Housing Tax Cuts Are a Step Forward, But More Action is Needed

The federal and Ontario governments have stepped up to the plate by cutting the sales taxes on new homes for first-time buyers. It took them a while to get there, but to their credit, they did.

Once legislation is passed, a first-time buyer who purchases a new home up to $1 million will no longer have to pay the five-per-cent GST or eight-per-cent HST. It will be retroactive to May 27. For homes purchased between $1 and $1.5 million, taxes will be reduced on a sliding scale.

The move is significant as first-time buyers account for roughly 35 per cent of new home purchases. On a $1-million home, first-time buyers will now save $130,000 on the purchase price.

It’s also a positive for our industry. Exorbitant taxes, fees and levies are crippling the residential construction industry, stymying the build of new homes and condos, and driving up housing costs.

The tax burden presently accounts for 36 per cent of the cost of a new home. The best way to improve housing affordability, then, is to lower taxation.

Already, I have received reports that the tax cut is moving the needle on housing, as there is more traffic reported at sales centres. RESCON will be keeping a close eye on this to gauge the outcome.

Can you imagine what would happen if the sales tax was eliminated for all buyers of new homes – not just first-timers? It would move the needle significantly and spur more housing construction.

Benefits of cuts outweigh costs

A rebate of the provincial portion of the HST for first-time homebuyers on newly built homes valued up to $1 million is projected to cost the government $35 million in 2025-26, $190 million in 2026-27, and $245 million in 2027-28. The projections were based on housing data and economic policies.

However, the benefits far outweigh the costs.

The policy will result in more housing being built, more direct construction and spinoff jobs, a healthier economy, and more property tax revenue for governments once the homes are built and occupied.

Everybody wins.

According to the Missing Middle Initiative (MMI), governments are bleeding billions of dollars in revenue from the current housing decline. The organization estimated that governments could lose more than $6 billion in tax revenue from declining owner-occupied housing construction in the GTA.

The MMI ran the numbers using CHMC data and found that owner-occupied starts generated an eventual $10.8 billion for governments in 2023, but with starts lower that figure will drop to $4.8 billion annually between 2025 and 2027. The feds will lose nearly $2.4 billion, the provinces more than $1.9 billion and municipalities $1.7 billion.

The MMI found that the housing slump will cost the federal and provincial governments $900 million a year in lost HST revenue in the GTA alone.

The point here is that governments are losing huge dollars from the lack of new housing being built. They might as well cut the sales taxes as it will boost the industry and lead to more growth.

As a result of fewer homes being built, they’re getting less in the way of funds from the HST, so what’s the risk?

The upside is tremendous.

Tax burden must be reduced further

Presently, the housing supply and affordability situation is dire. Ontario indicated in its spring budget that it expected to see 71,800 homes built this year, but the projection is now 64,300. Projections for the next few years are also low, with 70,200 expected in 2026, 79,600 in 2027 and 83,700 in 2028.

Industry employment has also taken a major hit. In the City of Toronto, for example, industry employment declined by an estimated 10,209 jobs in the first six months of 2025.

To correct course, the tax burden on new homes must come down further. We appreciate that the senior levels of government have taken action to cut sales taxes for first-time buyers, but the initiative must be expanded, at least temporarily, to buyers of all new homes. Taxes are simply too high.

The issue of exorbitant development charges (DCs) levied by municipalities must also be tackled. It was a key recommendation of the Ontario Housing Supply Task Force Report back in 2022. However, it’s been nearly four years now, and the problem has not yet been addressed.

In Toronto today, developers pay nearly $140,000 in municipal taxes on a single-family home. DCs for smaller units range from $60,000 for a bachelor apartment to more than $80,000 for a two-bedroom unit. The charges are passed on to the homebuyer in the form of higher prices.

Clearly, the industry can not continue to operate under the yoke of such excessive taxes. We’re in the worst housing crisis in a generation. The cost of housing must be reduced. More action is critical.