February 23, 2026 | The Bill is Due

Happy Monday Morning!

Canada’s headline inflation rate slowed to 2.3% last month, cooler than economist expectations for 2.4%. Finally, shelter price inflation in Canada slowed to 1.7% on an annual basis, falling below 2% for the first time in nearly five years! This was largely driven by a deceleration in rent prices and mortgage interest costs.

Shelter, which is 38% of the core basket, used to be the main driver of inflation. It is now a material drag.

This shouldn’t come as a surprise for regular readers, as we have long argued CPI has failed to adjust for a rapid decline in shelter costs, both in rents and resale prices. CREA reports the national home price index fell 0.9% last month, and we are now down a whopping 20% from the peak.

Mortgage rates have been gradually leaking lower in recent weeks. The Canada 5 year bond yield has dropped about 25bps since the start of the year, bringing competitive fixed rate mortgages into the 3.8% range.

That’s good news for the record number of borrowers renewing their mortgage this year, and for aspiring homeowners. The combo of falling prices and falling mortgage rates has brought mortgage payments as a share of income to its lowest in almost four years. According to National Bank, Canadian housing affordability posted an eighth consecutive improvement in Q4’25, the longest streak ever recorded.

In other news, the BC government dropped a monster budget, pushing the deficit to a record $13.3-billion next year from this year’s forecast of $9.6-billion, and then decline marginally to $12 billion in fiscal 2028 and $11 billion in 2029.

What is perhaps most alarming is the rapid growth in debt servicing costs. By the end of the forecast horizon, debt service costs are set to reach $8.7 billion compared to $5 billion last year.

In other words, the bill has come due, and every voter gets to pay.

There are tax hikes across the board, with the NDP not only raising the first income tax bracket, but FREEZING tax bracket indexation until 2030. Tax brackets will NOT rise with inflation. A double whammy on an already strained consumer.

Ironically, the BC Government put some of the blame on a soft housing market, which put a dent on tax revenues.

You don’t say.

As we have long argued, the housing market is largely a reflection of past and current policy decisions. The current NDP government has sought to intentionally cool the housing market and they have. Since 2018, they increased the foreign buyers tax, added a luxury homes tax, added a second home tax (speculation tax), added a flipping tax, and created an AirBnb ban, just to name a few. They could be unwound tomorrow, but they won’t. In fact, they are doubling down!

The speculation and vacancy tax, or as I like to call it, the second homes tax, is going up for foreign owners and untaxed worldwide earners from 3% to 4%. However, it remains 1% for BC residents/ taxpayers, who are the biggest target of this tax.

The tax mostly hits local tax resident who own two homes in the province. It’s often a primary residence in the city, and a summer home elsewhere in the province.

For example, in the city of Vancouver, 865 BC residents paid the tax last year, compared to just 152 foreign owners.

The government is also increasing the School Tax (luxury homes tax). A tax on luxury homes which didn’t exist until 2018. Those rates are increasing from 0.2% to 0.3% for property values between $3 million and $4 million, and from 0.4% to 0.6% for property values above $4 million.

In other words, home valued at $3.5M will now pay $1500 per year. It was zero less than a decade ago.

The final kicker is the addition of PST on a plethora of real estate related services. Accounting, architectural, engineering, property management, and strata management services will all have to pay an extra 7% in provincial sales tax. All of which will ultimately flow through to prices and the end consumer.

From strata owners, to landlords and developers, the bill is due.

Ironically, despite all of this, the BC government is forecasting housing starts to RISE over the next two years. The Housing Ministry predicts that housing starts will increase marginally from 44,193 to 44,210, and to 45,920 in 2027.

This comes despite us flagging new condo sales, which are an ingredient for a housing start, just had their worst year in a long time. Sales in Metro Vancouver plunged 62% from last year and are down a whopping 85% from peak levels in 2021.

But don’t just take our word for it. Here’s CIBC’s chief economist Benjamin Tal this past week.

Housing starts— the headline numbers still present a picture of resiliency, with housing starts averaging a strong 260k in 2025, a solid increase of 5% from 2024. Even in the ground zero of the correction, the GTA and GVA, the numbers are much stronger than one would have expected given what’s happening in the field. So how is it possible that housing starts are still so strong? The answer is that they are not. The housing starts data nationally and by province and cities are provided by CMHC. Now, when does a housing start actually start? According to CMHC, a start is a start only when the foundation reaches grade. That means that in most large multi-family cases, starts are being recorded 1-2 years after the start actually occurs. This means that the CMHC housing starts data represent decisions made 12-18 months ago, and is therefore a lagging indicator.

Based on information obtained from Urbanation and Zonda, we suggest that in the GTA and the GVA, the real level of housing starts is roughly 50% and 30% below the headline numbers, respectively.

In other words, if the BC Government is worried about falling tax revenues from the housing market today, just wait until they see the housing starts data twelve months from now.

Let’s watch.

Steve Saretsky February 23rd, 2026

Posted In: Steve Saretsky Blog

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