Tax changes will make housing more affordable

.....according to the Fraser Valley Real Estate Board.

During the recent federal campaign, Harper said a Conservative government would lower GST to six per cent this year, and to five per cent within five years. He also said the Conservatives would eliminate capital gains tax for people who reinvested their profits within six months.

Both promises are good news for the real estate industry, said Jake Siemens, president of the Fraser Valley Real Estate Board, which plans to issue a news release today on the effects of Harper's tax proposals on the industry.

A one-point decrease in GST translates into a $4,000 savings for the buyer of an average new home, which costs about $410,000 in the Fraser Valley, Siemens said. The savings would be even greater in Vancovuer, where average home prices are higher.

A two-point reduction in GST would bring tax on new homes to a 15-year low, the same level of tax that was charged on new homes when the GST was introduced in 1991, Siemens said.

"Basically, with five-per-cent GST, we're at the breaking point with the manufacturers' tax and the other taxes they eliminated [to put in the GST]," he said.

Homebuyers will also have more disposable income to spend on housing because GST cuts would affect more than just real estate, Siemens said.

"[So] it's going to make it a little bit more affordable again for new homebuyers because you are going to see the tax savings right across the board," he said.

Siemens said cutting out the capital gains tax will also be a "huge benefit to the small- and middle-income investor," who can now reinvest 100 per cent of their money into a new venture. Houseowners who live in their homes are already exempt from paying capital gains tax on the sale of those homes.

But if demand for housing continues to be strong, Siemens believes the market could see higher prices.

"If supply is less than demand, prices will go up," he said.

David Baxter, executive director of Vancouver's Urban Futures Institute, believes further increases in house prices are inevitable.

When interest rates came down it made it easier for people to buy a house, Baxter said. But it was easier for everyone to buy a house, so that meant increased demand, which put upward pressure on prices until the benefit of the lower interest rates was eroded.

The same will happen with tax cuts, he said.

"If I pay less taxes because there is no capital gains tax, that increases my return and it makes it more attractive to me," Baxter said. "But it also makes it more attractive to you. So you and I go out and both try to buy the same apartment building, and what do we do to the price of the building? We push it up," he said.

(prepared by Fiona Anderson/Vancouver Sun)

PROPOSED GST CUT WILL HELP HOMEBUYERS:

This is the GST that new home buyers in Vancouver would have to pay under the current GST tax regime, compared to the cuts proposed by the Conservatives:

Single Family Home Condominium*

Total 2005 price $764,860.00 $319,201.00

7% GST $53,610.20 $14,300.200

6% GST $45,951.60 $12,257.32

5% GST $38,293.00 $10,214.43

*includes a GST rebate currently in place for houses less than $450,000