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First-time buyers are being taxed out of the housing market

A real estate agent showing a couple with a baby around a new home, standing in the hallway and smiling.

Buying your first home should be a cause for celebration – not instill fear like a trip to the dentist.

Sadly, though, many young people today are no longer able to feel the exuberance of owning a home. High interest rates, hefty fees, taxes, levies and other charges and have killed that dream.

Young, first-time buyers are being taxed on new housing at rates which would have crushed their parents and grandparents.

In Ontario, the average selling price of a single-family home was $969,900 in March, an increase of 1.7 per cent over the previous month. Single-family home prices have increased by 0.8 per cent on a year-over-year basis in the last year, according to nesto.ca.

In 2019, nearly 60 per cent of all Canadian households could afford to own a condo apartment based on their income, says a report by RBC. But that figure declined to 45 per cent in 2023. Just 26 per cent can afford a single-family home, down from 40 per cent in 2020.

The average Canadian home now costs around $741,000 and the minimum income required to qualify for a mortgage is about $195,000.

To afford a home in Toronto, it takes 84 per cent of a median household income. In Vancouver, the figure has reached 102 per cent. Housing is generally considered affordable when 30 per cent or less of a household’s income is used to cover housing costs.

Meanwhile, home prices continue to creep up.

The cost of housing used to be three times the average household income. Now it’s 10 times. 

New home sales dismal

With few condos on the go, we are not going to see improvement anytime soon.

The Greater Toronto Hamilton Area new condo market reported 1,461 sales in the first quarter of this year, according to Urbanation Inc. It’s the lowest quarterly sales figure for condos since the global financial crisis in the first quarter of 2009 when 884 sales were reported.

Young people are up against too many financial and logistical hurdles when buying. They’re leaving the big cities and our country to seek greener pastures elsewhere.

If they don’t have whopping salaries, deep pockets, or perhaps a rich relative who can help, they’re out of luck.

To enable first-time homebuyers to get into the market – and ensure we have a healthy economy – governments must do more to help young people get a solid foothold in the market.

A joyful couple in a new home, with the man carrying the woman across the threshold amid packed moving boxes.

HST rebate would help

The most impactful decision the federal government could make would be to rebate the Harmonized Sales Tax (HST) to first-time buyers who purchase a new home.

RESCON has suggested that the government fully exempt or rebate the collection of the HST on the construction of all residential buildings for first-time homebuyers. Given the enormous amount of taxes paid on new homes, the buyers should be able to claim an even larger credit.

Our taxes, fees, levies and development charges are the highest in North America, effectively eliminating first-time buyers from the market.

In Ontario, for example, the add-ons account for 31 per cent of the cost of new housing. That’s three times higher than the most expensive U.S. city.

A study of the issue done by the Canadian Centre for Economic Analysis found that the federal government collects more than 30 per cent of the taxes on new housing but returns less than seven per cent to municipalities by way of funding for infrastructure that supports housing.

The feds are introducing some measures to help the first-time buyer. A 30-year amortization period for insured mortgages is a step forward, as is increasing the Home Buyer’s Plan from $35,000 to $60,000.

Housing demand will rise

Although the measures are a step forward, they’re just the tip of the iceberg as demand for housing is only going to increase in the years ahead. The initiatives will not move the needle significantly. 

First-time homebuyers have been disproportionately affected by the housing situation. The trend is heading in the wrong direction – and they need help.

New home and condo sales have literally ground to a halt at a time when we need housing the most. 

RESCON has called for more urgent action for first-time buyers. We can not simply sit on our hands and hope for the best. Our population is rising but we are not building enough homes for that growth.

The challenge facing our industry is formidable. Left unchecked, the situation will only get worse.

Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at media@rescon.com.

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