A Step in the right Direction.
July 30, 2025
By Richard Lyall
The decision by the feds to scrap the five-per-cent GST on new homes for first-time buyers was a step in the right direction. Hopefully, the progress will continue. Additionally, they reduced the sales tax for first-time buyers on a sliding scale for homes purchased between $1 and $1.5 million. Any eligible homebuyer who made the purchase any time after May 27, 2025, can claim the GST rebate. The caveat is that the actual payment of the rebate can not take place until after the legislation gets royal assent in early fall. As well, the home also can not be finished before that date.
All positive, though, and it signals much needed and long-awaited progress. But that can not be the end of the story. The job is not finished.
For starters, the Ontario government must now follow suit and cut the eight-per-cent provincial portion of the HST for first-time buyers. At RESCON, we are hopeful this will happen soon. A cut to both the federal and provincial sales taxes would amount to a $130,000 savings on a $1 million home, for example. These taxes are paid by the developer at the time a building permit is approved and ultimately are passed on to new home buyers in the form of higher prices. Desjardins Economics indicates that first-time Canadian homebuyers could save up to $240 on their monthly mortgage payments if they were to buy a new home with an all-in, tax-included price of $1 million. The required down payment would also be somewhat smaller and closing costs would be reduced, helping buyers of new homes get their foot in the door sooner. To further spur the market, both governments should also get rid of the sales taxes on all new homes – not just for those buying their first home. Such a move would stir the market further. A $1-million new home would cost a buyer $870,000.
Encouragingly, Premier Doug Ford seems to be open to scrapping the provincial portion of the HST on new home sales, if the federal government takes similar action with its share of the tax. He told QP Briefing, “If the federal government came and waived the (HST), the federal side, then we’d look at the provincial side as well.”
Cutting the GST and HST on all new housing would be true progress. For example, seniors who may be reluctant to downsize because of the exorbitant sales taxes they’d have to pay on buying another new home, might reconsider if the taxes were removed. They’d be more inclined to buy smaller homes which would free up larger homes for families. Also, the savings would enable more families to qualify for mortgages, which would result in more new home sales and the construction of additional homes, thus adding to the supply of housing. It’s a win-win.
In Ontario and many other provinces, housing starts are grim. A new report by CMHC estimates that Ontario needs to build more than 2.2 million homes by 2035 in order to return to pre-pandemic affordability levels. We therefore need to increase housing starts by more than 130,000 annually to 226,698 units. We are well short of that figure. The provincial budget indicated Ontario saw 74,600 housing starts in 2024, with 71,800 projected for this year. In Toronto, we’d need a 70-per-cent increase in homebuilding over the next decade to tackle affordability issues. Canada-wide, we need to build 4.8 million new homes over the next decade to restore affordability, according to Canada Mortgage and Housing Corporation. That means between 430,000 and 480,000 new housing units are needed per year across the ownership and rental markets by 2035 – double the current pace of home construction. Reducing the federal and provincial sales taxes would help builders offer homes at prices individuals and families could afford.
There is a cost to all this, of course. According to a Parliamentary Budget Office study, if a federal rebate was expanded to all owner-occupiers who buy new homes, it would cover up to 65,000 homes per year and cost about $4 billion annually, compared to roughly $2 billion a year if it’s allowed for just first-time homebuyers. However, the price of inaction would be much worse and have an effect on the economy. For starters, people are leaving our cities and heading to Alberta, the U.S., and further afield in search of cheaper housing. Second, the decline in housing starts is already affecting our trades and industry professionals. If these people leave the industry, we may never get them back. The residential construction industry is facing serious problems in getting shovels into the ground. Construction costs for material and labour, regulations and levies and fees, and the tariff-trade war situation with the U.S. are already adding uncertainty and costs to a housing project.
When it comes to housing, governments often take one step forward followed by two back. Removing the GST and HST on all new home purchases would be a giant leap forward.
