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Associations, Economic

Regina homebuilding hits historic slump

Russell Hixson
Regina homebuilding hits historic slump

The Regina homebuilding industry, hit by multiple regulatory and economic punches, is at a low not seen since the 1990s.

“The Canadian, Saskatchewan and Regina economy may be keeping its head above water, but in Regina, the residential construction industry is in a deep recession,” said Stu Niebergall, president and CEO of the Regina & Region Homebuilders Association. “Every cost increase and regulatory change created by government is locking young families, individuals and newcomers out of homeownership. Those employed in residential construction industry have been losing their livelihood.”

According to the homebuilders, during the first part of 2019, there were 545 housing starts, marking the lowest amount of starts since 1998. In comparison, the ten-year average for housing starts is 1,696 and the five-year average is 1,704.

Niebergall blamed this on a perfect storm of economic conditions and government regulations. While commodity prices have slumped, the province introduced its plan in 2017 to fully collect provincial sales tax (PST) on construction services, 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 has 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.

But the biggest hit, argued Niebergall, has been 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.

Niebergall said this has pushed many people out of the home-buying market.

“We need Public Policy decision makers to turn the tide of continually increasing the cost and limiting the access to homeownership,” said Niebergall. “If there was ever a time to find ways to reduce taxation and fees on new homes and recalibrate mortgage rules & stress tests, it would be now.”

According to the homebuilders, 2019 registered the lowest first quarter sales since 2002 with only 130 homes sold. On a year over year basis, sales declined for every building type. The number of new families in Regina will outpace the new housing construction in 2019 for the first time since 2001.

“In any market around the world there is always going to be ebbs and flows with the economy,” said Niebergall. “But what has challenged and depressed ours is intervention in the market beyond what naturally should have been.”

He added that when the home builders and other stakeholders have brought their concerns to officials, they all point their fingers at the other.

“They are the four horsemen of the stress test apocalypse,” said Niebergall. “The CMHC [Canada Mortgage and Housing Corporation], The Ministry of Finance, The Bank of Canada and The Office of the Superintendent of Financial Institutions. They have really been stuck, from a public policy perspective, on this stress test is creating the right conditions. It’s accomplishing the goals that it wanted to accomplish but it seems to be coming from this Toronto/Vancouver worldview of the housing market.”

He added that he believes government officials are sympathetic to the issue, but don’t believe the policy is impacting Saskatchewan negatively and that the blame lies elsewhere.

“Our perspective would be to ask government to look at their own pieces and see where they are impacting the market,” said Niebergall.


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