Tax cuts, increased costs: the contradiction in housing policy

By Richard Lyall

for Real Estate Magazine

May 7, 2026

The federal and Ontario governments deserve credit for recognizing the severity of the housing crisis and taking meaningful steps to address it. The decision to temporarily eliminate the HST on new homes is a positive move and will provide real, immediate relief for buyers.

Under the new rules, purchasers of new condos, townhomes and houses priced under $1 million will receive a full rebate of the 13 per cent HST. For homes priced between $1 million and $1.5 million, the rebate is capped at $130,000, dropping to $24,000 for homes over $1.85 million.

However, while the government is doing important work on policy, the industry is still waiting for regulations that will determine how the recent tax cuts will work. They need to be released as soon as possible, as we are hearing that some new projects are getting stalled while waiting for the regs. As of press time, no dates have been provided as to when that will happen.

The two governments have also joined forces in a landmark deal to support the vital reduction of development charges. This will boost the residential construction sector and make homes more affordable.

In municipalities across the province, DCs and related fees have spiralled out of control. They are now among the single largest components in the price of a new home, often adding well over $100,000 to the cost of a typical family house in high-growth regions like the Greater Toronto Area.

However, while one hand is giving, the other is still taking.

Some municipalities continue to move in the wrong direction. Take Clarington. After implementing a staggering 40-per-cent increase in DCs in late 2025, the municipality is now proposing additional hikes to planning and development fees - some as high as 187 per cent - including a 136-per-cent jump for major official plan amendments and a 62-per-cent increase for zoning bylaw amendments.

Municipal leaders argue these hikes are necessary to achieve full cost recovery - the idea that growth should pay for itself rather than be subsidized by existing taxpayers. On paper, that may sound reasonable, but in practice it is deeply flawed.

These costs are embedded directly into the price of new housing and ultimately paid by homebuyers - often first-time buyers and young families who can least afford it. At a time when affordability is already stretched to the breaking point, layering on additional fees only worsens the crisis.

A recent survey by the Ontario Real Estate Association found that 71 per cent of respondents believe DCs make housing less affordable.

They are right.

DCs have evolved from a relatively modest fee into a massive, regressive tax. Unlike income taxes or other progressive measures, DCs are levied upfront and rolled into the purchase price of a home. Buyers then pay interest on them over the life of a mortgage - often for decades.

Research commissioned by RESCON shows that government-imposed costs - including taxes, fees and levies - now account for roughly 36 per cent of the price of a new home in Ontario, up from about 31 per cent just a few years ago. DCs are a major driver of that increase.

In Toronto, DCs on a single-detached home have surged to roughly $141,000, up from just over $12,000 in 2010. Over the past 25 years, DCs in the city have increased by more than 5,000 per cent.

This is not a sustainable model. And yet, municipalities continue to rely heavily on these charges to fund infrastructure.

The consequences are already being felt. Housing starts are projected to remain subdued in the coming years. Ontario has virtually no chance of hitting the goal of building 1.5 million homes by 2031.

There is a better way.

The actions taken on DCs by the province and feds will help. They will provide immediate relief to homebuyers and help stimulate construction at a critical time.

We must have a more honest conversation about how infrastructure is funded and who should pay for it. We must also rethink how municipalities finance growth more broadly. Instead of relying so heavily on upfront charges, infrastructure costs should be spread over time or shared more equitably across the tax base.

Research from Concordia University John Molson School of Business shows that boosting homebuilding through lower costs and streamlined processes can improve affordability while delivering significant economic benefits, including job creation and increased government revenues.

The HST rebate was a strong first step to restoring equilibrium. The action on DCs was another. However, the moves risk being eroded by rising municipal fees.

It is critical that governments at all levels align their policies and ensure they are in synch. There is no point in cutting taxes with one hand and raising them with the other. A co-ordinated and sustained effort is needed by all to confront the real drivers of the housing crisis.

Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at media@rescon.com.