There's an argument gaining traction in Canadian housing circles: we don't charge sales tax on caviar and foie gras, but we slap tens of thousands in HST on a young family buying their first home. The implication is that this is absurd. An obvious injustice that any clear-thinking person should want to fix. And if you object, you must be one of those progressives who believe these tax breaks benefit the rich rather than home buyers.
It's a compelling line. It's also a fundamental misunderstanding of how taxes work in housing markets.
And it's not just caviar. The same logic recently produced the claim that if taxes on coffee rose the way taxes on housing have, a Tim Hortons coffee would cost $66. The analogies are getting more absurd, but the underlying error is the same — they treat a $2 consumable and a $500,000 financial asset as though they're the same kind of transaction. They're not. And the fact that this thinking is coming from people who study housing for a living should concern all of us.
Groceries Are Not Houses
Let’s start with the obvious. When you buy groceries — or a coffee — you consume them. The money is gone, the product is gone, and that's the end of the transaction. A tax on that purchase is a direct cost to the household, period. Cut the tax, and families pay less at the register. The savings are immediate and flow directly to the people buying the product. There's no ambiguity here.
Houses are not groceries. And they're not coffee.
When you buy a home, you're acquiring a durable asset. One that typically appreciates in value and functions as both shelter and a financial investment. This distinction changes everything about how a tax cut actually flows through the market.
What Happens When You Cut Taxes on Homes
Proponents of these comparisons will tell you that cutting taxes on new homes works just like cutting taxes on food or coffee. Buyers pay the tax, so buyers benefit from the cut. Simple.
But housing markets don't work like grocery stores or coffee shops, and the answer depends entirely on market conditions.
In a down market, cutting taxes on new homes can genuinely help. When prices have crashed, builders face a painful math problem: their cost of delivering a finished home — land, materials, labour, permits, taxes — exceeds what buyers are willing to pay. So they stop building. In that environment, a tax cut can close the gap, making it viable for builders to break ground again. It gets homes built that otherwise wouldn't exist. That's a real benefit.
In a rising market, the story is completely different.
Imagine Toronto at the height of the boom. Builders have lineups of eager buyers, many of them investors, willing to pay $1,500 per square foot for pre-construction condos. Now imagine the government announces a sweeping tax cut, taking 20% off the sale price.
Does the price buyers pay fall by 20%?
Of course not. The builder already has people lined up at $1,500 a square foot. Builders are profit-maximizing businesses. They will continue to sell at $1,500 per square foot and pocket the difference. Why would they voluntarily surrender revenue when demand hasn't changed?
And it gets worse. For every future project, that tax cut makes development far more profitable, which means developers will bid more aggressively for land.
The tax savings don't flow to homebuyers. They flow to landowners in the form of higher land prices.
The COVID Proof
We don't need to theorize about this. We watched it happen. New home prices in Toronto didn't surge during COVID because municipalities raised taxes on housing, as some economists suggest. The causal arrow ran the other direction.
Buyers were bidding up prices in a frenzy of cheap money and speculative demand, and municipalities were able to increase development charges precisely because the market could absorb them. Cities captured a share of the upside in prices without constraining supply, because the constraint on supply was never the tax, it was the willingness of buyers to pay.
Now that prices have crashed 26% from their peak, new housing starts are falling off a cliff. In this environment, governments should be cutting taxes and fees on new housing to stimulate construction. That's good, defensible policy.
But don't confuse a sensible short-term intervention with a general theory of housing affordability. The taxes didn't cause the crisis. They followed the prices up, and they should follow them back down.
The Real Problem
The danger of the caviar-and-coffee framing isn't just that it's wrong. It's that it points policy in a misleading direction. If you convince people that taxes are the reason housing is so expensive, you create political pressure for permanent tax cuts that, in the next hot market, will simply be absorbed into land prices and developer margins.
You solve nothing, and you give up public revenue that could have funded the infrastructure new housing actually needs or to build new publicly funded affordable housing when the private sector pulls back.
Good housing policy requires understanding that homes are not groceries, that market conditions matter, and that the same intervention can have completely different effects depending on when and where you apply it. It requires nuance.
And when the people we trust to bring that nuance to the conversation are instead comparing condos to caviar and houses to Tim Hortons coffee, it tells you a lot about why we remain so thoroughly stuck.
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn
April 8, 2026
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