Will Proposed GST Cut for First-Time Buyers Improve Affordability?

As Canada’s housing affordability crisis deepens, political leaders and policymakers are floating new ideas aimed at easing the burden for first-time buyers. One such proposal comes from former Bank of Canada Governor Mark Carney, who has suggested removing the GST on new home purchases under $1 million for first-time homebuyers.

The appeal of this idea is obvious: by eliminating the 5% federal tax on qualifying homes, buyers would see a significant drop in their upfront costs—potentially saving tens of thousands of dollars. But as with any policy aimed at the demand side of the housing equation, the real question is whether it can meaningfully shift affordability, or whether it simply fuels more demand in an already strained market.

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A Policy Designed to Expand Access—But With Limits

Under current rules, the federal GST rebate for new homes starts to phase out at $350,000 and disappears entirely at $450,000—a figure far out of sync with today’s market conditions in most urban centers. Carney’s proposal would significantly increase the threshold, offering a full GST exemption on new homes priced below $1 million.

For first-time buyers, this could remove one of the more frustrating barriers to entry—particularly in markets where new housing remains barely within reach.

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Does It Really Help Where It’s Needed Most?

In mid-sized cities and some urban fringes, a GST cut could deliver meaningful cost savings. In areas where new homes are priced in the $600,000 to $900,000 range, buyers could save between $30,000 and $45,000—a substantial reduction in cash required at closing.

However, in cities like Toronto and Vancouver, new builds under $1 million are increasingly rare. Even in rapidly growing markets like Surrey, the number of detached homes or even large townhomes under the $1 million cap is shrinking. If developers react by pricing properties just under the threshold, there’s a risk that savings from the GST exemption could be offset by price inflation.

In more affordable cities—like Edmonton or parts of the Fraser Valley—the proposal could open more doors for working families, helping renters transition into ownership. But again, the success of this initiative hinges on local inventory and construction activity.

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What Could Change for Developers and Lenders?

Should the policy be adopted, developers would likely respond in two ways:

1. Adjusting home designs to fit under the $1 million cap—possibly by reducing square footage or premium features.
2. Strategically pricing homes to meet the eligibility criteria, creating a psychological pricing ceiling in the new-build segment.

Lenders and brokers may begin to structure financing conversations around this tax exemption, particularly for buyers with tight debt ratios. For mortgage professionals, the key opportunity lies in helping clients understand how the savings can improve their qualification power, and how to align that with realistic expectations of supply and competition in their area.

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Structural Issues Still Unresolved

While a GST cut could provide a short-term affordability boost, it does not address the root causes of Canada’s housing problem. Without concurrent moves to increase housing supply, reform zoning laws, and address skilled labour shortages in construction, affordability gains may be fleeting.

Historically, policies that focus only on demand—such as tax credits or buyer incentives—have tended to drive prices upward if supply remains unchanged. If builders cannot respond with volume, any demand-side benefit is quickly absorbed into higher valuations.

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Conclusion

Carney’s proposal to eliminate the GST on new homes for first-time buyers is politically attractive and potentially impactful—especially for buyers in mid-sized or emerging markets. However, without broader supply-side reforms, its ability to truly “fix” affordability is limited.

It may be a useful tool in a broader housing strategy, but not a solution in itself. Policymakers should be cautious not to oversell its potential, and stakeholders in the real estate and mortgage sectors should prepare for uneven effects depending on region, inventory levels, and price trends.

If implemented, this policy could shape a new set of expectations for buyers, developers, and lenders alike—and may lead to further calls for comprehensive affordability reform across the country.