New tax break targets construction costs, not resale prices, but questions remain
Housing starts in much of Ontario have been in what economist Mike Moffatt called “freefall,” even as headline prices softened and carrying costs stayed stubbornly high.
In that backdrop, Ottawa and Queen’s Park moved to expand the harmonized sales tax (HST) rebate on new homes – a one‑year experiment meant to make stalled projects viable again.
The new measure removes the full 13% HST on qualifying new homes up to $1 million, with tapered relief on higher price points, for purchases in a limited 2026–27 window.
Governments estimated it could spur 8,000 additional housing starts, support about 21,000 jobs and add $2.7 billion to Ontario’s GDP – projections Moffatt treated cautiously.
Ontario’s budget delivers housing tax relief—but challenges remain.
— Canadian Mortgage Professional Magazine (@CMPmagazine) March 31, 2026
Explore how tax relief could support buyers and builders while highlighting the broader supply crunch—read more and share your perspective.https://t.co/6PbRD2q62W
A tax change aims squarely at new supply
Moffatt said the basic economics often get lost in online debates about whether the rebate simply let buyers “pay more.”
“There’s a fundamental difference between measures that increase the demand for pre‑existing assets, like resale homes, and measures that lower the cost of building new assets,” he said.
“Because the HST only applies to new homes, it acts like a tax on construction. It is ultimately a supply‑side tax.”
He argued that cutting that tax should pull demand away from resale, not toward it.
“HST rebates on housing actually reduce the demand for resale homes because it creates new supply, which competes with resale homes,” he said.
Who really captures the rebate?
Skeptics worry builders would simply raise prices to absorb the rebate. Moffatt pointed to the collapse in pre‑construction sales in parts of the Greater Toronto Area – he cited drops of 95% or more in some markets – as evidence that developers lacked that pricing power.
“Right now, home buyers are the scarce asset. They’re what’s in short supply, so they should reap the largest share of the benefits,” he said, while noting that some gains could still accrue to landowners, trades and material suppliers.
One‑year pilot in an uncharted market
The rebate has a built‑in sunset after one year.
“We really do lack a map to all of this, because we really haven’t seen a market like this arguably since the early 1990s,” Moffatt said.
He viewed the short window as both a pilot and a way to create urgency – although that very urgency could blur how well the policy actually worked.
Buyers who purchased just before the cutoff, he added, are understandably frustrated, but any program needs a line in the sand.
The rebate sat atop a growing stack of tax measures aimed at housing. Ottawa already moved to a 100% GST/HST rebate for purpose‑built rentals, sparking a wave of apartment construction, while earlier federal and provincial changes introduced full or partial HST relief for first‑time buyers of new homes.
Industry voices welcomed the broader Ontario rebate but stressed that tax relief alone would not close the province’s housing supply gap.
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