Developers in Ontario say a cut in taxes and fees that could cut the cost of new homes by up to $200,000 is making them ready to build. Now the only thing missing is buyers.
Recent changes include the elimination of the 13 per cent harmonized sales tax on new homes for all buyers, confirmed in Ontario’s budget last week, and Monday’s announcement by the Ontario and federal governments of a 50 per cent reduction in community development fees.
“It could make homes that were previously out of reach accessible to a lot of people,” said Michael Waters, chief executive of Ottawa-based Minto Group, one of the country’s largest developers. “It’s a huge job creation engine for the industry if we can continue to build homes. Obviously, due to low pre-construction sales, many housing starts are being canceled or postponed.”
The two levels of government have promised to offset $8.8 billion in development costs over 10 years. The province estimates the measure will create 21,000 jobs and contribute $2.7 billion to Ontario’s gross domestic product next year.
But whether these measures pave the way for developers will ultimately be decided by consumers, because developers need sales before they start construction.
The latest data from Canada Mortgage and Housing Corp. show that new construction in Toronto fell 28 per cent in February, driven by lower starts in multi-family and single-family homes as the construction market remains stagnant.
“The condo market is a little different because current prices are still so low and it’s going to cost a lot to get that market going,” said Doug Porter, chief economist at Bank of Montreal. “This could be very interesting for single-family homes. The proportion of new construction for single-family homes has fallen to a very low level. These are very high numbers and could give the market a real jolt.”
Waters left no doubt that his industry is ready to take off as soon as it receives sales contracts.
“If you see good absorption, you might be tempted to build speculative housing,” he said. “Speaking of Minto, we have a lot of houses ready to go. We just need to get the permits and we can finish quickly within a few weeks. This is the case in many industries. We have a lot of teams sitting on the sidelines. We are ready to go.”
The vast majority of these incentives are likely to be passed on to consumers, who simply won’t pay more than current prices, which is why little sells.
The entire 13 per cent of HST will be removed for new homes in Ontario valued up to $1 million, an amount equal to $130,000. The break, which runs from April 1, 2026 to March 31, 2027, will be shortened for homes over $1.5 million. Waters said development costs could easily make up the difference, coming to $200,000.
“Many developers will be keen to achieve these sales, so they will pass on the lion’s share of them to homebuyers. Developers’ margins have declined sharply in the last two to three years,” he said.
The biggest loser, albeit to a lesser extent, could be existing homeowners looking to sell. If you have two nearly identical houses in a suburb, one of which is five years old and a new one in a nearby subdivision, these tax breaks could encourage buyers to choose the new house.
Phil Soper, president and CEO of Royal LePage, said the government announcements were positive news for the overall housing market as a whole, but agreed they could impact some properties in the medium term.
“More affordable new homes will be introduced to compete with sales of existing homes and limit price increases,” Soper said. “It’s the suburban markets rather than the core 416 market (the city of Toronto proper).”
Prices for existing properties in Toronto have already fallen due to a lack of demand. The Toronto Regional Real Estate Board reported this month that the average sales price in February was $1,008,968, down 7.1 per cent from a year ago.
For new homes, Justin Sherwood, chief operating officer of the Building Industry and Land Development Association, said this will improve project viability.
“Rapidly increasing government fees and charges have undermined projects,” Sherwood said. “It will increase the supply of new homes coming to market. They have really concrete measures to support housing affordability and improve housing profitability.”
One caveat might be that the Greater Toronto Area high-rise condo market may have so much inventory that a fee reduction will do little to spur new projects.
“There is inventory building up, and then even more will be delivered this year, and even with these changes, an existing unit will still be cheaper than a newly built unit,” Waters said.
However, reducing HST could help eliminate some units and speed up absorption.
Jeremy Reeds, president of Windmill Development Corp., said the announcements were not a complete surprise because they were already being discussed. He said reducing development costs will bring more projects to fruition, but that is not the only thing needed.
“It is the right start and the right support that is now coming from the federal and provincial levels,” Reeds said.
Like other developers, he said much will depend on consumer reaction to the reduction, but there are other factors influencing the market.
“The macro geopolitical environment is still difficult. There are other variables impacting development, including cost increases,” Reeds said, adding that his group continues to focus on modern construction methods such as prefabricated mass timber construction. “We continue to believe in public and private partnerships and they are becoming increasingly important.”
• Email: gmarr@postmedia.com