Eliminating HST on new homes is a win-win proposition

By Richard Lyall

for The Toronto Sun

The residential construction industry in Ontario is staring down one of the bleakest outlooks in its history. Sales have plunged, projects are stalling and losses are mounting. Housing affordability has eroded to the point where middle-class families are locked out of new construction.

Without decisive action, the consequences for both the industry and the broader economy could be devastating.

Against that rather bleak backdrop, RESCON is urging Queen’s Park to implement a three-year HST holiday for buyers of all new homes up to $1.3 million. It is a bold proposal but given the depth of the market downturn and recent forecasts, one that deserves serious consideration.

Such a holiday would be a win-win for both the industry and the government, a lifeline for an industry in retreat and stimulus for an economy that relies heavily on residential construction.

New data in a report from the Canadian Centre for Economic Analysis (CANCEA) backs up the case and concludes that a three-year HST holiday on new homes up to $1.3 million would preserve nearly 26,000 jobs, generate roughly $3.9 billion in GDP and significantly improve housing starts and completions.

Crucially, the analysis suggests the measure could be revenue neutral for the province, as foregone tax dollars would be offset by increased economic activity and employment.

The alternative is sobering. If no action is taken, Ontario could average 21,500 fewer housing starts annually over the next decade compared with the previous 10-year norm. By 2035, that would translate into approximately 390,000 fewer Ontarians housed. At a time when affordability is already stretched to the breaking point, falling further behind on supply would deepen the crisis.

Residential construction is not a niche sector. It supports a vast ecosystem of tradespeople, suppliers, engineers, planners and small business owners. When projects stall, apprenticeships dry up and skilled workers leave the industry. Restarting that engine is neither quick nor easy.

Ontario Premier Doug Ford appears to recognize the gravity of the moment. Speaking at our recent annual general meeting, he assured builders he is ready to work with them to kick-start the ailing sector.

His government has already removed the eight-per-cent provincial portion of the HST on qualifying new purpose-built rental housing and announced a rebate of the same eight per cent for first-time buyers purchasing new homes up to $1 million, with a sliding scale extending to $1.5 million, as long as the feds pass similar legislation on the federal portion. Together, the federal and provincial actions will give purchasers of a $1-million home a rebate of up to $130,000.

However, at RESCON’s meeting, Ford went a step further, signaling openness to a broader approach. He suggested that rebating the full HST on all new homes would not be reckless because if people aren’t buying, the province isn’t making the income anyways.

Cutting sales taxes for all new home buyers would see the market take off. The tax relief would pay for itself by reviving transactions, employment and spin-off spending on appliances, furnishings and other consumer goods.

The economic case for action gains urgency when viewed through the lens of long-term affordability trends.

Research from the Missing Middle Initiative shows that across 23 Canadian metropolitan areas, newly built family-sized starter homes are now more than twice as expensive relative to income as they were in 2004. Since then, prices at the lower end of the new-home market have climbed 265 per cent on average, while young dual-earner incomes have risen just 76 per cent.

Even if new-home prices stopped rising entirely, it would take the average metro 16 years to return to a 4:1 price-to-income ratio and roughly 25 years to restore 2004 affordability levels.

A recent analysis that tracked home-price-to-income ratios in 2005, 2015 and 2025, indicated that affordability deteriorated most sharply in cities such as Toronto and Vancouver.

Zoning restrictions, land-use rules, monetary policy and development constraints all feature prominently in the affordability story. But taxes are a significant, and often overlooked, contributor.

In Toronto, the total tax burden can add as much as 36 per cent to the cost of a new home. This is irrational in the midst of a housing crisis.

In a market where developments are being shelved because they no longer “pencil out,” reviving feasibility is the first step toward increasing supply.

A three-year window creates an incentive for buyers to act and for builders to launch projects. By capping eligibility at $1.3 million, it targets the broad middle of the market - where move-up buyers and young families compete.

Ontario’s housing challenges are complex. Faster approvals, infrastructure funding, land-use reform and federal-provincial alignment on sales taxes all matter.

We can’t just cross our fingers and hope for the best. We must deploy a time-limited HST holiday as a circuit breaker that will jolt the market back into motion.

In light of the present circumstances, we cannot stand still.