RESCON: Taxes more than a third of purchase price for new builds

Key Takeaways:

• The average tax burden on a newly constructed home in Ontario has risen to 36% of the purchase price, up from 31% just three years ago, driven largely by increased development charges. For an average new home costing $1,070,000, this translates to a tax burden of nearly $381,000, a 16% increase since 2021.
• The escalating tax burden significantly affects housing affordability, disproportionately impacting first-time buyers and lower-income households. For homes priced at $450,000—aligned with median household incomes—the tax burden rises sharply to 45.2%. RESCON says these high costs deter developers from investing in new projects, exacerbating Ontario’s housing crisis.
• RESCON says the data underscores the need for federal and provincial governments to provide more funding for municipal infrastructure to reduce reliance on development charges.

The Whole Story:

The average tax burden on a newly constructed home in Ontario has jumped to almost 36% of the purchase price, up from 31% just three years ago, a report commissioned by the Residential Construction Council of Ontario (RESCON) has revealed.

On the average price of a new home in Ontario, which is about $1,070,000, that means consumers are now paying nearly $381,000 in income taxes, corporate, sales and transfer taxes, and development charges and fees. The new number is a 16% increase over 2021 and highlights a troubling trend.

“These taxes are out of control and pushing the cost of new housing beyond the reach of most working families,” says RESCON president Richard Lyall. “The tax burden is significantly raising the price tag of a new home and directly contributing to the housing crisis we are facing by affecting the ability of developers to invest in new housing projects. This escalation presents substantial challenges to housing affordability and economic stability.

“The situation simply can not be allowed to continue. The huge increases have occurred over the last decade in large part because municipalities have hiked their development charges to pay for municipal infrastructure. The findings of this research indicate a critical need for the federal and provincial governments to get more involved in funding public infrastructure at local levels to support growth and ease the tax burden on housing in Ontario.”

The report, called Increasing Tax Burden on New Ontario Homes: 2024, was done by the Canadian Centre for Economic Analysis. Research revealed that the tax and fee burden on new homes continues to be more than twice that of the rest of the economy and governments now derive nearly four times more revenue from the sale of a new home than builders, further exacerbating the challenges faced by the residential construction sector.

According to the research, the tax and fee burden is significantly higher because of recent surges in development charges and the escalation presents considerable challenges for market stability. Of the total tax and fee burden on new housing, 70% consists of direct fees on the home, such as development charges and other fees, while the remaining 30% arises from indirect taxes paid during the development process, including income and corporate taxes paid during the ordinary course of a residential construction business.

Across the province, the tax burden varies by dwelling type and municipality. Rates in some jurisdictions are higher than the provincial average. In the GTA, excluding Toronto, the average tax and fee burden on a new home is 35.9%, a large apartment is 37%, and a small apartment is 36.9%. In Toronto, the average tax and fee burden on a new home is 35.1%, a large apartment is 34.2%, and a small apartment is 35.3%.

The system disproportionately affects first-time buyers and lower-income households. For homes priced at $450,000, an amount which aligns with what many households could afford based on median pre-tax household incomes, the average tax burden rises sharply to 45.2%. 

The report calls for immediate reform of the taxation and fee structures affecting new housing and notes there is a critical need for the federal and provincial governments to take a more active role in funding municipal infrastructure.

“Much of our economic success depends on a robust housing supply so it is critical that we address the tax burden,” says Lyall. “Municipalities lack the revenue streams to fund the infrastructure necessary for new housing and end up loading the cost onto new homeowners via development charges. This must change if we are to incentivize more homebuilding.”