The average Canadian house hunter has weathered quite the storm lately. Between soaring interest rates, cooling markets, and policy twists that seem to shift with the political winds, navigating the path to homeownership feels increasingly like an advanced economics course.
And now, just as prospective buyers thought they understood the game, Ottawa’s latest housing affordability strategy—removing GST on new rental construction and offering rebates to first-time homebuyers—may actually drive prices higher, according to a new analysis from National Bank.
“While well-intentioned, the GST rebate could end up being partially captured by developers,” explains Benjamin Tal, deputy chief economist at CIBC, who reviewed National Bank’s findings. “In supply-constrained markets, any financial relief tends to get absorbed into pricing, especially when demand is unleashed simultaneously.”
The report, released Tuesday, suggests that Prime Minister Justin Trudeau’s headline-grabbing housing affordability measure could unintentionally inflate the very prices it aims to control. For frustrated millennials and Gen Z Canadians already stretching their budgets to breaking point, it’s another chapter in what feels like an endless housing affordability crisis.
When the federal government announced the full GST rebate for first-time buyers purchasing homes under $500,000 (with partial rebates extending to $850,000), Finance Minister Chrystia Freeland framed it as immediate relief for young Canadians. The savings seemed straightforward—up to $25,000 off a new build’s purchase price.
But economists are raising red flags about what happens when you increase purchasing power without proportionally increasing housing supply.
“It’s a fundamental market principle,” notes Ksenia Bushmeneva, economist at TD Bank Group. “If you give thousands of buyers more spending capacity simultaneously but don’t meaningfully expand housing stock, prices rise to meet that new demand ceiling.”
The Bank of Canada‘s recent interest rate cuts have already begun rekindling market activity. Adding GST rebates into this environment could further accelerate price growth, particularly in markets like Montreal, Calgary, and Ottawa where new construction falls significantly below population growth needs.
For Taylor Wong, a 32-year-old tech worker in Vancouver who’s been saving for three years, the news is disheartening. “Every time I get close to having enough for a down payment, the goalposts move,” she says. “I was excited about the GST rebate until my realtor explained developers are already factoring it into their pricing strategies.”
Indeed, some developers have begun marketing pre-construction units with language highlighting “GST rebate eligible!” while maintaining similar price points to earlier offerings. The rebate, rather than lowering costs for buyers, appears to be preserving profit margins for builders in some cases.
Robert Kavcic, senior economist at BMO Capital Markets, points to Australia’s First Home Owner Grant as a cautionary tale. “When Australia implemented similar buyer incentives without addressing supply constraints, they saw prices rise by roughly the amount of the grant within 12 months,” he explains. “Market forces are powerful things.”
Statistics Canada data shows housing starts fell 9% in August compared to July, adding pressure to an already strained supply pipeline. The Canada Mortgage and Housing Corporation estimates the country needs to build 5.8 million new homes by 2030 to restore affordability—nearly double the current construction pace.
Urban planners note that GST relief, while helpful for stimulating construction, doesn’t address the more fundamental barriers to housing development: municipal approval processes, zoning restrictions, and skilled labor shortages.
“Tax policy is just one small piece of a complex puzzle,” says Diana Petramala, senior economist at Ryerson University’s Centre for Urban Research. “Without coordination across all levels of government to actually enable more building, these financial incentives tend to benefit those already in the market rather than those trying to enter it.”
The rebate structure itself has geographic inequities. In markets like Toronto and Vancouver, where even starter homes typically exceed $850,000, many first-time buyers will receive only partial benefits—if they qualify at all. Meanwhile, in Regina or Moncton, where average prices remain below $500,000, buyers could receive the full rebate, potentially contributing to faster price growth in previously affordable regions.
As housing advocates and economists debate the policy’s merits, real estate professionals on the ground report mixed reactions. Some buyers are accelerating purchase plans to capitalize on the rebate before expected price adjustments, while others have adopted a wait-and-see approach.
“We’ve seen this movie before,” says Samantha Ellis, a Toronto-based mortgage broker. “When the government creates a new advantage for buyers without fixing supply, it’s only a matter of time before sellers capture that benefit through pricing.”
For policymakers, the challenge remains finding tools that genuinely improve affordability rather than simply shuffling the deck chairs. Real solutions, economists agree, must address both demand-side pressures and supply constraints simultaneously.
As National Bank’s analysis circulates through policy circles, the question becomes whether adjustments to the rebate program might prevent the predicted price increases. Options could include phasing in the rebate gradually, tying it directly to affordability covenants, or pairing it with more aggressive supply-side reforms.
For now, Canadians hoping to purchase their first home face the familiar challenge of timing a market that seems perpetually just beyond reach. The GST rebate offers genuine savings potential, but as with most housing policies of recent years, the true impact will only become clear once market forces have their say.
