Eliminating HST on New Homes Could Save 26,000 Jobs and Boost GDP by $3.9 Billion
A groundbreaking report from the Canadian Centre for Economic Analysis (CANCEA) reveals that implementing a three-year HST holiday on new homes priced up to $1.3 million could be a game-changer for Ontario's struggling residential construction sector. The analysis projects this measure would preserve nearly 26,000 jobs, generate approximately $3.9 billion in GDP, and significantly increase housing starts and completions.
Industry in Crisis and the Need for Bold Action
The residential construction industry in Ontario is facing one of its most challenging periods in history. Sales have plummeted, projects are stalling, and losses are mounting, with housing affordability eroding to the point where middle-class families are increasingly locked out of new construction. Without decisive intervention, the consequences could be devastating for both the industry and the broader economy.
Against this bleak backdrop, the Residential Construction Council of Ontario (RESCON) is urging the provincial government to adopt a three-year HST holiday for buyers of all new homes up to $1.3 million. This bold proposal is seen as a win-win solution, offering a lifeline to an industry in retreat while stimulating an economy heavily reliant on residential construction.
Economic Benefits and Revenue Neutrality
The CANCEA report underscores that such a tax holiday could be revenue neutral for the province. Foregone tax dollars would likely be offset by increased economic activity and employment, making it a fiscally responsible move. In contrast, if no action is taken, Ontario could average 21,500 fewer housing starts annually over the next decade compared to previous norms.
By 2035, this shortfall could result in approximately 390,000 fewer Ontarians being housed, exacerbating the already critical affordability crisis. The residential construction sector supports a vast ecosystem, including tradespeople, suppliers, engineers, and small business owners. When projects stall, apprenticeships dry up and skilled workers leave, making recovery slow and difficult.
Government Response and Broader Implications
Ontario Premier Doug Ford has acknowledged the gravity of the situation, expressing openness to broader measures at a recent RESCON meeting. His government has already removed the eight-per-cent provincial portion of the HST on qualifying new purpose-built rental housing and announced rebates for first-time buyers. However, Ford suggested that rebating the full HST on all new homes might not be reckless, as lack of sales means no tax income anyway.
Cutting sales taxes for all new home buyers could revitalize the market, with tax relief paying for itself through revived transactions, employment, and spin-off spending on appliances and furnishings. Research indicates that affordability has deteriorated sharply, with new family-sized starter homes now more than twice as expensive relative to income compared to 2004 levels.
Tax Burden and Market Feasibility
In cities like Toronto, the total tax burden can add up to 36% to the cost of a new home, a figure deemed irrational during a housing crisis. With many developments being shelved due to financial unfeasibility, reviving project viability is crucial for increasing supply. A three-year HST holiday, capped at $1.3 million, targets the middle market where move-up buyers and young families compete, creating incentives for both buyers and builders.
While Ontario's housing challenges are complex, involving zoning, land-use, and monetary policies, taxes remain a significant and often overlooked factor. A time-limited HST holiday could serve as a circuit breaker, jolting the market back into motion and preventing further stagnation. As Richard Lyall, president of RESCON, emphasizes, in light of current circumstances, standing still is not an option.
