Canada’s National Housing Month ended not with optimism, but with a warning. Across the country, new home sales have collapsed or slowed (depending on the market) to a pace that threatens to reshape Canada’s housing landscape for years to come.

Year-to-date (to October) new home sales have plummeted across the country compared to the 10-year average: Single-family and condominium unit sales are down 82 per cent in the Greater Toronto Area, 81 per cent in the Greater Golden Horseshoe, 67 per cent in Vancouver, 40 per cent in Calgary and 33 per cent in Edmonton. In Montreal, condominium apartment sales have fallen by an astonishing 75 per cent. These figures are not minor fluctuations – they are flashing red warning lights. This is shaping up to be the worst sales year on record.

Backbone of Canada’s construction economy

These numbers signal an industry-wide slowdown that puts tens of thousands of skilled jobs, professionals and small to medium-sized firms at risk – tradespeople, engineers, architects and the type of small companies that form the backbone of Canada’s construction economy. And because new home sales are a leading indicator of future housing starts, today’s decline means tomorrow’s supply gap will only grow wider. A crisis of affordability cannot be solved without homes to buy, yet the current trajectory guarantees fewer will be built in the years ahead.

Governments at every level have long recognized that housing affordability has become one of the country’s most pressing issues. But if affordability truly is the problem, then the federal government must confront one of the most counterproductive pressures on new homes: The application of sales tax.

For more than 30 years, the exemption price threshold on the federal portion of the GST/HST on new and substantially renovated homes has remained unchanged – even as prices have surged, construction costs have risen and governments themselves have publicly recognized that the tax is making the problem worse. The rebate thresholds have not been indexed to inflation, despite the government commitment to do so when the tax was introduced. As a result, more and more middle-class families were pushed above the rebate cut-offs each year, effectively paying higher taxes not because they are wealthier, but because rebate thresholds were never indexed, meaning that as construction inflation happened the government collected more and more taxes on the backs of middle-class taxpayers.

Immediate and meaningful impact

So, the one mechanism that was intended to protect against the tax eroding housing affordability has been ignored, and surprise – the amount of tax collected on housing and the government’s reliance on it has increased dramatically. Imagine the outrage in the general tax base if the government failed to index income tax brackets for more than 34 years. This is precisely what Ottawa has done, but for housing.

The federal government clearly understands this and knows the GST/HST is a barrier. In 2023, Ottawa exempted purpose-built rental from the GST, and Ontario followed suit on the HST. That decision was grounded in the logic that removing sales tax reduces costs, improves project viability and accelerates supply in a segment of the market that desperately needs it.

Budget 2025 acknowledges the affordability challenges and GST/HST’s role, but offers only a partial solution that will benefit too few Canadians. The budget raises the GST/HST rebate thresholds on new and substantially renovated homes to the first $1 million, with a declining rebate up to $1.5 million – but only for first-time buyers. In the GTA (where an average new condo costs $1 million and an average single family is about $1.5 million) this measure will do less to support middle-class families trying to buy their first home, and nothing for those trying to move up, downsize or re-enter the market after life changes. The sales tax on new homes will continue to erode affordability in precisely the places where the need for relief is greatest.

This is why it is time to fundamentally reconsider how we apply sales tax to primary residences in this country. At its core, a primary home is not a luxury good. It is a necessity of life and the foundation of economic security for millions of Canadians. Yet we tax it as though it were optional. When young families are stretching every dollar to enter the market, or when builders are trying to deliver more homes at a lower cost, adding tens of thousands of dollars in tax works directly against the goal of affordability.

Addressing these fees and charges is one of the few levers that Ottawa can pull immediately – and with meaningful impact. It does not require new bureaucracies, multi-year consultations or complicated funding models. It simply requires recognizing that the current system is outdated and unfair, and that continued inaction will only deepen the crisis.

If Canada is serious about restoring affordability, then the federal government must treat all Canadians fairly and extend the GST/HST exemption to all new-home buyers.