 percent,
eliminating all GST on new capital investments in affordable rental housing”. We propose that
“affordable rental housing” be eligible as defined for the current GST rebate, except without a
withdrawal provision. In brief, “affordable rental housing” should mean units costing $450,000 or
less to build. We also recommend that, as a default position, land values for new rental property
developments should be set at the cost of purchase, rather than at some alternative “market value”
as currently determined by CRA. In most markets, there are simply no comparable sales upon
which to base such appraisals fairly.
•
In conjunction with reform of GST treatment for affordable rental housing, remove the
discriminatory distinction among those who can occupy accessory suites detached from main
dwellings, e.g. laneway houses. GST rules currently favour only relatives of the owner and
exclude consideration of unrelated renters. Encouraging such infill housing is a major initiative
supported by leading municipalities across Canada. It is effectively being undermined by current
federal tax policy. This change also increases affordability for homeowners involved, who are
otherwise pushed into underground activity to avoid an inequitable tax.
•
As the Federation of Canadian Municipalities proposes, establish a charitable tax credit or rebate
for existing private rental property owners who sell to non-profit corporations to mitigate the
impacts of recaptured depreciation upon sale in this instance.
Provide a permanent refundable and targeted home renovation tax credit for first-time homebuyers
to undertake renovations, thus supporting affordability, and through requiring receipts fight the
underground economy.
Jobs and Innovation
•
Given the 118,000 retirement forthcoming in the residential construction sector over the next decade,
federal training support should go beyond Red Seal trades and be available to all those pursuing a
career as skilled workers. In addition, ensure training programs and the immigration system are
employer-driven, leading directly to jobs.
•
Encourage innovation in Canada’s $125 billion domestic residential construction industry, and in our
$35 billion annual building product exports, by directing federal research and technical support to focus
on new technology and practices, including codes and standards development, focusing on
affordability through better-built houses that cost the same or less.
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•
•
Increase efficiencies and productivity, and reduce costs in the housing industry by harmonizing codes,
standards, trades and qualifications
.
Continue to support the development of labour market information as it relates directly to the residential
construction industry at the local level. (Given the sizes and differences between the residential and
non-residential construction labour forces, it is important to separate the two in labour market analysis.)
Climate Change
•
As part of Canada’s climate change strategy, re-introduce an Energy Retrofit Homes Program as a
permanent, refundable home renovation tax credit that promotes energy-efficient retrofits of
Canada’s existing homes, and requires the use of Canada’s unique EnerGuide Rating System to
qualify for this tax credit. This approach will also support fighting the underground economy by
requiring receipts for all work.
While the residential sector is not a major source of GHG emissions in Canada, responsible for just
over 6% of total emissions, climate change action in this area, particularly through renovation, can
engage Canadians where it is most meaningful to them – in their homes, while also improving the
value of those assets.
CHBA’s research shows that a dollar invested in energy efficiency improvements in the average
Canadian home will yield four to seven times more GHG reductions that the same investment in a new
home. Improving the energy performance of existing homes offers the greatest and most cost-effective
benefits to homeowners, utilities, governments and the environment.
•
Related to the above, ensure the full deployment of Canada EnerGuide Rating System for home
energy performance labeling. Providing one standardized national system for rating and comparing the
energy performance of homes can have the same impact on consumer behavior and
purchase/investment decisions as the standardized nutrition label has had on food.
•
Ensure that federal investment in maintaining and improving Canada’s stock of social housing
includes measures that address energy and water-use efficiency for the long-term benefit of society,
social housing agencies, and residents.
•
Support efforts to introduce an ENERGY STAR program for multi-family dwellings to promote
innovation and voluntary actions to address climate change.
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