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HST limbo creates uncertainty in construction industry for 2012

The 2012 construction season could break the backs of some local building companies in Whistler.

The second biggest industry in the resort is in a holding pattern as the death knell sounds out on the Harmonized Sales Tax (HST).

Clients are abandoning deals and hesitation from others is creating a tenuous building environment for the year ahead as people ask themselves: will it be cheaper to build if we wait for 18 months until the HST is wiped out for good?

"I think for some businesses, 2012 will be a make or break year," said Bob Deeks, owner of well-established RDC Fine Homes. "And I believe that we've already seen that in 2011."

It's a critical issue, he added, not just in Whistler but also across the province, primarily affecting the residential home building sector.

"We have been after the government to do something about this," said Deeks. "They have been unwilling, unable, to address this issue but it is crippling the residential construction industry."

One of his clients, for example, walked away from a million-dollar project this year, choosing instead to wait until the HST is gone.

"They specifically asked me regarding the additional costs that the HST would bring to their project and at one point said: 'well, why shouldn't we wait a year? We're going to save $50,000.' And it's a hard thing to come back from," said Deeks.

"So I do think it has affected us in the corridor. My interpretation is that business has been slow through 2011 and, as I talk to the industry, the outlook is not great for 2012. Certainly, through my contacts throughout the province, a lot of people are laying blame to the slowdown due to the HST."

That's one place Melissa McKay, a local structural engineer, is laying the blame.

Sure, she said, there's the expected post-Olympic slump and the slump of the U.S. economy that has had spin-off effects in Whistler. But the HST uncertainty is not helping matters. She's seeing the effects first hand.

"This HST will make people apprehensive about moving forward with projects this year," she said. " is going to make the 2012 construction season severely challenging."

The issue is being felt across the province but there are unique challenges in Whistler.

For many, a Whistler home is a discretionary buying decision because it's a secondary home or recreational home. That means clients have the luxury of waiting, gambling that prices will stay where they are until the HST is removed. The tax also applies to new homes over the $525,000 rebate threshold and so the impact is felt in the higher-end market.

"If you were (making)... a discretionary buying decision, maybe a second or a recreational home, which is the case in Whistler, you might do some thinking about it," said Eric Martin, who is on the board of the Urban Development Institute (UDI), an organization made up of more than 550 of BC's leading developers, which is heavily lobbying government for clarity to the rules and help with the impacts on its housing industry.

"Any time there's any kind of a psychological impact, or potential psychological impact, it's an impact," said Martin. "Perception is reality for a lot of people."

The government is well aware of the issues. But to some extent its hands are tied.

It's still at least more than a year until it will be able to scrap the 12 per cent HST tax, in place for just a year before a referendum scrapped it, and revert back to the old system. Under that old system, new builds were just subject to the five per cent GST, and a portion of the PST, about two per cent.

That means it costs about five per cent more, in added tax, to build new homes.

"We are putting as much pressure on the feds as possible to get this done," explained area MLA Joan McIntyre.

"My heart goes out to those who have been left in limbo."

She knows that the new luxury home sector is feeling the brunt and that it has impacts in key places in her riding, namely Whistler and West Vancouver.

"We're working from exactly the same side... It just takes time."

But time is not on the side of homebuilders, eager to line up work for the 2012 season.

The president of the local chapter of the Canadian Homebuilders Association Eric Prall said: "We are seeing workers having to leave the corridor to find work elsewhere (even out of province)."

Recently municipal council weighed in on the issue, agreeing to write a letter to the provincial government urging clarity and certainty around the HST issue, at the request of the Real Estate Board of Greater Vancouver.

Meanwhile buyers and sellers are trying to make the most of a convoluted situation.

The HST has now become a sticking point during real estate transactions.

"Sometimes the deals have come together, sometimes they haven't," said Whistler Real Estate Co. president Pat Kelly. "But I can assure you, there have been deals that have broken down over this issue and people have walked away."

Kelly reiterated that the uncertainty applies just for new builds and new lots — a small portion of the overall transactions at his office.

But it's a critical multi-million dollar portion of the market. It's developments like Riverbend, Cypress at Nicklaus North, Stonebridge, Kadenwood, Baxter Creek, and the new Southlands development.

Builder Tim Regan, president of Vision Pacific, has five luxury lots at Southlands, once known as Cheak North.

He agrees that the HST uncertainty is not helping. But he, like Deeks, can't help but hammer home the point that though there's a perception that it costs more to build now, the reality is much different.

"I think it's an amazing time to build right now," said Regan.

"The value proposition of building now is so strong that even though embedded in these prices is HST, it's still a good time to build."

While he has a vested interest in getting that message out, he makes the argument that building costs have come down significantly. Interest rates have remained low. And, as the industry contracts due to less work — companies go out of business or simply leave the province in search of work — it only follows then that there will be fewer trades in town to do the work when the business bounces back in 2013.

"For people who are waiting my message to them is: there's always risk," reiterated Deeks. "Yes today it's obvious that it's going to cost you 5 per cent more but I would say that if you wait a year or 18 months the risk increases exponentially — one is a result of interest rates going up... but even more than that, if we lose the competitive nature that we currently have within the trades, then costs will go up dramatically."

In the meantime, trades in Whistler are waiting to see what the year brings for one of the resort's most significant industries.

McKay said: "Everybody is cautiously optimistic that as we move into the 2012 construction season that we can still produce enough construction in the valley to support our industry."

Alison Taylor reports for The Pique, the Whistler-based newsmagazine where a version of this story first appeared.

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