Canada's Housing Bubble

October 17, 2011 Brian Morton Vancouver Sun

The selling price of new homes dropped by 0.4 per cent in Metro Vancouver in August, compared to July, and confusion over the HST may be a contributing factor - especially for pre-sales.

The monthly new housing price index released by Statistics Canada on Wednesday concluded that Vancouver experienced the most significant monthly price decline, month over month, as builders recorded lower negotiated selling prices and relied more on promotional pricing to generate sales.

Victoria experienced the next steepest price drop of 0.3 per cent.

Compared to August of last year, the selling price of new residential homes has also dropped in Metro Vancouver by 0.3 per cent, while rising 2.3 per cent nationally.

"We have projects that we're anticipating bringing to market next year, but we won't until there's clarity on the [HST] rules," Don Forsgren, president of Intracorp Developments, said in an interview.

"It's perplexing to consumers when they ask what taxes they'd pay and we say we don't know."

Forsgren, who is also president of the Urban Development Institute, which represents about 600 corporate developers in B.C., said that while a lack of clarity surrounding the HST hasn't been a big problem for his company so far, it is for others - especially in softer markets like the Okanagan and Vancouver Island - and will be for Intracorp when it brings three large condo towers onto the market in Metro Vancouver early next year.

Postponing those projects could affect up to 3,000 potential jobs, he added.

Forsgren said that while some developers are doing well by "factoring the potential taxes into the equation," questions remain about how the HST will affect buyers who purchase properties before the controversial tax is extinguished in March 2013, but don't move in until after that date.

"If you pre-bought the unit in March 2012, do you pay the tax if it's finished in 2014? That's not been answered."

Despite the confusion, Brian Roche, president of Panther Constructors Limited, isn't waiting for the government to act.

Roche said a selection of homes at his 28-unit property, The Flats on 219 Georgia East, which will be offered for presale in late October, will reflect pre-HST pricing so buyers will be clear about what they'll pay.

"If the HST is an issue, then we will make that part of the price. They'll only pay the GST.

"The tax isn't going to get any better than what it was when there was only GST on new housing, so we are in effect making it like the HST never happened."

However, Roche couldn't say how many of his condos would reflect pre-HST pricing, as he hasn't yet finalized the pricing and structure.

UDI executive-director Maureen Enser noted that the tax is less of a concern for purchasers of high-end homes or for homes under the $525,000 threshold for the controversial tax. "Some are saying there's little impact from the HST. Some are saying there's a significant impact.

"Although it won't impact housing [below] the $525,000 mark, there's a lot of confusion around homes more than that. Some people are wondering 'should I buy now or wait until the HST comes off?' " She said developers would like the government to not just provide clarity, but allow a rebate to offset the HST.

She said the UDI has met with government officials twice since the tax was rejected in a referendum in late August, but no solution has yet been forthcoming. Another meeting is planned in the next two weeks, she added.

Enser said other possible reasons behind the city's flatter prices are investors backing off because of concerns surrounding the global economy, and because housing starts are on the upswing in the region.

"More supply means it's a buyer's market. It's too early to predict if that's happening, but it could be a contributing factor."

According to StatsCan, prices were up across much of Canada as 16 of the 21 metropolitan areas surveyed experienced an increase, pulling the index up by 0.1 per cent overall in August, compared to July.

According to a report by Canada Mortgage and Housing Corp. released this week, while the total number of starts in Metro Vancouver rose eight per cent from August to September to 1,783, they were up 19 per cent year-to-date from 11,137 to 13,260.

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