HST Relief on New Homes Could Depress Resale Prices, Expert Warns
A joint initiative by the Ontario and federal governments to stimulate home construction by removing taxes from new home sales may have an unintended consequence: pushing down prices of resale homes in an already sluggish market, according to an industry expert.
Tax Rebate Expansion Details
The Ontario government, in partnership with Ottawa, has announced it is extending a rebate on the 13 percent federal-provincial harmonized sales tax to all buyers of new homes, not just first-time purchasers. The rebate took effect on April 1 and will run for one year.
This move was designed to help developers and builders clear their existing inventory and resume construction after several years of poor sales led to a significant drop in housing starts. In London, for example, 2025 recorded the city's third-worst year for home construction in the past decade.
Expert Analysis of Market Impact
Mike Moffatt, a former Western University professor and founding director of the Place Centre economic think tank at the University of Ottawa, said the policy has the potential to be "quite transformative" for the construction industry, though its effectiveness will vary across the province.
"I think there are some markets and some housing types, like Toronto condos, where the market is just so broken that even a 15 percent cost reduction might not be enough, whereas in a place like London, I actually do think this will probably move the needle a little bit more," he explained.
Potential Side Effects on Resale Market
One possible side effect of the new policy could be bringing down prices of resale homes if new properties become more appealing to homebuyers, Moffatt cautioned. The new homes market has faced multiple challenges:
- A drop in demand amid higher interest rates
- The ongoing trade war between Canada and the United States
- Significantly higher prices compared to older homes
In London, the average resale price of a home was $627,000 in March, down from its record of about $825,000 in February 2022.
"That's exactly why we've seen this lock-up in the market, because resale prices have fallen quite a bit, but the cost of construction hasn't," Moffatt said. "So, it's been challenging for builders and developers to sell new units at a price that can compete with resale. This helps level the playing field because resale doesn't pay HST, resale doesn't pay development charges."
Psychological Factors at Play
Beyond closing the price gap between old and new homes, psychological factors could further boost new home sales. The fear-of-missing-out phenomenon might push some buyers to consider purchasing new homes instead of older properties.
"These are time-limited initiatives, so buyers won't know if this will be on the table a year from now," Moffatt noted, suggesting the temporary nature of the rebate could create urgency among potential purchasers.
The combined effect of reduced costs for new construction and buyer psychology could reshape Ontario's housing landscape, potentially creating a more competitive environment for resale properties as the market adjusts to these new economic incentives.
