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Saskatchewan homebuilders report shows 11-year low, raising eyebrows among stakeholders

Russell Hixson
Saskatchewan homebuilders report shows 11-year low, raising eyebrows among stakeholders

The Saskatoon and Region Home Builders’ Association’s (SRHBA) most recent housing market analysis paints a grim picture of an industry facing severe decline.

“The numbers are not looking great and we are attributing that to the province as we know that the PST has had an impact,” said SRHBA CEO Chris Guerette. “Layer that with the mortgage stress test and you are now seeing a market that is underperforming at an 11-year low.”

According to the association, new home sales in the Saskatoon metro area dropped to levels not seen since 2006 and new home sales have declined every year for the past six years.

Saskatchewan also ranked last among all provinces in terms of percentage growth in 2018 at -28 per cent. The association’s report shows the number of building permits declined 33.8 per cent in the fourth quarter of 2018 compared to the same period in 2017.

The province announced its plan to fully collect provincial sales tax (PST) on construction services in 2017, making it the only jurisdiction in Western Canada to do so.

The tax includes construction of new homes, renovation contracting work and any construction work that adds to the value of a property. The province also opted to apply PST to children’s clothing, restaurant meals and snack foods, insurance premiums and permanently mounted equipment used in the resource sector.

The province argued the change removes the distinction for PST purposes that has existed between contracts relating to real property and those relating to tangible personal property, simplifying the PST rules for contractors and their customers. Officials argued the change benefits contractors by improving their cash flow and improving their competitiveness in bidding for jobs both inside and outside Saskatchewan.

The homebuilding industry has also seen the introduction of the mortgage stress test.

Starting last January, homebuyers borrowing from federally regulated lenders became subject to the Office of the Superintendent of Financial Institutions mortgage stress test, including insured borrowers with down payments of 20 per cent or more. Lenders now must qualify all conventional mortgages using the Bank of Canada’s five-year benchmark rate or at the current contracted rate of +2 per cent if that rate exceeds the benchmark rate.

 

When our economy isn’t as strong as it should be, we are the canary in the coal mine,

— Chris Guerette

Saskatoon and Region Home Builders’ Association

 

Guerette explained a few minor tweaks to the stress test could open the market up to tens of thousands of buyers.

“This would be helping those who need it most and there is definitely potential there,” she said.

However, the PST will likely remain as is for the time being. Guerette said the province has indicated it does not intend to alter it this year.

“We want a government that is fiscally responsible, and we are happy to see that, but we think the damage to the economy isn’t worth it,” said Guerette. “Our industry employs more than 30,000 people and that has a trickle effect. Often our industry isn’t seen as one that creates growth, but when our economy isn’t as strong as it should be, we are the canary in the coal mine. We are definitely concerned but hopefully in 2019 if we can have some modifications there can be some direct benefits to the economy.”

She explained in the current economy, households are re-evaluating housing prospects, and some will have to lower their expectations about what they can afford or put their house hunting on hold and continue to rent until they have saved more. 

The association’s analysis also showed Saskatoon’s economy is expected to be the third fastest growing major metro area in Canada in 2019 but the economic expansion will be below the 20-year average growth for the city.

The report noted new housing construction is forecasted to remain below the 10-year average, but supply is expected to rise from 2018 lows providing some relief to builders and developers.

Commenting on the oil slump that has hit Alberta and Saskatchewan for the past few years, the association’s analysis stated that from a “technical standpoint,” the economy has recovered. However, the overall standard of living in Saskatoon is not forecasted to reach 2014 levels for the foreseeable future.

Mark Cooper, president of the Saskatchewan Construction Association (SCA), said the PST is an issue impacting those outside the industry as well.

“It adds between three to five per cent additional cost to every construction project, and it’s paid for by the investors who now are less likely to invest,” he said.

Cooper said he has been approached by chambers of commerce, the mining industry, industrial manufacturers – those who purchase construction services and who must pay the tax.

“They have identified this as a priority,” he said. “This is a business concern, not just a construction concern. The government has acknowledged that this isn’t a great tax and they want to look at it but have said there is no chance of it changing this year and we accept that. We are not pressuring them to do that this year.”

Cooper noted the Merit Contractors Association of Saskatchewan, the SCA and other partners are working to produce a study on the impact the PST is having on the economy. He is hopeful that as economic conditions improve, and the impact of the PST is presented, the government will consider a change.

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