Although home prices have been soaring across the country, housing affordability has deteriorated. Government programs designed to assist buyers have not been indexed and land-transfer taxes are spiralling higher.

That is the assessment of a report from the Canadian Association of Accredited Mortgage Professionals, which finds that governments have ignored the run-up in home prices. The average house price in Canada has doubled since 1992, when the federal government introduced two measures designed to make buying a home possible.

Specifically, the GST rebate for new home purchases has not kept pace with rising house prices and the 1992 Homebuyers’ Plan still caps the maximum RRSP withdrawal for first-time buyers at $20,000 a person or $40,000 a couple.

“These numbers haven’t changed since 1991, and the new-housing price index has gone up 41% in that time,” says Jim Murphy, president and CEO of CAAMP, which represents mortgage brokers nationally. “So, these thresholds should be changed to reflect that.”

CAAMP’s recent study on housing affordability found that the effective amount of GST paid by new-home buyers has almost doubled (95%) from 1991 to 2007. That’s more than 2.5 times the rate of growth for average weekly wages in Canada. Even with the recent reductions in the GST to 5% from 7%, the effective amount of GST paid for new homes will be 67% higher than in 1991.

The GST on new home sales — which most homebuyers are not aware of until they are hit with it at purchase time, Murphy says — features a sliding-scale rebate, which has proven less generous as home prices have risen. The top rebate of 36% of GST paid is offered for homes priced up to $350,000, reducing the effective GST rate to 4.48%. A partial rebate is offered for homes priced between $350,000 and $449,999, and no rebate is granted for homes priced above that.

Virtually all (91%) new detached and semi-detached homes were priced below the $350,000 threshold in 1991; only 5% were priced between $350,000 and $449,999 and thus eligible for partial GST rebates. In 2007, based on Canada Mortgage and Housing Corp. data, the CAAMP study finds just 52% of new homes were eligible for full rebates and another 22% were priced to obtain partial GST rebates.

CAAMP recommends that the federal government raise its rebate thresholds by 41% to reflect the rise in new-home prices over the past 16 years. That would increase the full-rebate price ceiling to $492,500.

“It sounds like a lot of money,” Murphy says. “But in Vancouver, it is an average-priced house.”

Although CAAMP and other housing-industry players applaud the GST rate cut to 5% from 7% over the past two years, Murphy notes that the tax on new homes has proven to be a cash cow for Ottawa: “The federal government gets about $2 billion from the GST — a huge amount of money. In high-cost centres such as the Greater Toronto Area, the Lower Mainland of British Columbia and, increasingly, in Calgary, where prices are higher, the tax has a much larger impact.”

As well, the federal government’s Homebuyers’ Plan for first-time homebuyers, now 16 years old, should have its withdrawal maximums increased by 41% to account for the increase in new home prices. That increase, to $28,150 for individuals or double that amount for couples, would not even keep pace with home price increases in the larger market. Average resale prices have increased by 104% from 1992 to 2007, CAAMP found.

“It has been a very good program. A lot of people have taken advantage of it,” Murphy says. “It doesn’t really cost the federal government anything. [Increasing withdrawal maximums] is something that is long overdue with the way prices have increased.”

CAAMP has nothing but scorn for land-transfer taxes, which it says “do not pass any tests of fairness,” are “discriminatory” and “cannot be justified based on any reasonable measure of costs to government or society at large.”

In four provinces with LTT programs studied by CAAMP — Ontario, Quebec, Manitoba and B.C. — the amounts payable have more than doubled in the past decade. Part of that is due to the increase in home prices, but, the study finds, LTTs have increased faster than home prices because of the sliding scales upon which the taxes are based. Over the past decade, LTTs have risen by 136% in Quebec to an average of $1,810 a home; by 113% in Ontario, to $2,916; by 358% in Manitoba, to $1,268; and by 179% in B.C., to $6,718.

@page_break@In Ontario, where the LTT brings in more than $1 billion annually for provincial coffers, the rise in resale prices over the past decade has proven to be a windfall. While house prices have risen by 80%, LTT payable has soared by 113% as more buyers have been squeezed into the highest tax brackets. The Ontario LTT schedule levies 0.5% on the first $55,000 of value, 1% on the amount from $55,001 to $250,000, 1.5% on amounts from $250,000 to $400,000, and 2% on amounts over $400,000. The City of Toronto recently approved its own LTT scheme, which will see it take a similar amount from homebuyers on top of the province’s LTT. CAAMP fears that other municipalities will follow Toronto’s lead and impose their own LTTs.

“The Ontario government used to justify it by saying, ‘We need the money to administer the land registry system in the province’,” Murphy notes. “Well, in Ontario, they privatized the land system, so it is not even used for that.”

CAAMP’s recommendation for LTTs is similar to its other prescriptions: provinces should raise their price thresholds to reflect increases in the new-home price index since their programs were initiated.

“These three programs haven’t changed,” Murphy concludes. “Similar to the personal income tax system, which is indexed annually, we hope that these three will be indexed.” IE