The Renovation Cash Market

Builders and renovators from across Canada estimate the cash market in residential construction and renovation to be at 28 per cent. In renovations alone, this will translate to roughly 8.7 billions of dollars changing hands without tax implications. Regionally, estimates range from as high as 34 per cent in the Maritimes and 30 per cent in Quebec to a low of 24 per cent in the Prairies and 22 per cent in Alberta (see chart).

However, a specific question about cash sales in renovation by job size showed slightly lower estimates. Collectively, an estimated 23 per cent of work is done for cash. Renovators estimate this at only 19 per cent, compared to builders who say that as much as 27 per cent of their renovations are done for cash.
What influenced builders' results is a belief that more jobs in the range of $1,000 to $10,000 are done in cash. Renovators don't think so, however. The question had different job sizes ranging from under $1,000 to over $10,000 per job and results were then weighted to arrive at a final figure. The results show stronger cash activities on smaller jobs. Cash sales take place in 64 per cent of jobs under $ 1,000, 43 per cent for jobs between $1,000 and $5,000, 26 per cent for jobs between $5,000 and $10,000, and 15 per cent of jobs over $10,000.

In the Maritimes, where the total cash market in renovations is estimated at 38 per cent, as many as 72 per cent of jobs under 1,000 and 58 per cent of jobs between $1,000 and $5,000, are done in cash.
In Ontario, 69 per cent of jobs under $1,000, 49 per cent of jobs between $1,000 and $5,000 and 31 per cent of jobs between $5,000 and $10,000 are done in cash.
In Quebec, 69 per cent of jobs under $1,000 are sold in cash. Even in the western provinces, which showed lower overall cash markets, the sales in jobs of under $1,000 are nearly 60 per cent.
Collectively, builders and renovators estimate they lose 17 per cent of their sales to cash-market operators. Renovators estimate higher losses of 19 per cent, compared to builders who say they are losing 16 per cent of sales to cash operators (see chart).

What can be done?
The majority feel that increasing education to the consumers and the trades is the best way to alleviate the widespread, and perhaps unstoppable, cash market. More renovators (73 per cent) than builders (59 per cent) feel that education is the way to go. Similarly, increasing association profiles is advised by more renovators (48 per cent) than builders (41 per cent).
Still others prefer taking stronger steps of increasing fines and regulations and even reporting to authorities, and others favour reducing sales taxes. Hardly anyone suggested lowering or raising prices to comate the sales they are losing to cash operators.
The survey's essence can probably be best summarized by a few strong comments our readers volunteered. There were many comments and great concern expressed about the sales tax system. Many feel this is their biggest disadvantage - and possibly a cause for many cash operators.

"Level the playing field, simple stuff, no GST!" said a builder from Ed Bell Construction in British Columbia. "Simplify regulations and make it easier to stay legitimate," said Ruth Sommers, a renovator from Grande Prairie, Alberta.
This concern was expressed in length by Bill Pickett, a builder from Prodigy Development Services in B.C.: "Slash the income tax rate for small business that have legitimate expenses in conducting business properly. It costs a lot to stay in business. Cash dealers in residential renovations don't have those expenses of insurance, licensing and administrative overhead like we do. They pay little or no taxes like we do. It costs me thousands of dollars a year to maintain a legitimate operation, yet at tax time I am charged the max. As it stands now, it simply doesn't pay to carry these expenses and compete with the cash dealer who has none."
The cash market is certainly not going away any time soon and has many moral and social implications. The ones that affect legitimate contractors the most are taxation, regulation and administrative burdens that they feel put them at a disadvantage. HB

Source: Home BUILDER Magazine Readers Survey, August 2006

On August 24, 2006, we conducted an e-mail readers' survey. As of September 30, we received responses from 303 readers. Please take note that this survey, by nature, reaches the more "sophisticated" in the industry and lacks the input from very small operators.
Responses came from: builders (141), renovators (56), contractors (38), suppliers (20), manufacturers (35), and others (13). For the survey findings, we've used only the responses from builders (108) as one group and renovator/contractors (81) as another group.
Response by province, from the 189 used replies, was as follow: British Columbia - 28.6%, Alberta - 19.6%, Saskatchewan - 3.7%, Manitoba - 3.7%, Ontario - 31.7%, Quebec - 2.6%, New Brunswick - 3.2%, Nova Scotia - 4.2%, Prince Edward Island - 0%, Newfoundland - 2.6%.
Collectively, all the respondents employ 2,135 persons. Of the builders responding, 41.5 per cent have been in business for over 21 years and 44 per cent from six to 20 years. Among renovator/contractors, 45 per cent have been in business for over 21 years and 31 per cent for 10 to 20 years. From this you can see that this survey's findings represent the established builders and reputable renovators, the people who pay the highest consequences for the problems we are trying to address.

Congratulations to the winners from the Sept./Oct. Readers Poll about trade shortages and cash market:
Michael Lalonde, Busy Beaver Builder, Hamilton, ON

Home Builder Magazine will continue to conduct timely surveys about issues of concern. If you'd like to participate, please register (click here) to be counted and to let us know what you think.