The Mortgage Deduction Developers Want Would Cost Renters, Not Help Buyers
The Mortgage Deduction Developers Want Would Cost Renters, Not Help Buyers
The Canadian Home Builders' Association is pushing Ottawa to let buyers of new-build homes deduct mortgage interest from their taxable income. They're framing this as a supply fix. More buyers means more construction. More construction means cheaper housing for everyone.
What the lobby is actually proposing is a straight wealth transfer. From the roughly 33% of Canadian households who rent, most of whom earn less than homeowners, to the subset of buyers who can already afford a new detached or townhome purchase with a mortgage large enough to generate meaningful tax savings. Developers are asking renters to subsidize their customer base.
Where the money actually goes
A mortgage-interest deduction does not reduce the price of the home. It reduces the after-tax cost of servicing the debt. Those are not the same thing.
If a buyer in the 33% federal-plus-provincial bracket is carrying a $600,000 mortgage at 5.25%, they're paying roughly $31,500 in interest the first year. Full deductibility would save them around $10,400 annually. That's real money. It's also a subsidy the federal government cannot afford to just hand out without replacing the revenue somewhere else.
The U.S. experience is instructive here. Mortgage-interest deductibility has been part of the U.S. tax code since 1913, and the Joint Committee on Taxation estimates it will cost the Treasury $81.3 billion in fiscal year 2026 after temporary Tax Cuts and Jobs Act provisions expire, up from roughly $25 billion annually under the 2017 cap that limited the deduction to interest on the first $750,000 of debt. The benefit skews heavily to higher earners in expensive markets. Canadians earning under $50,000, the cohort most likely to rent, would see functionally zero benefit from this policy, because they either can't qualify for a mortgage in the first place or lack the taxable income to deduct against.
The two-tiered trap
The CHBA's proposal targets new-build homes specifically, not resales. That's deliberate. Developers are sitting on stalled inventory in a high-rate environment where buyers can't hit the OSFI stress test, currently the contract rate plus 200 basis points, or a floor of 5.25%, whichever is higher. Mortgage relief that applies only to new homes would wedge the market, making resales relatively more expensive. Great for clearing lot inventory. Lousy for first-time buyers trying to enter at the low end of the resale market, where supply actually exists.
The proponents say this is about hitting CMHC's target of 3.5 million additional housing units by 2030. But tax policy that increases purchasing power without increasing the rate of construction just inflates asset prices. If buyers suddenly have an extra $10,000 a year to spend, developers don't lower prices by $10,000. They pocket it. That's what happened when the government removed GST on new purpose-built rentals in 2023: rents didn't drop. Developers' margins improved.
The actual fiscal cost
Implementing this would blow a multi-billion-dollar hole in federal revenue at a time when the deficit is already under political pressure. That money comes from somewhere. Either other programs get cut, or other taxes go up. The most regressive version of this policy is one where renters, who statistically earn less and hold fewer assets than homeowners, end up funding the shortfall through consumption taxes or reduced services while receiving zero direct benefit.
The pitch from developers is that you can't build your way out of a crisis if nobody can afford to buy what you build. True enough. But handing tax breaks to people who can already nearly afford it doesn't fix the crisis. It just moves the threshold and leaves everyone below it further behind.
The Mortgage Deduction Developers Want Would Cost Renters, Not Help Buyers
The Canadian Home Builders' Association is pushing Ottawa to let buyers of new-build homes deduct mortgage interest from their taxable income. They're framing this as a supply fix. More buyers means more construction. More construction means cheaper housing for everyone.
What the lobby is actually proposing is a straight wealth transfer. From the roughly 33% of Canadian households who rent, most of whom earn less than homeowners, to the subset of buyers who can already afford a new detached or townhome purchase with a mortgage large enough to generate meaningful tax savings. Developers are asking renters to subsidize their customer base.
Where the money actually goes
A mortgage-interest deduction does not reduce the price of the home. It reduces the after-tax cost of servicing the debt. Those are not the same thing.
If a buyer in the 33% federal-plus-provincial bracket is carrying a $600,000 mortgage at 5.25%, they're paying roughly $31,500 in interest the first year. Full deductibility would save them around $10,400 annually. That's real money. It's also a subsidy the federal government cannot afford to just hand out without replacing the revenue somewhere else.
The U.S. experience is instructive here. Mortgage-interest deductibility has been part of the U.S. tax code since 1913, and the Joint Committee on Taxation estimates it will cost the Treasury $81.3 billion in fiscal year 2026 after temporary Tax Cuts and Jobs Act provisions expire, up from roughly $25 billion annually under the 2017 cap that limited the deduction to interest on the first $750,000 of debt. The benefit skews heavily to higher earners in expensive markets. Canadians earning under $50,000, the cohort most likely to rent, would see functionally zero benefit from this policy, because they either can't qualify for a mortgage in the first place or lack the taxable income to deduct against.
The two-tiered trap
The CHBA's proposal targets new-build homes specifically, not resales. That's deliberate. Developers are sitting on stalled inventory in a high-rate environment where buyers can't hit the OSFI stress test, currently the contract rate plus 200 basis points, or a floor of 5.25%, whichever is higher. Mortgage relief that applies only to new homes would wedge the market, making resales relatively more expensive. Great for clearing lot inventory. Lousy for first-time buyers trying to enter at the low end of the resale market, where supply actually exists.
The proponents say this is about hitting CMHC's target of 3.5 million additional housing units by 2030. But tax policy that increases purchasing power without increasing the rate of construction just inflates asset prices. If buyers suddenly have an extra $10,000 a year to spend, developers don't lower prices by $10,000. They pocket it. That's what happened when the government removed GST on new purpose-built rentals in 2023: rents didn't drop. Developers' margins improved.
The actual fiscal cost
Implementing this would blow a multi-billion-dollar hole in federal revenue at a time when the deficit is already under political pressure. That money comes from somewhere. Either other programs get cut, or other taxes go up. The most regressive version of this policy is one where renters, who statistically earn less and hold fewer assets than homeowners, end up funding the shortfall through consumption taxes or reduced services while receiving zero direct benefit.
The pitch from developers is that you can't build your way out of a crisis if nobody can afford to buy what you build. True enough. But handing tax breaks to people who can already nearly afford it doesn't fix the crisis. It just moves the threshold and leaves everyone below it further behind.
Sources
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