The residential construction industry in Ontario is facing severe headwinds as a complex web of taxes, fees, and levies continues to drive up housing costs, making homeownership increasingly unattainable for working families across the province.
The Tax Burden on New Home Construction
According to Richard Lyall, president of the Residential Construction Council of Ontario (RESCON), these government-imposed costs now account for a staggering 36 percent of the purchase price of a new home. This significant financial burden has crippled the industry's ability to deliver affordable housing options at a time when Ontario is mired in a housing supply crisis.
The situation has become so dire that many families are leaving Ontario entirely in search of more affordable accommodations elsewhere. The timing of government intervention is critical, as forecasts indicate the residential construction industry's weakness is expected to continue for some time.
Recent Government Measures Provide Some Relief
Both the Ontario and federal governments have taken recent steps to address the affordability crisis. The Ford government announced it is eliminating the sales tax on new housing up to $1 million for first-time buyers, with decreasing benefits on a sliding scale for homes priced between $1 and $1.5 million.
This move mirrors federal initiatives and will provide substantial savings. For first-time buyers purchasing a $1 million new home, the aligned government measures will reduce costs by approximately $130,000. Given that first-time buyers account for roughly 35 percent of new home purchases, this relief is expected to have a positive effect on the market.
The Development Charge Dilemma
While sales tax cuts provide welcome relief, RESCON argues that further action is urgently needed, particularly regarding development charges (DCs). Municipalities in Ontario currently have the highest DCs in the country, creating additional barriers to affordable housing construction.
In Toronto, developers pay nearly $140,000 in municipal taxes on a single-family home, costs that are inevitably passed on to homebuyers through higher prices. Even smaller units face substantial DCs, ranging from $60,000 for a bachelor apartment to more than $80,000 for a two-bedroom unit.
Although Toronto city council recently voted to freeze a planned hike to DCs in light of dismal housing start numbers, RESCON maintains that current charges remain excessively high. This is particularly concerning given that in 2022, council raised DCs for residential buildings by 46 percent.
Industry Crisis Deepens as Projects Cancel
The residential construction industry's challenges are reflected in alarming market data. According to real estate firm Urbanation, 18 condo projects have been cancelled in the Toronto and Hamilton areas so far in 2025, with 10 of those cancellations occurring in the third quarter alone.
The situation in Toronto is particularly grim, with the city on pace for its lowest annual housing starts since 1996, according to the Canada Mortgage and Housing Corporation. The Greater Toronto Area now has some of the highest home prices relative to income in the world, with single-family home prices exceeding 11 times middle-class family incomes.
At a recent housing summit hosted by RESCON, experts warned that Ontario risks losing almost 100,000 construction jobs, which would result in a $10-billion economic hit to the province.
Looking Ahead: Ambitious Targets Meet Harsh Reality
Governments have set ambitious housing supply targets, with the federal government aiming to build 500,000 new homes annually over the next decade and the province sticking to its target of 1.5 million homes by 2031. However, based on recent housing starts and sales figures, these targets appear increasingly unattainable.
The Ontario government has taken one positive step by passing legislation that permits developers to defer DC payments to municipalities until occupancy, rather than when building permits are issued. While helpful, RESCON argues that more substantial reductions in development charges are necessary to truly address the affordability crisis.
As Lyall concludes, the residential construction industry is currently stuck in quicksand, with taxes, fees, levies, and approval delays collectively killing the market. With the industry off course from government targets, all stakeholders need to row together in the right direction to navigate Ontario out of its housing crisis.
