Lyall: Ontario’s housing crisis is policy-made — and fixable

Despite recent efforts by the provincial and federal governments, Ontario is in the deepest housing affordability crisis in its history.

The cost-to-income ratio for a new home now exceeds 9:1, compared to the historical norm of 3:1 and 4:1 that prevailed for most of the post-war period.

However, there is some good news. The crisis is not a private-market failure. It is largely policy-constructed, which means it can also be corrected.

The cost of government policy

Government-imposed taxes, fees, levies and development charges now account for approximately 36 per cent of the final purchase price of a new home in Ontario.

Meanwhile, regulatory complexity routinely extends approval times and ultimately adds to the cost of housing.

The government-imposed fees, along with higher interest rates and elevated construction costs have made many housing projects too pricey to build at current selling prices.

Ontario housing starts in 2026 are running slightly ahead of 2025 levels, but the figure is expected to decline through the rest of the year because of weak demand, high construction costs and elevated inventories. In Toronto, housing starts were down 10 per cent year-over-year in July.

To reach Ontario’s target of building 1.5 million new homes by 2031, the province needs to build roughly 1.24 million more homes. Completions and starts since 2022 total around 260,000 units, leaving an average pace of over 218,000 starts per year for the remaining timeline.

That’s a tall order.

Recent measures are showing results

To their credit, governments have taken some positive steps.

Introduction of a temporary HST rebate on new homes has helped to get the market moving again.

There were 8,410 new homes sold in Ontario in the first three months of the rebate, which began April 1 – a 130-per cent increase over the same time last year, when there were 3,645 new homes sold.

The rebate applies to new homes purchased before March 31, 2027, and will save a buyer $130,000 on a $1-million home. The maximum discount stays at $130,000 for homes priced up to $1.5 million and is gradually phased out above that to homes priced at $1.85 million.

The province and feds also announced the Canada-Ontario Development Charge Reduction Program (DCRP), an $8.8-billion fund for municipalities to temporarily reduce development charges.

Under the initiative, municipalities can receive government funding if they reduce residential DCs by between 30 and 50 per cent or more and maintain those reductions for at least three years.

Development charges have become one of the most damaging barriers to housing affordability in Ontario. In the GTA, for example, they exceed $100,000 per single-family home. In some communities, the combined impact of DCs and other municipal levies add as much as $200,000 to the cost of a new home. Those costs are ultimately paid for by the homebuyers.

The federal and Ontario governments have also announced a new $1-billion funding stream for municipalities that do not levy development charges. The program will provide $500 million from each of the governments to help eligible municipalities build and renew housing-enabling infrastructure.

Temporary relief needs to become permanent

However, if policymakers are serious about restoring affordability and increasing housing supply, the temporary HST rebate and development charge reductions need to be made permanent.

Solving big problems requires a new way of thinking. For governments, that means abandoning the outdated practice of treating new homes as a revenue source and recognizing them for what they are: an essential part of Ontario’s economic and social future.

To remedy the situation, we must first make HST relief permanent to give builders, buyers and lenders the multi-year certainty that project financing decisions require. This is consistent with a recommendation made by the Senate Committee on Banking Commerce and the Economy.

Second, the DCRP needs to be made permanent beyond the three-year window. The lost development charge revenue should be replaced with a stable federal-provincial infrastructure transfer. Municipal financing alternatives such as tax-free bonds for housing-enabling infrastructure should also be introduced.

Building more homes means changing the rules

Third, we need to modernize the Ontario Building Code and speed up the approvals system by moving to a digital planning and building permit approval process across all 444 municipalities and standardizing as-of-right pre-approved building designs. The Ontario government is reviewing the code with a view to streamlining it and eliminating red tape.

Fourth, four-storey buildings should be as-of-right province-wide. We must also triple skilled trades immigration streams, expand apprenticeship funding and journeyperson ratios, and support more off-site, modular and factory-built construction.

Finally, we should also remove foreign buyer bans for newly constructed housing, especially for high-rise projects.

Our housing affordability challenge is real, deep and consequential. It has been shaped by decades of fiscal, zoning and approvals decisions. The time has come to reshape the narrative.

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