What Ontario axing the HST on new home sales could mean for the market
Ontario’s mortgage and housing sectors are giving a cautious thumbs-up to the provincial government’s decision to temporarily expand the harmonized sales tax (HST) rebate to all purchases of newbuild homes.
That measure, which will widen the 13% tax rebate after April 1 to all new home purchases up to $1 million, was positively received by a leading real estate board – and a top Toronto-based mortgage broker says it’s a strong move towards improving prospects for hopeful buyers.
“I think first-time buyers have always struggled with affordability and on pre-construction, the HST can amount to a lot,” Micky Khaneka of MKG Mortgages told Canadian Mortgage Professional. “Let’s say on a $1 million home – 13% is $130,000.
“So you take that away, even though it’s not going to be a make or break and [buyers] aren’t all going to jump back in immediately, I definitely think it’s a signal that the government’s listening and they’re really trying to reprioritize this because taking that out helps.”
Homes valued up to $1.5 million can qualify for that maximum removal, a government release said, with proportional decreases above that limit up to $1.85 million.
Could the new HST move boost Ontario homebuilding?
While home prices have been on the wane in Ontario in recent years amid a cooler purchasing environment, affordability is still a major challenge for buyers – and Toronto was one of 11 markets where it became more difficult to purchase a home last month, according to Ratehub.ca.
And homebuilders are also facing huge hurdles because of high construction costs and interest rates. Across Canada, builder confidence was just 19.6 on a scale of 1-100 in the final quarter of last year, the Canadian Home Builders’ Association (CHBA) said, due to those factors and continuing economic and tariff-related uncertainty.
Premier Doug Ford claimed at a Wednesday news conference the new HST plan could spur an extra 8,000 housing starts across the province in 2027 and create thousands of new jobs. That remains to be seen, but Khaneka said it’s likely to prove beneficial for builders as well as buyers.
In Toronto, builder confidence has also taken a pummelling because of the ongoing condo crisis, which has seen thousands of preconstruction buyers unable to close on the units they paid for years back because of tumbling property values.
“Precon [buyers] struggled a lot because the prices were just so obnoxiously high that now they’re coming up for completion, the appraisals just don’t check out,” Khaneka said. “But I think the other side to that was that builders also took notice and if they’re not able to close on the buildings that they now have sitting in the market, they also put a pause in construction.
“So I think when you take the HST off from a long-term or mid-term perspective, these builders are also now in a better spot to know that ‘OK, maybe this will spark up the demand,’ and then the construction starts again.”
Plummeting prices because of that condo crisis have opened the door for some homebuyers to enter the market, although the long-term impact on supply is still likely to be negative, according to the national housing agency.
That’s because construction has ground to a halt – and existing supply is likely to be gradually hoovered up in the years ahead, meaning the shortage could be even more acute by 2030 if building doesn’t ramp up.
Don’t expect a sales surge – but move seen as a positive step
For Khaneka, the latest provincial government move is one which could prove helpful in promoting a balanced market looking ahead.
“I think buyers were always there. It was just that the sentiment changed and there was a huge pause [in buying],” he said. “Now supply is a bigger issue in Ontario, specifically because as much as we have buyers, we just need more supply to make sure there’s a good, balanced market.
“I think something like this really helps as a step in the right direction. Now, people can just be more comfortable knowing that they’re not just encouraging real estate from a construction standpoint – but also prices will drop, which is something that’s needed, especially for first-time buyers who’ve been completely priced out.”
Few market watchers are expecting a big immediate jump in homebuying activity even after the rule change comes into effect.
The market is still frozen in wait-and-see mode, Ownright co-founder and chief operating officer Joel Fox highlighted, as buyers anticipate further price reductions in the coming months.
“Buyers are cautious despite improved affordability on paper, and sellers are hesitant to adjust expectations in what they perceive as a slow market,” he said.
“The expanded HST rebate should help builders and encourage more new homes by reducing the upfront costs associated with construction, making it more financially viable to move forward with projects… Overall, policy support is helpful, but it doesn’t instantly restore confidence, and that’s what will truly drive activity over the coming months.”
Source CMP
By Fergal McAlinden
