Increasing the Provincial Sales Tax (PST) by one per cent adds another layer of burden to housing affordability for first-time home buyers, according to REALTOR® Lorne Weiss.
Weiss, a former president of WinnipegREALTORS® and now the Manitoba regional director for the Canadian Real Estate Association, said the PST increase announced in last Tuesday’s budget could become a “tipping point” for the real estate market and the Manitoba economy.
“It’s getting more and more difficult for young first-time home buyers,” he added, “who may now decide not to invest in Manitoba, but elsewhere.”
With the PST increase from seven to eight per cent effective on July 1, Weiss said first-time home buyers are faced with an additional cost when buying big-ticket items to furnish a home.
Weiss said the increase in PST is just one of many roadblocks en route to a home purchase by first-time home buyers. Ottawa tightened the rules for government-insured mortgages, dropping the permitted amortization period from 30 to 25 years, which adds another $150 monthly onto the cost of a mortgage for a home valued at $300,000.
Weiss also expressed disappointment that the provincial government failed to address the land transfer tax, which is the highest tax of its type in Canada and a further burden for first-time home buyers. On a home valued at $250,000 the land transfer tax is $2,650.
“With the land transfer tax in place, you don’t need to come up with a minimum down payment of five per cent, but you need seven per cent.
“And you can’t finance that additional two per cent in your mortgage, you have to pay it in cash when the title for the home is closed,” said Weiss.
“We’re starting to get the feeling that governments believe property is a great source of untapped revenue, but they’re not taking into account the unintended consequences, such as a faltering economy.”
Weiss said the home sales in Manitoba generate $600 million annually in economic spin-offs, such as buying furniture and appliances and making home improvements. By making it more difficult for young Manitobans to become homeowners, the result is a drop in these spin-offs as well as in jobs.
“Pricing a significant segment of the population out of the housing market is not good economic policy,” he added. “It’s becoming more and more difficult for first-time home buyers to enter the Manitoba housing market.
“The policy seems to be short-term gain for long-term pain.
“What is needed is some tax relief incentives, such as on the land transfer tax, to help out first-time home buyers,” he added.
Weiss said he was pleased that the budget announced by Finance Minister Stan Struthers will exempt seniors from school taxes by 2015, but “we haven’t heard where the $50 million lost in taxation will come from.”
He wondered whether school boards will simply raise their tax levy to make up the shortfall, as has been the case in the past when provincial funding fell short of the financial needs of the school divisions.
“We’ve alway said that education funding is a societal benefit, such as health care, and should be eliminated from property all together and be funded from the province’s general revenues,” Weiss said.
“Between off-loading by the province, the one-per-cent PST increase, municipalities needing more property taxes for infrastructure and increased property taxes by school boards, we’re reaching a tipping point,” Weiss concluded.