According to the government of Canada, worsening housing affordability is “one of [our] greatest social and economic challenges.”
That’s no exaggeration. The Royal Bank of Canada estimates that ownership costs for an average home would consume nearly two-thirds of the median household income. In Vancouver, it exceeds 100 percent.
Under intense pressure, governments at all levels and stripes have eased municipal zoning restrictions, made more public land available for housing, increased funding for affordable homes, and even cut some taxes—like the federal government removing the GST on new rental units or the provincial government in British Columbia expanding exemptions from transfer taxes.
These kinds of tax changes can make a real difference.
In 2022, for example, governments levied nearly $25 billion on residential buildings, rising to a little over $31 billion across the entire construction sector. These figures do not include taxes on wages, salaries, and business profits, but just the taxes on the products themselves.
Overall, I estimate these add about 13.5 percent to the cost of new homes. Roughly three-quarters of this is from federal and provincial sales taxes on new homes, and about one-quarter is from provincial and municipal transfer taxes (mostly in B.C. and Ontario). It’s no wonder these have attracted public attention.
But more concerning are the billions in hidden taxes that few of us realize we’re even paying.
Visible taxes can be debated and scrutinized. Meanwhile, hidden taxes can go largely unnoticed, despite being significant burdens on anyone looking to buy a new home.
This is especially perverse where the affordability challenge is greatest: British Columbia, where a new single-family home today now averages more than $1.3 million (and nearly $2.1 million in Vancouver). I estimate hidden taxes in that province add roughly $20,000 to the cost of a new home, on average, though buyers never know it. For a single-family home in Vancouver, this might rise to nearly $70,000.
What are these taxes? And what can be done? I’ll explain.
How hidden taxes affect new homes
To understand the issue, let’s consider the builder’s perspective.
Builders pay various taxes on inputs like wood, cement, paint, and so on. The federal government, for example, levies massive taxes on imported drywall, and several provincial governments levy sales taxes on these purchases too. In 2022, I estimate the construction sector as a whole paid more than $3.2 billion in taxes on inputs, with $1.4 billion attributed to new homes. These are then passed on to buyers.
But it doesn’t end there. These taxes accumulate throughout the long supply chain. Sawmills pay taxes on the natural gas they use, and the suppliers of that gas pay taxes on their input purchases too. This cascading effect continues up the line, on and on, multiplying in scale but still remaining unseen by downstream buyers.
What does all this add up to? I won’t bore you with the math, but I estimate all of the taxes on inputs (and taxes on inputs of those inputs, etc.) and find that all hidden taxes on buyers of new construction in 2022 exceeded $4.8 billion. Nearly half of this ($2.3 billion) was embedded just within new residential homes.
And again, these are taxes you don’t see, in addition to the ones that you do.
