Below for your review is Peter Simpson's Vancouver Sun column from Saturday, January 10, 2009.
BY PETER SIMPSON, SPECIAL TO THE SUN
JANUARY 10, 2009
''I'd be safe and warm, if I was in L.A.''
- California Dreamin', by the Mamas and the Papas
Homeowners in the Golden State might be safe and warm, but the only dreamin' they are doing these days is daydreaming about selling their homes. Statewide, sales are down 63 per cent from a year ago.
A long-time colleague, Bob Rivinius of the California Building Industry Association, reports that the housing slowdown has cost his state 300,000 jobs and $46 billion in lost spending in three years.
Rivinius said housing production is the lowest since the Second World War, and with 2009 shaping up to be no better, a federal stimulus package is needed to jump-start the U.S. homebuilding industry.
''Housing traditionally is the engine that leads the economy out of recession, but with homebuilding in a depression, there's little chance the overall recession will begin to improve without tax credits and other incentives to push people off the fence and back into the marketplace,'' he says.
Fix Housing First, an American coalition of 600 companies and organizations, wants President-elect Barack Obama and the U.S. Congress to enact a temporary tax credit on the purchase of primary residences.
The tax credit, which would only be repayable if the home is sold within three years after the purchase, would be claimable at time of closing, allowing the funds to be used as a down payment on the home, and would be calculated on a sliding scale from $10,000 to $22,000.
The Fix Housing First coalition also recommends short-term targeted incentives such as 30-year, fixed-rate mortgages as low as 2.99 per cent until June, then 3.99 per cent from July until December.
According to the coalition, the proposed stimulus plan would: Help families stay in their homes; stop the fall in home values; encourage people to buy now, instead of later; restore confidence and get Americans spending again; enhance the work that has been done to shore up the financial system; create job opportunities in every sector; and energize the economy.
Which brings me to Canada and a new study that shows although Canadian markets have slowed, there is simply no evidence to prove our country is going down the same treacherous road as the U.S.
Commissioned by the Ottawa-based Canadian Home Builders' Association, the Canadian Housing Industry Update is a comprehensive and detailed analysis of the significant differences between the Canadian and U.S. housing markets, and of the Canadian market and trends.
CHBA president John Hrynkow of Edmonton said the 36-page report is presented in two parts.
''The first part shows that the many factors which led to the U.S. housing crisis are not present in Canada. It addresses the packaging of mortgage loans, mortgage insurance, sub-prime share of the market, homeowner equity, availability of credit, house prices and housing markets,'' Hrynkow says.
''The second part covers the performance of Canadian markets and future outlook. It analyses new housing activity, the residential construction industry impact on the economy, drivers of housing activity, issues with homeownership affordability, and the challenges facing the rental sector,'' he said.
Just before Christmas, Prime Minister Stephen Harper announced a $4 billion aid package for the Canadian subsidiaries of struggling Detroit automakers. Harper said the step was taken to avoid a ''catastrophic short-term collapse'' of the automobile- manufacturing industry.
Both the automakers and workers welcomed the government's financial lifeline. According to the Canadian Auto Workers, 400,000 jobs were at stake. And if all or most of those jobs were eliminated, the impact on the overall economy surely would be catastrophic.
Canada Mortgage and Housing Corporation predicts housing starts will decline 16 per cent this year to 177,975 nationally, still reasonably robust compared to the 1990s. However, although those starts will generate nearly half a million full-time direct and indirect jobs, tens of thousands of jobs will be eliminated across Canada because of the expected contraction in construction activity.
While we await the release of the 2008 statistics which highlight the economic contribution of residential construction in Metro Vancouver, the 2007 numbers still tell a dramatic story - 68,000 jobs, $8.4 billion in economic impact, $3.1 billion in wages, $1.6 billion in government revenue.
The Canadian Housing Industry Update does not include proposals for government assistance for the homebuilding industry. Rather, the report recommends tax-reform measures to help consumers.
A recent report from Statistics Canada revealed Canadian families pay more in personal taxes than they do on shelter. Households spent an average of $14,450 on personal taxes in 2007, 20.6 per cent of the average family budget. Spending on shelter averaged $13,640.
Now, if a family purchased a new home for $450,000, add $22,500 in GST to that tax burden. And that $22,500 will likely be added to the mortgage commitment.
Freezing the GST rebate phase-out threshold to 1991 levels is a serious impediment to housing affordability. (I would like a dollar for every column I have written on this thorny subject.)
Since 1991, Statistics Canada's New House Price Index has increased by 55 per cent. Had the GST rebate thresholds been adjusted to take into account this increase in new house prices, the thresholds would now be roughly $540,000-$700,000, not $350,000-$450,000 as they have been for 18 years.
It is not only new-home buyers who are disadvantaged by the lack of indexation of the GST thresholds. Since new and resale homes are competitive products, the higher prices of new homes (GST included) are reflected in higher prices in the resale market.
And don't even get me started on two other impediments to housing affordability - excessive municipal development charges and the provincial property transfer tax.
Government at all levels, the media and consumers should have access to accurate information about housing conditions throughout Canada. The Canadian Housing Industry Update certainly provides that and then some. If you would like a copy, email me at the address below. I will respond promptly.
Peter Simpson is chief executive officer of the Greater Vancouver Home Builders' Association.
© Copyright (c) The Vancouver Sun