A flood of new tax breaks are being offered to rescue the private actors responsible for Ontario’s unaffordable market for new homes.
The federal government and the province of Ontario are budgeting $11 billion in tax expenditures:
- $2.2 billion to reduce sales taxes (HST) for any individual or corporation able to buy Ontario’s high-priced, brand new homes.
- $8.8 billion to reduce Development Charges (DCs) for developers.
The HST rebate will be offered over the next 12 months, costing the province over $1.3 billion and the feds nearly $900 million. Over the next three years, a list of “priority municipalities” will be required to cut DC’s by at least 30 percent, substantially reducing municipal budgets and costing the province and feds 4.4 billion each “to offset much of the financial impact.”
Will these tax breaks work? And if they do, who will they work for?
These moves should be understood as a historic bail out, one which will shape Ontario’s housing system for years to come. Over the next year alone, over $5 billion in private tax breaks are on offer for those able to buy or build high-priced private homes. That’s almost 7 times more than the province ($176 million) and federal government ($589 million) are projected to spend in total on building and subsidizing affordable housing in Ontario.
The bail out constitutes a highly inequitable and short-sighted approach to reviving home building which will cost the public dearly. If it succeeds, it will likely do so by enriching the same actors and stimulating the same actions responsible for Ontario’s housing market failure.
Another bail out is possible, one which leaves more homes in the hands of residents and community-owned housing providers, not wealthy investors. Tax breaks and public subsidies should not be offered indiscriminately and unconditionally. They should be extended on a targeted basis, as part of a broader program to transform Ontario’s inequitable home building system.
Reviving investor demand for unaffordable homes
For the 12 months beginning April 1, $2.2 billion in breaks on Harmonised Sales Tax (HST) are on offer from the federal government ($875 million) and the province ($1.3 billion) in an effort to entice people and corporations to buy new homes in Ontario.
The full 13 per cent of the HST will be cut for buyers of new homes valued up to $1 million. A maximum tax break of $130,000 will be offered to buyers of new homes valued between $1 million and $1.5 million, above which the rebate steadily decreases.
Many have framed the announcement as a bold move to help families “realize the dream of home ownership.” It is no such thing. First-time buyers have already been able to claim HST rebates on new homes for over a year, in an effort to give them a leg up.
With this new announcement, rebates will be extended to individuals and corporations that already own homes. Ultimately, this is an effort to stimulate property owners to buy more.
Though the announcements and subsequent media commentary hardly mention it, housing investors will likely be a major beneficiary.
Today, observers widely acknowledge housing investors’ responsibility for bidding home prices to unsustainable heights during the boom, contributing to Ontario’s protracted bust. As home prices rose over the 2010s and during the pandemic, property owners became increasingly willing and able to buy more homes. Leveraging their higher incomes and rising wealth, investors were able to take on substantially more mortgage debt than those trying to buy a place to call home, out bidding them.
Home building in Ontario became increasingly reliant on the willingness of wealthy investors to take out huge mortgages at rock bottom interest rates. According to the latest StatCan data, investors acquired 57 per cent of all new condo apartments and 20 per cent of all new houses completed over the past decade in Ontario. Their demand heated up notably during the pandemic, with investors acquiring 61 per cent of all condos and 25 per cent of all houses completed between the beginning of 2021 and 2023.
By 2022, the Bank of Canada began raising the alarm that investors had become “much more highly indebted than other types of homebuyers,” and were “increasingly extracting equity from their existing properties to support new purchases.” The process, they belatedly warned, was creating an unsustainable “feedback loop,” leaving local housing markets vulnerable to a sudden bust. So long as investors expected prices to continue rising, investor demand grew, banks lent them more, and prices were pushed further and further out of reach of most locals. When these conditions inevitably unraveled, so too did Ontario’s home building model.
It started unravelling in March 2022, when the Bank of Canada (BOC) began raising inter-bank interest rates in response to global inflationary pressures. From a low of 0.25 per cent, the rate reached a high of five per cent in July 2023, where it stayed until May 2024. As the cost of servicing mortgages surged and the amount of mortgage debt buyers could qualify to take on shrank, demand has been throttled.
Recognizing prices were unlikely to rise for the foreseeable future, investors headed for the sidelines. New home sales have dropped deeper and deeper into record lows. Despite seeing interest rates steadily reduced over the past two years (down to 2.25 percent today), demand remains anemic.
Faced with a mounting oversupply of unsold new homes, developers have steadily reduced prices. Since peaking in early 2022, the price of an average new condo apartment in the GTA has dropped 16 percent, to $1.02 million. Nonetheless, households hoping to qualify for a mortgage at this price today still need an annual income of over $230,000 — well over double the local median income ($100,500). A typical new house stood at $1.42 million.
Though they’ve steadily become more affordable, new home prices remain out of reach for the vast majority. By extending HST rebates to investors, Carney and Ford appear to have no intention of addressing this underlying problem. Their plan involves re-stimulating demand from the same investors responsible for pushing them out of reach.
It also involves accelerating the growth of a new, gargantuan form of corporate housing investor.
Accelerating the growth of large housing investors
One type of investor that stands to significantly benefit from HST rebates are large investors.
According to the most recent StatCan data, businesses and for-profit government entities (like public sector pension funds) own 84,335 houses and 81,750 condo apartments across Ontario. As of 2023, these big fish owned a substantial share of Ontario’s investor-owned houses (14 percent) and condos (29 percent). Over the past year or so, many appear to be in the process of becoming much bigger players.
According to the Globe and Mail, “close to 50 private funds and high-net-worth individuals” are now circling Ontario’s distressed market, bulk buying new condos “in batches of 40 to 50.” Observers are raising the alarm that these large investors appear to be in the process of scooping up a growing share of newly built homes, “buy[ing] entire blocks of condos from builders at significant discounts.” Their growth coincides with Ontario’s protracted housing crash, which has allowed them to act as “vulture funds,” capitalizing on sellers’ desperation to offload homes.
Across Ontario, developers are desperate to cash out and stop paying interest on unsold inventory. But they have very few options for offloading these units, so long as their prices remain out of reach of most prospective owner-occupiers, and most investors remain on the sidelines. Across the Greater Toronto Hamilton Area (GTHA) alone, a record-high 4,295 condos sit completed and unsold, more than double the level a year ago. Yet with sales of new condos flatlining at rates 94 percent below the 10-year average, it would take developers almost eight years to sell off this inventory. And this record glut is set to grow substantially, with an additional 8,629 unsold condos currently under construction, many of which will reach completion over the coming year.
The situation is giving deep-pocketed investors enormous leverage to negotiate down prices and ramp up the process of bulk buying. As market analyst and realtor John Pasalis explains, the HST break will likely “accelerate that process…making bulk purchases more attractive to these investors.” He expects the “biggest winners” from these billions in tax relief will be these large investors, along with the developers able to offload their units.
A major example is High Art Capital (HAC), a $1.3 billion private investment fund with plans to acquire 2,200 new condos across the GTA. They recently received a nearly $300 million loan from the province, ostensibly in exchange for committing to rent 25 per cent % of the units “affordably,” albeit with a vague definition that could leave asking rents far higher than average market rents. Now, this taxpayer backed vulture fund stands to benefit from an estimated $169 million in HST breaks.
These large investors claim to be converting these condos to “long-term rental,” thereby providing a stable alternative to renting condos and houses, where tenants are more vulnerable to eviction. However, there’s no reason to expect their tenants will be any less vulnerable to eviction or rent hikes than others renting investment properties on the secondary rental market. HAC themselves have boasted that because their tenants are not entitled to the protections associated with purpose-built rental housing tenure, they are able to “avoid many of the headaches” associated with operating a rental portfolio. They explain it provides them “natural flexibility, as units can be sold as income properties or condominiums for owner use”. HAC has also been clear about their “plans to sell the rental units to investors after holding them for a minimum of five years.”
Extensive research has found that when financial firms (REITS, private equity, and other institutional investors) become landlords, they tend to evict tenants and hike rents at significantly higher rates than other types of landlords. Over the past two decades, these large investors have been on a “buying spree,” acquiring around 20 percent of Canada’s purpose-built rental stock. Their business model can be described as industrialized gentrification — gouging, displacing, and “upgrading” tenants en masse — predominantly in racialized and working class neighborhoods. Now, these deep-pocketed investors appear to be expanding their predatory business strategy, buying up condos and houses as well.
Doug Ford and Mark Carney should be implementing taxes and regulations to constrict the growth of these emerging behemoths. Instead, they’re choosing to publicly subsidize their growth, making billions of dollars in public tax breaks accessible to them.
Will the bail out work?
A central goal of the HST rebate policy is to “stimulate an additional 8,000 housing starts in Ontario next year”. For a planned $2.2B in tax expenditures, that amounts to a whopping $275,000 per additional privately owned home.
It is far from clear that this measure it will succeed in achieving even this. Over the past three years, the number of housing starts have fallen sharply across Ontario. In 2025, the number of condo units and single-family homes on which construction began plummeted to just 56 percent and 58 percent of the average over the previous 10 years. CMHC’s 2026 Housing Market Outlook for Ontario projects housing starts will continue to decline. That’s because Ontario’s “plentiful resale supply,” of houses and condo apartments, “offers more affordable options, reducing demand for new units”.
In recent years, the number of homes listed for sale has surged far faster than the number sold, producing a record glut of inventory. As many observers warned, including this author, housing investors are disproportionately prone to sell during the downturn, thereby further amplifying it. This is because investors are focused above all on financial gain and often lack the social attachments to their property that inclines owner-occupiers not to sell. They are also “much more highly indebted than other types of homebuyers. Unsurprisingly, as interest rates rose and prices dropped, many rushed to sell their overvalued and deflating assets.
A mounting glut of resale homes for sale has put strong downward pressure on resale prices. Since peaking in early 2022, resale prices have dropped much more than developers have been willing to drop their prices on new homes. Since peaking across the GTHA, for example, the average asking price for newly completed condo units have fallen by only half the amount of comparable resale units. Today, the divergence has created a record-high gap, leaving new condos 38 percent more expensive than comparable resale condos. This constitutes a major barrier to reviving demand for new condos. According to analysts at Urbanation, new units will “need to be priced basically in line with resale” for buyers to begin rushing back.
It appears unlikely that reductions to HST will close this price gap between new build and resale homesprice-gap. Even if developers were to pass on all of the HST saving to new condo buyers (a highly tenuous suggestion), new condos would still remain 20 percent more expensive than comparable resale condos in the GTHA.
Nor is it clear that additional reductions to DCs will do so. Even if a prospective condo developer were to pass on the full 30 percent DC reduction required of municipalities (another highly tenuous suggestion), this would typically amount to no more than a 2-4 percent reduction in the price gap between new and resale condos, depending on the number of bedrooms.
Ultimately, much of Ontario’s oversupply of resale homes will need to be sold off, as will its mounting inventory of unsold new homes, before a substantial uptick in construction of condos and houses can be expected. For too long, developers chased overheated investor demand, building condos and houses at near-record rates for increasingly unaffordable prices. When investor-demand evaporated, Ontario was left with a glut of unsold, over-priced homes.
CMHC projects Ontario’s resale prices will continue to decline over 2026, as will the number of condo starts and house starts. “Prospective homebuyers are likely to focus on the resale market where supply is abundant. Builders will prioritize selling the growing number of newly completed homes that haven’t sold yet.”
The HST rebate policy is unlikely to stimulate a substantial uptick in condo and house building over the next year. It appears to be designed to help rescue developers from their bad bets, by re-stimulating investor demand for the growing number of newly completed homes that almost no one else is able to afford.
Another bailout is possible
Ontario’s housing market failure presents an opportunity to rethink what has gone wrong and begin transforming the housing system in a more stable and equitable direction. Frustratingly, neither Ontario’s Progressive Conservatives nor Canada’s federal Liberal government appear interested in doing so. Instead, they are planning to give a shot in the arm to an increasingly inequitable and failed home-building model.
If the HST rebates succeed in reviving enough demand to rescue developers from their bad bets, they will likely do so by:
· further increasing the share of condos and houses owned by Canada’s wealthiest
· further increasing the share of Canadians priced out of homeownership and forced to rent scattered investment properties, where they are far more vulnerable to evictions by landlords claiming own use or selling to those who do.
They appear unlikely to succeed in achieving their goal of stimulating an additional 8,000 housing starts over the next year. Even if they do, they will constitute a highly imprudent use of funds, amounting to a whopping $275,000 per additional privately-owned home. [Footnote: $275,000 amounts to nearly 80 percent of the capital cost of building an average unit of supportive and transitional housing, which is approximately $350,000 according to Association of Municipalities of Ontario]
Another bail out is possible, one which leaves communities owning more homes, not wealthy investors. We needn’t look far for inspiration.
In 2023, BC’s NDP government launched a Rental Protection Fund, to help communities buy private rental apartments and convert them to affordable non-market housing. The fund has invested $500 million over the past three years, helping communities secure 2,200 homes, averaging $227,000 per unit. In 2024, the federal government launched a similar fund, promising $470 million in grants and $1 billion in low interest loans.
These funds are not currently available for buying newly completed homes, but they could easily be expanded to do so. Non-market housing providers could be given grants for downpayments on new units, and use rents to pay back public loans over an extended period. With no profits to extract, rents would be kept lower, in perpetuity.
A public acquisition fund would expand access to housing far more stable and affordable than developers and investors have ever been in the business of providing. And there are ways it could be organized to drive down prices further. As CCPAs’ Ricardo Tranjan has written convincingly, a centralized government agency could engage in bulk buying, through intermittent reverse auctions, setting the number of units it is prepared to buy at a certain price.
Ultimately, public funds and tax breaks should not be offered indiscriminately and unconditionally. They should be extended on a targeted basis, as part of a broader program to transform Ontario’s inequitable home building system. The goal should be to provide the actors responsible for Ontario’s housing market failure a way out, not a bail out — laying the groundwork for a new generation of non-profit and co-operative rental housing.
