A new report published by the Residential Construction Council of Ontario (RESCON) finds that the average tax burden on a newly built home in Ontario has jumped to almost 36 percent of the purchase price, up from 31 percent just three years ago.

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-percent increase over 2021 and highlights a troubling trend, RESCON says.

“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 cannot 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 prepared for RESCON by the Canadian Centre for Economic Analysis.

The research finds 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 percent consists of direct fees on the home, such as development charges and other fees, while the remaining 30 percent arises from indirect taxes paid during the development process, including income and corporate taxes paid during the ordinary course of a residential construction business.

High fixed fees and development charges also significantly impact developers' profit margins and ability to invest in diverse housing projects. In Ontario, average developer margins are approximately 14 percent before direct taxes and fees. However, after factoring in these taxes, margins fall to around 10.7 percent. This reduction poses a notable risk in a declining housing market, where fixed costs become unsustainable if home prices decrease. For instance, a 5-percent drop in the purchase price of new home (with no change in construction costs) would reduce developer margins by 40 percent; a 10-percent drop would almost eliminate them.

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 percent, a large apartment is 37 percent, and a small apartment is 36.9 percent. In Toronto, the average tax and fee burden on a new home is 35.1 percent, a large apartment is 34.2 percent, and a small apartment is 35.3 percent.

In Ottawa, the average tax and fee burden on a new home is 34.5 percent, while tax rates vary from 35.2 percent on large apartment to 33.9 percent for small apartments.

RESCON says 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 to 45.2 percent.

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.”