Garry Marr: Tax and fee cuts have home developers itching to build. All they need now are buyers
Developers in Ontario say a reduction in taxes and fees that could cut the cost of new homes by up to $200,000 has them ready to build. All that’s missing now are buyers.
The recent changes include the elimination of the 13 per cent harmonized sales tax from new homes for all buyers that was confirmed in the Ontario budget last week and Monday’s announcement by the Ontario and federal government that will reduce municipal development charges by 50 per cent.
“It could bring houses into reach for a lot of folks that had been unattainable,” said Michael Waters, chief executive of Ottawa-based Minto Group , one of the country’s largest developers. “For the industry, it is a huge job creation machine if we can keep building houses . Obviously, with low pre-construction sales, a lot of starts are getting cancelled or deferred.”
The two levels of government have promised to cost-match $8.8 billion in development charges over 10 years. The province has estimated the measure will create 21,000 jobs and contribute $2.7 billion to Ontario’s gross domestic product next year.
But the consumer will ultimately decide whether these measures will get builders going, because developers need sales before they start building.
The latest data from Canada Mortgage and Housing Corp. shows Toronto’s new home starts dropped 28 per cent in February, driven by lower multi-unit and single-detached starts, as the construction market continues to stall.
“The condo market is a bit of a different animal because existing prices are still so low and it will take a lot to get that market going,” said Doug Porter, chief economist with Bank of Montreal. “For single-family, this could be very interesting. The share of new buildings for single-family homes had dropped to very low levels. These are very sizeable numbers and could give a real jolt to the market.”
Waters left no doubt that his industry is ready to go, once it starts getting sales contracts.
“If you see good absorption, you might be tempted to put up some speculative housing,” he said. “Speaking for Minto, we have a lot of homes ready to start. We just need to pull permits, and we can go quickly in a matter of weeks. A lot of the industry is like that. We have a lot of crews sitting on the sidelines. We are ready to go.”
The vast majority of these incentives will likely flow through to consumers, who simply won’t pay more than current prices, which is why little is selling.
The full 13 per cent of the HST will be removed for new homes in Ontario valued up to $1 million, amounting to $130,000. The break, available from April 1, 2026, to March 31, 2027, is reduced for homes above $1.5 million. Waters said the development charges can easily make up the difference to get to $200,000.
“A lot of builders will be anxious to get those sales, so they are going to flow the lion’s share of that to homebuyers . Builders’ margins have taken a beating over the last two to three years,” he said.
The biggest loser, albeit on the margins, could be existing home owners looking to sell. If you have two close-to-identical homes in the suburbs, and one is five years old and a new one is in a nearby subdivision, those tax breaks could tilt buyers toward the new home.
Phil Soper, president and chief executive of Royal LePage , said the government announcements are positive news for the whole residential market overall, but agreed it could impact some housing in the medium term.
“It will introduce lower-priced new homes which will compete with existing home sales and keep a cap on price appreciation,” said Soper. “It’s the suburban markets rather than the core 416 (city of Toronto proper) market.”
Existing home prices in Toronto have already been pinched by a lack of demand. The Toronto Regional Real Estate Board reported this month that the average selling price in February was $1,008,968, down 7.1 per cent from a year earlier.
For new homes, Justin Sherwood, chief operating officer of the Building Industry and Land Development Association, said it will improve project viability.
“Rapidly expanding government fees and charges have been undermining projects,” said Sherwood. “It will increase the supply of new houses coming to market. You’ve got some really concrete action to promote housing affordability and improve housing viability.”
One caveat could be he high-rise condominium market in the Greater Toronto Area may have so much inventory that a fee reduction will do very little to spur new projects.
“There is accumulated inventory, and then there is even more being delivered this year, and even with these changes, a standing inventory unit will still be cheaper than a new build unit,” said Waters.
That said, the reduction in HST could help clear out some units and make absorption faster.
Jeremy Reeds, president of Windmill Development Corp., said the announcements are not a total surprise because they’ve been under discussion. He said cutting development charges will get more projects off the ground, but it’s not the only thing required.
“It’s the right start and the right support that is starting to come from the federal and provincial level,” said Reeds.
Like other developers, he said a lot will depend on the consumer reaction to the reduction but there are other factors affecting the market.
“The macroeconomic geopolitical environment is still tricky. There are other variables impacting development, including cost escalation,” said Reeds, adding his group continues to focus on modern methods of construction, like pre-fabricated mass timber. “We continue to believe in public and private partnerships, and they are increasingly becoming more important.”
• Email: gmarr@postmedia.com