Market Insight for April 25

Both the Liberals and Conservatives have pledged to cut the cost of new homes by as much as $100,000. However, in Toronto, new condos are already about $300,000 more expensive than resale units.

The two major parties are promising to reduce taxes and fees in order to bring down the cost of new housing by up to $100,000 in Canada’s largest cities. But that won’t do much for buyers in the GTA, where resale properties are still far cheaper.

In the GTA, a new-build condo typically costs around $333,700 more than a resale condo. While this price gap is especially noticeable in Toronto, it’s also apparent in surrounding cities like Brampton, Pickering, and Oshawa, where single-family homes show similar disparities.

Both parties are proposing changes such as scrapping the five per cent GST on new homes and lowering development charges to decrease construction costs. According to Pierre Poilievre’s campaign, these policies aim to make “home ownership attainable again,” while Mark Carney’s platform speaks of reducing costs so Canadians can make “homeownership a reality.” But with new home prices far outpacing resale homes, these proposals have limited impact.

Experts say narrowing the pricing gap between new and resale homes is highly unlikely, which is why most buyers turn to the resale market.

Instead of directly lowering prices for buyers, the proposed tax cuts are more likely to encourage developers to build — an important move given the slowdown in construction. The theory is that by cutting fees, developers save money and may lower sale prices. However, experts are divided: some argue builders may not pass on the savings, while others believe they will offer better prices during a market downturn to attract buyers.

The Liberal plan includes cutting municipal development charges by 50% for multi-unit residential projects, while also working with provinces and territories to replace lost municipal revenue for five years. They estimate a cost reduction of about $40,000 for a two-bedroom unit in Toronto.

The Liberals have also promised a GST cut for new homes under $1 million limited to first-time buyers, potentially saving up to $50,000. In recognition of the high costs of homes in more expensive housing markets, they’ve also promised to lower the GST for homes between $1 million and $1.5 million for first-time buyers The Conservatives, on the other hand, want to remove the five per cent GST for all new builds under $1.3 million for any buyer, offering up to $65,000 in savings. They’d also push cities to reduce development charges for a combined total savings of $100,000 per home in the GTA.

Rising interest rates, along with spiking material and labour costs, have pushed construction costs above market prices. While the cuts could help boost housing starts, they may not necessarily translate into lower prices for end buyers.

There’s also been a shortfall in purpose-built rentals and multi-family units, which the proposed development charge cuts aim to address — particularly under the Liberals’ plan that emphasizes support for multi-unit residential construction.

We’ve fallen behind with this type of housing and it will help encourage more of this rental supply. We need to keep an eye on the big picture, which is we have a supply shortage which has led to price increases, so if we can ramp up supply it will help reduce significant price increases going forward.

In any case, there is no magic solution in these platforms or anywhere else. The solution will have to be pressing a lot of levers at once, and it’s not going to happen over-night.