The housing market has crashed. That could be good news if Toronto just addressed this problem

Toronto’s housing market has finally tumbled—and that might sound alarming. Home prices here have dropped nearly 30 percent from their 2022 peak, and are about 5 percent lower than a year ago. On the surface, lower prices spell better chances for regular Toronto families to buy a home. But the slump has deeper implications: it puts builders, jobs, and city revenues at risk—especially if nothing changes in how we build.

This crash isn’t just a drop—it’s the sharpest one in Toronto since the early 1990s. With fewer sales, many developers can’t afford to build. In June, single-family home sales in the Greater Toronto Area plummeted and condo sales fell even more sharply below long-term averages. That crunch isn’t only about missing centrepieces for new neighbourhoods—it also threatens tens of thousands of jobs and cuts local government revenues by billions annually.

Here’s the paradox: lower house prices help buyers, but they also shrink the profit margins builders need to justify new construction. To fix this, experts say we must drive building costs even lower—beyond what prices have dropped. Some help comes naturally—land values decline during market slowdowns. But a lot of costs, like materials, trades, and taxes, don’t fall so easily. And skimping on wages isn’t the answer.

A major fix could come from cutting taxes and fees on new builds. Municipal “development charges” add hundreds of thousands to each house, pushing costs up. Toronto, for its part, received federal funds for zoning changes—like allowing sixplexes—but hasn’t acted on those changes. That’s a big missed chance to make building new homes cheaper.

Another lever is the Harmonized Sales Tax (HST) on new homes—13 percent tacked onto newly built units but not existing ones. Rebate programs exist but haven’t kept pace with inflation; they only apply to homes under outdated price limits. Expanding those rebates to match today’s prices would lower costs for builders and buyers—without pumping up old-home market demand.

In short, the crash could unlock opportunity—but only if Toronto tackles two big issues: zoning and upfront costs. That means approving missing-middle housing (like duplexes and sixplexes) and cutting fees and taxes on new builds. Without these steps, falling prices will just freeze construction—and Toronto will miss a moment that could finally ease its chronic housing crisis.