The Cost of Building New Homes Must Be Reduced

Brace yourself. Affordability of housing continues to deteriorate, and latest reports indicate the situation could get worse before it gets better, causing a huge hit to the Canadian economy.

Far fewer Canadian cities meet the traditional affordability benchmark where housing costs are less than 30 per cent of household income, recent data from prop-tech company Zoocasa revealed.

Reports indicate that median mortgage payments now consume about 46 per cent of household income in Canada versus 34.2 per cent in the U.S.

The cost of constructing a residential building in Canada has also increased 58 per cent since 2020 and could rise even further, thanks to U.S. tariffs, according to federal briefing materials.

One survey showed that in 2024 a Canadian home cost about 14 times the average disposable income, compared to nine times in the U.S. For comparison, as of mid-2025, the median home price in Los Angeles was 12.5 times the median household income. New York was 9.8 times.

In late 2023, the percentage of median household income needed to cover ownership costs was 84.1 per cent in Toronto, far exceeding the national average.

The increasing cost of housing is hurting the economy and making it difficult for people to find affordable places to live. Many are now leaving cities like Toronto. A poll by Environics Analytics for CTV News reports that last year 35,000 households left the Greater Toronto Area.

Dire situation could get worse

A report released recently by RESCON indicates that the already-dire housing situation could get worse in the Greater Toronto Area (GTA) and Greater Golden Horseshoe (GGH), as housing starts in the first nine months of 2025 were down substantially and industry job losses continue to grow.

The report looked at 34 municipalities and found that housing starts were down 34 per cent in those municipalities over the first three quarters of 2025, relative to the January-to-September periods in 2021-24. Condo apartment starts were down 51 per cent in 2025 relative to the same earlier time periods.

The analysis estimated that the reduction in housing starts over the first nine months of this year translates into 35,377 fewer person-years of employment.

The figures in the report are an eye-opener as they indicate we are trending in the wrong direction.

Projects are being shelved which will have a trickle-down effect on the economy. Sales have been stopped on more than 3,200 new units between 2020 and 2025. The cost of building is just too high. Only 54 new condos were sold in Toronto in October, down from 145 in October 2024.

An editorial in The Globe & Mail noted that in five years, the construction of new homes in the country’s hottest markets is projected to slow to near-zero. So, we will have less construction, fewer homes, and fewer jobs – all at a time when the country needs more housing.

Industry is critical to economy

This will all have a disastrous effect on our economy, as construction accounted for 7.5 per cent of the Canadian GDP in 2023.

It’s a recipe for disaster. The residential construction industry is critical to the Canadian economy.

A new report from Concordia University’s John Molson School of Business indicates that improving housing affordability could deliver a boost to local economies, not just help families.

In an illustrative model for Toronto, the report concluded that a $3-billion housing-supply incentive program could generate an estimated $672 million in recurring annual tax inflows, implying a four-to-five-year fiscal payback – even without accounting for further positive multiplier effects.

As noted by Erkan Yönder, associate professor of real estate and finance at Concordia, housing affordability is not just a social issue, it’s really an economic one too.

“High housing costs affect the entire economy, everything from family finances to business productivity and municipal budgets,” he said in a statement. “With the growing pressures in the Canadian economy, it is important to do everything we can.”

When builders are working, taxes are flowing into government coffers. Workers are earning wages which boosts the economy. And the new homes provide somewhere for Canadians to live.

Governments must pull out all the stops to get the industry back to work. The cost of building needs to come down, namely through further reducing the exorbitant taxes, fees and levies on new homes. Presently, 36 per cent of the cost of a new home is attributable to the tax burden.

Builders need to be able to build homes that people can afford. Our economy depends on it.