While I welcome any HST relief on new homes, limiting it to first-time buyers misses the bigger issue. We call this a housing crisis, but for new homes and condos the bottleneck is not supply. It is affordability. The core driver is the government’s take at every level on each new build.

In the GTA, development charges have jumped from about $12,365 per home to more than $130,000. On top of that, HST on a typical new home easily exceeds $100,000. This industry has contributed massively to our economy and is an important sector for so many workers. We need broad, across-the-board relief that applies to all buyers. This proposal is welcome, but it flies right over the real problem, government taxation of New Home Buyers from all levels Federal, Provincial, and Municipal.

The removal of HST for new homes is a good program – but I believe you underestimate the actual benefit of this program and as such I am writing this to make sure you truly understand the true impact of this move, and, that you can incorporate this in your future discussions within the community

The 2 key things that make housing expensive are, firstly interest rates and secondly taxes !

These have a gigantic bearing on the total cost of home ownership born by a home owner over 25 years

It is clear that HST built into a new home production cost adds to the need for higher selling price.

If cost of land and construction before HST is 900,000$ the 13% HST adds 117,000 to the finial price so the home is 1,017,000$ before land transfer and other mandatory closing fees. This is the value that banks focus on for mortgage qualifications.

The previous Ontario new home buyer 24,000 PST adjustment helped however still left 93,000$ of HST expense which became part of the mortgage

To simplify things let’s just say all hst is removed which saves 117,000$ bringing the home to 900,000$ cost

The 117,000 $ capital cost would have been part of the mortgage and using mortgage tables as such at 5% interest rate and 25 year mortgage the home owner will have 204,143 $ in mortgage payments as a cost associated with that mortgage portion – that is 87,143$ in associated interest .

So you could say this Hst removal saves the buyer 87,143$ which with the original principal is worth 204,143$ to the new home owner! But that is still wrong !

The 117,000$ isn’t actually amortized over 25 years it is actually carried as a debt forming part of the residual debt on the mortgage till the mortgage principal goes to 117,000 at which time the mortgage payments take out the residual cost of that HST built into the mortgage at time of original purchase – it takes 23.5 years to get the mortgage principal down to 117,000$ – so allowing for this the actual interest for 117,000 carried for 23.5 years at 5% is actually closer to 123,500$ before adding compounding interest ( not 87,143$ ) this is an additional 36,000$ of expense reduction

In quick summary : the impact of this HST removal to the new home owner cost of home ownership is 240,500$ of after tax income savings over the 25 years

But this still doesn’t show the true impact on the buyer financial health because we need to factor in taxes and fact the home is paid for with after tax income, which means at the average marginal tax rate of 43% for cdn families, the home owner actually had to earn 425,600$ of income to cover that 117,000$ of HST

Note income required to buy a million dollar home will likely mean the buyer is in 48% plus tax brackets which means this net benefit is even more beneficial.

Effectively this program to remove HST price component is equivalent to the govt giving new home owners about 1418$/month ( or 17,000$/ yr of taxable income

Natalie I have been an outspoken critic of HST and other taxation on housing for years. Govt by taxing our younger generations, as they buy homes, to generate income to pay off govt debt interest – is actually passing our govt debt over directly to the backs of our most vulnerable home owners – the govt gets the cash, the home buyer gets a massive debt which is compounded by additional taxes on earned income to pay it off.

I congratulate the government in removing this debt on home owners. I wrote this as I wanted you to truly comprehend the magnitude of negative value impact this tax had and the economic value to new home buyers its removal can have

Regards

Don Johnson
Realtor, Right at Home Realty