Many in the homebuilding industry say the federal government's plan to rebate the GST on some new home sales doesn't go far enough.Sean Kilpatrick/The Canadian Press
The federal government’s plan to offer a GST rebate to first-time homebuyers of new construction houses has come under fire from builders who say it doesn’t go far enough.
On May 27, the Department of Finance announced it will remove the Goods and Services Tax from new homes that cost less than $1-million and return some of the tax on homes costing less than $1.5-million. The change is expected to rebate $3.9-billion to first-time buyers over five years.
But if the measure was intended to boost the home-building industry, critics say it may barely move the needle.
“It’s excluding 30 per cent of the Canadian population by virtue of the market realities in the [Vancouver-area] Lower Mainland and the Greater Toronto Area,” said Justin Sherwood, senior vice-president of communications and stakeholder relations for Ontario-based Building Industry and Land Development Association.
Mr. Sherwood argued that new home prices in those markets would be too expensive to qualify for the rebate in almost all categories other than a modest condominium apartment. BILD is also calling for the government to remove the GST from all new homes if it’s serious about making housing more affordable. “If this policy is intended to address the fact that [GST/HST] has had an impact, has been a contributing factor in eroding affordability, this does not address that,” said Mr. Sherwood.
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The debate comes at a time when, according to real estate analysts at Altus Group, the 310 preconstruction home sales recorded in April came in 72 per cent lower than in the same month in 2024 and 89 per cent lower than the 10-year average (which would have seen more like 2,750 units sold in the GTA).
According to Pauline Lierman, vice-president of market research with Zonda Urban, unleashing first-time buyers is unlikely to spark a big comeback in sales because those buyers have shrunk to barely 5 per cent of new home purchasers in the most expensive markets. “They are definitely not pervasive; it’s 5 to 10 per cent depending on locale,” she said.
In the past 15 years, investors (who intend to either flip the homes for sale or rent them out at a profit) have taken the majority share of Ontario new construction homes, but industry data suggest that 20 years ago it was a very different picture, Ms. Lierman said: “Way, way back in 2002-2003 first-time and end-users [non-investors who already owned property] made up 40 to 70 per cent of precon sales depending on the product.”
According to Zonda, there are no new-build detached homes in the Toronto area that would qualify for the rebate, though there are perhaps a dozen townhouse or semi-detached new housing projects that come in under the government’s line.
“If someone can barely afford a townhouse do you consider them to be a .001 per cent of the ultrawealthy? It indicates how unreal or stratospheric our house prices have gotten,” said Mike Moffatt of the Smart Prosperity Institute, who is also in favour of further relaxing the GST on new construction. “A bigger question is why is there GST on new homes at all. It’s this weird thing: is a home something like a cup of coffee? Like a regular consumption good?”
The debate on applying the GST to new homes was evident in some of the original briefings on the sales tax in 1989. At the time, any buyer paying less than $300,000 got a GST rebate, when the average new home cost closer to $275,000.
The stated goal of the policy was for “over 90 per cent of purchasers” to get a rebate, and the $300,000 cap would “prevent very wealthy households from benefiting from the rebate.”
According to Mr. Sherwood, while the government said it would index the cap every two years to capture rising prices, it rarely did, and instead collected billions in additional tax revenue over the decades as average new home prices soared above the cap.
While the new $1-million cap for the maximum rebate might not make a dent for buyers in the two most expensive markets in the country, it could be too high for the rest of it.
“Outside of Ontario and B.C. that is a luxury home, it’s way too high for the smaller provinces,” said John Pasalis, president of Realosophy Realty. Mr. Pasalis warns that any attempt to invite investors back to new-home buying is likely to keep already out-of-reach house prices elevated.
“They are advocating for the status quo. It’s not that builders are evil people, they are profit-maximizing businesses,” he said. “The reality is the investors were willing to pay more than any end-user was willing to pay and they were selling to the highest bidder.”
While Michael Waters, CEO of Minto Group, would have preferred the complete removal of sales tax from new homes, with a few tweaks he thinks the policy might still deliver benefits to buyers and builders.
“It is missing the move-up buyer – those moving from a condo into a townhouse or from a townhouse into a single-family home – they generate presales that are critical to getting new homes built and they are excluded from this measure,” said Mr. Waters. “I’m maybe being realistic about the political realities of the Liberal government: they need to manage the revenue implications of anything they are doing, and they are doing a political calculus.”