RESCON: Tax burden on new homes remains far too high
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Sales taxes on new housing in the GTA are the highest in North America
The recent announcement by federal Opposition Leader Pierre Poilievre that the Conservatives, if elected, would axe the five-per-cent GST on new homes sold for under $1 million is the type of courageous, bold, out-of-the-box thinking we need to tackle the housing crisis.
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Sales taxes on new housing in the Greater Toronto Area, for instance, are the highest in North America and have combined with other factors to push the cost of new homes beyond affordability for many, especially first-time homebuyers.
This strategy would be a step forward. It is, of course, dependent on the Tories getting elected and forming the next government.
As homebuilders have been saying for some time now, taxes are one of the main reasons for the housing supply and affordability crisis. Reducing the sales taxes would significantly lower the cost of new housing and thereby enable builders to build homes that people can afford.
A report by the Canadian Centre for Economic Analysis (CANCEA) found that taxes on the purchase of a new home have climbed massively from about 24 per cent in 2012 to 31 per cent today. The tax burden on new homes is two times higher compared to other sectors of the economy.
The taxes are ultimately passed on to new home buyers who must finance the added costs, resulting in thousands of dollars in interest costs over the term of a mortgage. The burden prevents many people from being able to afford a new home and many are leaving our cities in droves.
The plan of the Conservatives would change the existing 36-per-cent GST rebate to a 100-per-cent one on new homes under $1 million. Currently, the full rebate is only available to new homes that sell for less than $350,000, with the amount phased out between $350,000 and $450,000.
On a $1-million home, the plan would result in tax savings of $50,000. According to the Tories, it would lead to 30,000 more homes being built each year, generate construction jobs and income for businesses, and cost between $3.3 and $4.5 billion which would be offset by $2.1 billion of revenue.
Our only criticism is that the threshold is a tad low for places like the GTA and it would be better if it were perhaps $1.5 million. But we’re heading in the right direction.
As Poilievre noted, to move the needle further, provinces like Ontario should also look at removing their tax from new home sales. This would spur the residential construction market even more.
RESCON has been encouraging all levels of government to push for immediate action to lower taxes, fees, levies and development charges on new housing. At a meeting recently with Ontario Municipal Affairs and Housing Minister Paul Calandra, we discussed that subject.
Both the feds and province have eliminated sales taxes on new purpose-built rentals. We believe it should be extended to include market-built homes and condos.
We are in the midst of a devastating housing affordability and supply crisis yet are still charging exorbitant sales taxes on new housing. They stymie development and load costs onto buyers.
The situation is urgent as construction of new homes is not keeping pace with population growth.
New home sales and starts are lacklustre and development application submissions have slumped. The present economics for new builders are not working. We can and must do better.
Fiddling around the edges is not cutting it. Other jurisdictions around the world figured this out long ago. If we don’t take serious action on the housing front, the situation could get ugly by 2027.
With fewer condos going into the ground and new condo sales in the GTA dropping 81 per cent in September compared to the same month last year, the outlook is not good. The backlog of unclaimed new housing in the region now sits at 17,427 condo units and 4,444 single-family homes
A big part of the problem, according to many who spoke at a recent RESCON housing summit, is the amount of government-related taxes, fees and levies on new housing.
Builders have been sounding the alarm bells on this for years. It is vitally important that governments at all levels listen and take action. The proposal to reduce sales taxes is a good step.
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.
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