Introduction
Housing affordability is once again at the center of Canada’s political debate. With the federal election on the horizon, former Bank of Canada Governor and potential Liberal leadership candidate Mark Carney has proposed removing the Goods and Services Tax (GST) on new home purchases for first-time buyers. The aim is to provide meaningful relief to young Canadians struggling to enter an overheated housing market.
This proposal, while politically attractive, raises important questions about its feasibility, scope, and actual impact on affordability. Could a GST exemption for new homes under $1 million offer real change, or will it simply fuel further demand without addressing the supply crisis?
This article explores how this policy could play out in markets like Abbotsford, Surrey, and Edmonton, where affordability challenges vary significantly. It also considers how industry professionals, including mortgage brokers, lenders, and builders, might adjust if the measure were implemented.
What Is Carney Proposing?
Mark Carney’s proposed policy aims to remove the 5% federal GST on new homes under $1 million, but only for first-time homebuyers. Unlike the current GST rebate, which phases out for homes priced over $350,000 and disappears entirely by $450,000, Carney’s plan would create a broader exemption for those purchasing newly constructed homes, without a steep income threshold.
Key differences between existing policy and the proposal:
- The existing GST rebate is partial and limited to homes under $450,000.
- Carney’s proposal would eliminate the GST entirely for homes under $1 million.
- This would apply only to first-time buyers, which narrows eligibility but targets affordability.
This measure is being marketed as a way to lower upfront costs for buyers and potentially encourage new housing construction by increasing demand for newly built homes.
How Much Would Buyers Save?
Let’s take a typical example. A new home priced at $800,000 currently includes $40,000 in GST. Under Carney’s proposal, that tax burden would be removed entirely. For a first-time buyer trying to stretch a budget and qualify for a mortgage under Canada’s strict stress test rules, this could make a meaningful difference.
For many in areas like Surrey or Abbotsford, where new builds often hover just below the $1 million threshold, the savings could be substantial enough to close affordability gaps—at least in the short term. In Edmonton, where new homes tend to be more affordable, the GST exemption could widen access to housing for middle-income earners without putting upward pressure on the $1 million cap.
However, the proposal’s potential benefits may be offset by increased demand, especially in constrained markets, which could push prices up again—negating the advantage of the tax break over time.
Will This Policy Fix Affordability?
The short answer: not entirely. While the GST exemption could reduce transaction costs and help certain buyers get into the market sooner, affordability is a structural issue tied to housing supply, income growth, construction timelines, and zoning policy.
Challenges with the proposal:
- Limited inventory: In cities like Vancouver, homes under $1 million are already scarce, especially in the new construction segment.
- Price inflation risk: A tax break may push more buyers into the market, increasing competition and prices unless supply keeps pace.
- Regional imbalance: In cities like Edmonton, where prices are already lower, the impact will be less dramatic, and developers may not significantly increase output just because of the GST cut.
- Unintended consequences: Builders may adjust pricing strategies, keeping prices just under the $1 million threshold to capitalize on demand from eligible buyers.
The policy could have positive short-term impacts, especially in markets with moderate supply and prices under the $1 million cap. But in the absence of serious supply-side reform, the GST cut alone is unlikely to shift affordability trends across the country.
What About Existing Incentives?
Currently, first-time buyers in Canada can access several federal programs, including:
- First-Time Home Buyer Incentive (FTHBI): A shared equity program designed to reduce monthly mortgage payments.
- Home Buyers’ Plan (HBP): Allows withdrawal of up to $35,000 from an RRSP for a down payment.
- GST New Housing Rebate: Offers a partial refund of GST on new homes under $450,000.
Carney’s plan would go beyond these programs by making the tax relief automatic and full, instead of partial and income-tested. This could streamline the homebuying process, especially for buyers overwhelmed by paperwork and complex eligibility criteria.
Still, layering tax exemptions over existing subsidies may provide only temporary relief unless paired with long-term housing reform. Affordability will remain out of reach for many if prices continue to rise faster than incomes or inventory growth.
How Mortgage Brokers Might Adapt
If implemented, this proposal could change the way mortgage professionals position financing strategies, particularly for first-time buyers considering new construction. At firms like Sandhu & Sran Mortgages, clients are already asking how policy shifts affect their ability to qualify, budget, and plan for the future.
Mortgage brokers may:
- Emphasize new construction financing as a strategic opportunity.
- Encourage buyers to act quickly if they qualify, especially in markets with limited supply under $1 million.
- Collaborate with builders and developers to promote eligible properties.
- Help clients incorporate potential tax savings into their mortgage affordability assessments.
By providing expert, localized guidance, brokers can help buyers navigate policy changes while making informed financial decisions that go beyond short-term incentives.
Regional Breakdown: Will the Policy Help Where It’s Needed Most?
The proposal’s effectiveness will vary widely depending on regional market conditions, particularly the availability of new homes priced under $1 million.
British Columbia: Abbotsford and Surrey
In Abbotsford, new homes still exist under the $1 million mark, particularly in townhouse and condo developments. For first-time buyers struggling to qualify under the current stress test, a GST exemption could push certain homes within reach, especially if paired with strategic down payment planning and lender flexibility.
Surrey, however, presents more complexity. As one of the fastest-growing urban centers in British Columbia, Surrey has experienced substantial price increases over the past five years. Detached new homes under $1 million are increasingly rare, especially in central neighbourhoods. New townhomes may still qualify, but demand far outpaces supply.
Builders in Surrey may start recalibrating product offerings to hit the $999,000 sweet spot if the proposal moves forward, which could mean more compact units or developments in suburban edges of the city.
Alberta: Edmonton
In Edmonton, where housing prices are comparatively more stable and affordable, the GST cut would have a more modest effect on affordability but could still enhance access to quality homes for first-time buyers. A significant portion of new builds in the city already fall below $600,000, so this proposal would serve more as a financial incentive than a deal-breaker.
In Edmonton’s case, the policy may prompt increased homebuying activity from renters or those previously priced out of newer communities. It may also encourage developers to focus on entry-level housing with efficient designs that appeal to budget-conscious families.
Developer Response: Pricing and Strategy Shifts
One of the more under-discussed aspects of the proposal is how homebuilders and developers may respond.
The $1 million threshold creates a strong incentive for builders to price new homes just under that limit—regardless of whether the product warrants that price. This could lead to price clustering, where developers aim to maximize value while staying GST-exempt.
There’s also the possibility of:
- Reduced upgrades or customization options to keep base models under the price cap.
- Smaller square footage or fewer amenities in new projects.
- Strategic launches of mid-range housing designed specifically for the first-time buyer segment.
While these shifts may lead to more targeted affordability, they also risk reducing the overall quality or long-term value of new homes. It could also discourage development of larger family homes that exceed the $1 million cap, further tightening supply in that category.
Long-Term Affordability: Can One Tax Policy Shift the Landscape?
As with many housing policy announcements, the concern is that a narrow, demand-side solution will not resolve a supply-side problem. Removing GST for certain buyers may increase competition in an already strained segment of the market—new homes priced below $1 million—without meaningfully increasing supply.
What’s still missing in the national affordability strategy:
- Zoning reform to allow for higher-density housing near transit and urban centers.
- Incentives for purpose-built rentals and missing-middle housing.
- Labour and material supply solutions to reduce construction delays and costs.
- Coordinated provincial and municipal support for new infrastructure and housing development.
Until those factors are addressed, even well-intentioned policies like a GST cut may have limited and uneven impacts across Canada’s diverse housing markets.
Frequently Asked Questions (FAQs)
- How much would a first-time buyer save with the GST cut?
A buyer purchasing a new home for $800,000 would save $40,000 in GST under the proposed exemption, assuming the home qualifies and the buyer meets the criteria. - Would this apply to pre-construction homes?
Yes, if the home is newly constructed and falls under $1 million at the time of purchase, the exemption would apply. However, policy details would determine how price adjustments or upgrades are handled. - Can builders increase prices just below $1 million to absorb the GST benefit?
That’s possible. Developers may be incentivized to price up to the threshold to maximize perceived value. This could offset savings for some buyers. - Will this help in cities like Vancouver?
Unlikely in a major way. Most new detached homes in Vancouver exceed $1 million. The impact will be more significant in secondary urban markets and smaller cities. - Does this replace the existing GST rebate?
No, this would extend beyond the current rebate, which phases out at $450,000. Carney’s proposal offers a full GST exemption for homes up to $1 million, targeted specifically at first-time buyers. - Will this lead to a spike in home prices?
There’s potential for short-term price inflation in the under-$1 million market segment, especially if supply remains constrained. - How should first-time buyers prepare if this policy passes?
Buyers should:
- Get pre-approved for a mortgage in advance.
- Track pricing trends in their target area.
- Work with mortgage brokers and real estate agents who understand how to leverage new policy advantages effectively.
Final Thoughts
Mark Carney’s proposal to cut GST for first-time buyers is an ambitious and headline-grabbing policy idea, but it is not a cure-all for Canada’s housing crisis. While it would reduce upfront costs and slightly increase affordability for some buyers—particularly in suburban markets and cities like Edmonton—the proposal does not address core structural issues.
For brokers, lenders, and buyers alike, the key will be to view this measure as one piece of a larger affordability puzzle. Strategic planning, localized guidance, and long-term market awareness will remain essential, particularly in high-demand regions like Surrey and Abbotsford, where even minor policy changes can shift the competitive landscape.
Mortgage professionals, including teams like Sandhu & Sran Mortgages, will play a critical role in helping buyers understand how these evolving policies fit into their overall homeownership journey.