Canada's Housing Policy Shift: Prime Minister Carney's GST Reduction and Its Market Implications
3min read The Canadian government, under the leadership of Prime Minister Mark Carney’s Liberal Party, has announced a significant policy adjustment aimed at addressing the nation’s housing affordability crisis. While the official policy focuses on eliminating the Goods and Services Tax (GST) for first-time homebuyers purchasing homes priced at or below $1 million, rumors of an extension to homes between $1 million and $1.5 million appear unfounded based on available data. This article clarifies the actual policy parameters, analyzes its market impact, and explores investment opportunities in Canada’s real estate sector.
The GST Reduction Policy: What’s Actually on the Table?
Carney’s Liberal Party, which narrowly won the April 2025 federal election with a minority government, has prioritized housing affordability. The GST exemption for first-time buyers on homes under $1 million seeks to reduce upfront costs by up to $50,000 (5% of $1 million). This measure targets entry-level buyers in a market where home prices have surged to unaffordable levels for many. However, the policy does not cover homes priced between $1 million and $1.5 million, leaving this bracket untouched.
The confusion around the $1.5 million threshold may stem from the Conservative Party’s rejected proposal to eliminate GST on homes under $1.3 million, regardless of buyer status. While the Conservatives’ broader eligibility and higher price limit were more inclusive, their defeat means these ideas remain unrealized.
Market Impact: Winners and Losers
The GST reduction’s most immediate impact will be felt in starter-home markets, particularly in urban centers like Toronto and Vancouver, where $1 million homes are increasingly scarce. According to the Canada Mortgage and Housing Corporation (CMHC), the average price for a detached home in Toronto reached $1.4 million in 2025—a figure that surpasses the $1 million GST threshold. This means the policy will have limited reach in high-cost cities, where even mid-range homes fall above the cap.
For investors, the policy’s geographic limitations are critical. Markets like Ottawa, Montreal, and Calgary—where median home prices hover around $500,000 to $70.000—are more likely to see increased buyer activity. Meanwhile, in Vancouver or Toronto, the policy’s benefit is confined to condos and smaller units.
Supply-Side Measures and Economic Risks
The Liberal policy also includes supply-side initiatives, such as a $25 billion debt-financing program for affordable housing and the creation of “Build Canada Homes,” a federal entity to streamline housing development. These measures aim to address Canada’s housing shortage, which the CMHC estimates requires 5.8 million new homes by 2030 to meet demand.
However, challenges persist. High development costs, such as Toronto’s $52,675 per-condo unit fee, and U.S. tariffs on Canadian goods (imposed by President Donald Trump) could offset the GST savings. Analysts warn that without addressing mortgage rates and down payment requirements, the policy’s impact will remain muted.
Investment Opportunities and Risks
- Real Estate Sectors:
- Construction Materials: Companies like James Hardie (JHX) or Canfor (CFP) may benefit from increased construction activity.
Regional Markets: Look to provinces with median home prices under $1 million, such as Alberta and Quebec.
ETFs and REITs:
- iShares S&P/TSX Capped REIT Index Fund (XRE): Tracks Canadian REITs, which could gain from rental demand if MURB tax incentives boost rental construction.
Horizons Active Canadian Real Estate ETF (HOM): Focuses on diversified real estate investments.
Risks:
- Interest Rate Volatility: The Bank of Canada’s rate decisions could negate affordability gains.
- Political Uncertainty: Carney’s minority government may struggle to pass additional housing reforms, relying on support from the New Democratic Party (NDP).
Conclusion: A Nuanced Outlook for Housing and Investors
While Carney’s GST reduction offers modest relief for first-time buyers in lower-priced markets, the exclusion of homes between $1 million and $1.5 million underscores the policy’s limitations. High-cost urban centers remain largely untouched, and supply-side measures face execution risks. For investors, the best opportunities lie in regional markets with price gaps below $1 million and sectors tied to construction and affordable housing.
Data supports this analysis:
- The average Canadian home price hit $750,000 in 2025, but affordability ratios (price-to-income) remain strained, especially in cities.
- The CMHC reports a 10.4% annual decline in February 2025 sales, signaling pent-up demand that could be unlocked if the GST policy sparks buyer confidence.
Investors should pair this policy with broader economic trends, such as trade relations with the U.S. and interest rate trajectories, to navigate Canada’s housing market. While Carney’s plan is a step forward, the road to affordable housing remains long—and uneven.
