The federal government has finally taken a meaningful step to address Canada’s housing crisis — and it’s a move that could help breathe life back into a stalled residential construction sector.
With the passage of Bill C-4, Ottawa has eliminated the five-per-cent GST on new homes priced at or under $1 million for first-time buyers, while also reducing the tax on homes priced between $1 million and $1.5 million.
It’s a long-overdue policy change that recognizes a simple reality: governments cannot tax their way out of a housing shortage.
Just as importantly, the move will trigger complementary action in Ontario. Earlier, the provincial government committed to following through on its commitment to eliminate the eight-per-cent provincial portion of the HST for first-time buyers of new homes as well. Combined, the federal and provincial rebates mean eligible first-time purchasers could receive up to 13 per cent in tax relief.
Eliminating the GST for first-time buyers on new homes will make a meaningful difference for purchasers and help revive the new home market which has suffered greatly over the past couple of years.
But while this is an encouraging step, it should not be the final one. If governments are serious about restoring housing affordability and reviving residential construction, they should expand these tax reductions to all buyers — not just first-time purchasers.
The housing market in Ontario is under extraordinary strain. New home sales have collapsed in many regions, projects are being shelved, and builders are increasingly reluctant to move forward with new developments because the economics simply no longer work. Tax relief can help restart a market that has stalled. But the scale of the problem facing Ontario’s housing sector means incremental measures may not be enough.
Global News has reported that the Ford government is poised to offer all home buyers a significant tax discount on newly built homes. As part of his spring budget on March 26, Finance Minister Peter Bethlenfalvy is expected to announce that the provincial portion of the harmonized sales tax will be removed for anyone buying a newly constructed home.
This would be fantastic news — and another step forward.
Research commissioned by RESCON from the Canadian Centre for Economic Analysis (CANCEA) paints a stark picture of what lies ahead if the downturn continues. According to the report, Ontario could see an average of 21,500 fewer housing starts every year over the next decade compared with the recent 10-year average if no corrective action is taken.
That decline would have enormous consequences. By 2035, the province could end up with housing for roughly 390,000 fewer residents than would otherwise have been built.
The economic implications are equally troubling. Residential construction is one of the most powerful economic engines in the country. Every new housing project generates jobs not only for carpenters, electricians, and plumbers but also for engineers, architects, manufacturers, transportation companies, and countless small businesses that supply the building industry.
When construction slows, the ripple effects spread across the entire economy.
The CANCEA analysis indicates that bold policy measures — such as a temporary HST holiday on new homes — could preserve nearly 26,000 construction jobs and generate roughly $3.9 billion in GDP. Conversely, if the residential sector continues to weaken, the province could face a GDP decline of between 1.5 and 2.5 per cent in the near term tied directly to the collapse in new housing construction.
Those are not small numbers. They reflect an industry that supports hundreds of thousands of workers and plays a central role in Ontario’s economic growth.
The current downturn is already having real consequences. More than 35,000 person-years of employment have been lost compared with recent levels of housing construction activity. Projects are being postponed, and in some cases cancelled altogether.
The danger is that if the slowdown continues long enough, the industry could begin to lose skilled workers permanently. Tradespeople who leave construction during prolonged downturns often do not return. Apprenticeship opportunities shrink, young workers choose other careers, and companies reduce training investments. Over time, that erosion of skilled labour capacity makes it even harder to build the homes Canada needs.
Tax policy is not the only reason housing has become so expensive in Ontario, but it is undeniably a significant factor. Research shows that government taxes, fees, and levies now account for roughly 36 per cent of the cost of a newly built home in the province. On a $1-million home, that amounts to about $360,000 embedded in the purchase price before a buyer even turns the key in the front door. That kind of tax burden is extraordinary for a basic necessity like housing.
Presently, governments are taxing new homes at rates comparable to those on alcohol and tobacco — an approach that makes little sense when policymakers are simultaneously trying to increase housing supply. Reducing those taxes would send an important signal to the market. It would also improve affordability for buyers while giving builders the confidence to restart projects that have been sitting idle.
The reductions for first-time buyers are a welcome development. Hopefully, we will soon see further cuts — at least on the provincial portion of sales taxes — for all buyers of new homes.
Housing markets function as interconnected systems. When move-up buyers purchase new homes, they free up existing homes for other buyers. When downsizers purchase newly built units, they release family homes back into the market. Encouraging construction activity across the entire market — not just the entry-level segment — is what ultimately increases supply.
Such a move would help restart stalled projects, preserve thousands of construction jobs, and generate billions in economic activity.