RESCON: 2025 a make-or-break year for the housing market

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To build housing that is more affordable, we must cut costs and reduce the taxes on housing

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As we begin 2025, the new housing market is at a critical inflection point. This will be a make-or-break year for the residential construction industry.?

If we don’t address the enduring and unrelenting problems that have stymied the housing market – namely ever-increasing taxes, fees and levies, slow approvals processes and excessive red tape, we will simply slip further into the abyss.?

The decrease in interest rates will have a minimal impact because myriad other factors need to be addressed if the market is to recover. Resale housing will be the first to see any benefits of lower interest rates but both it and the new housing market still face significant headwinds. The declining value of the loonie, for example, will hike the cost of imported goods and put a damper on the economy and homebuying.?

Our productivity and real income growth have been hammered in comparison to the U.S. We have never seen a divergence this wide.??

A healthy residential construction industry is essential to economic prosperity. The sector accounts for more than $65 billion of Ontario’s GDP. And, directly and indirectly, it creates hundreds of thousands of jobs.?

While there is a consensus that 2025 will be a disastrously bleak year for new housing supply, we have seen some snippets of good news beginning to emerge. The reality of the situation may finally be hitting home with governments. Hopefully, this will force our politicians to act quickly.?

For example, the City of Vaughan recently cut its development charges in half. Burlington also lowered its development charges. I am hopeful other municipalities will follow suit as we have the highest tax rate on new homes with the worst record for red tape in the developed world.????

Vaughan’s move under Mayor Steven Del Duca demonstrated that contrary to narratives put forward by municipalities for a long time, development charges can actually be reduced by these cities.?

Federally, Opposition Leader Pierre Poilievre promised that if the Conservatives are elected they will cut the sales taxes on new homes sold for under $1 million to restore affordability to the market.? RESCON has long been advocating for this approach.?

Provincially, the PCs have passed legislation to reduce red tape and the excessive regulations that are jamming development approvals for residential building.?

The Ontario Liberals, meanwhile, have announced a plan to scrap development charges on new homes under 3,000 square feet and cut land transfer taxes in homes for seniors and first-time homebuyers.??

Earlier, the City of Toronto eliminated development charges on select projects which, while encouraging, is too limited.??

The reality is simply that average taxes on new housing in Ontario have reached a tipping point at almost 36 per cent of the purchase price. That’s up from 31 per cent just three years ago. On a $1-million home, consumers are now paying $360,000 in income taxes, corporate, sales and transfer taxes, and development charges. The surge in development charges is largely responsible for this extreme figure.?

With such excessive costs baked into the system, we have no chance of hitting the 1.5-million housing target.??

The economic and social consequences of continued fiddling and analysis paralysis are mind-boggling. We remain at the bottom of various international metrics.?

The tax burden has pushed the cost of new housing beyond the reach of most working families and prevents investment in new housing projects. Much of the development charges collected remain in municipal reserve funds. Municipalities held $10.4 billion in unused development charges as of 2022.??

RESCON has been imploring senior levels of government to create a predictable source of financing for infrastructure supporting new housing supply.???

Research shows some of our most talented people are leaving the province because of high housing costs. In the last four years alone, roughly 100,000 more people moved out of Ontario to other provinces than moved in from other provinces.?

This is an alarming statistic.?

To build housing that is more affordable, we must cut costs and reduce the taxes on housing. If we don’t take action, the supply shortage will get worse. Nobody wins in that scenario.?

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.??