Canada’s Housing Market: A Mixed Bag of Trends in 2023
The Canadian housing market experienced notable fluctuations in 2023, as the country dealt with ongoing supply and affordability issues amidst rising interest rates. According to recent data from the Canada Mortgage and Housing Corporation (CMHC), the year saw a modest dip in housing starts, but the figures were still consistent with annual averages from previous years. This article delves into the key trends, challenges, and projections for the Canadian housing landscape.
Year-over-Year Changes and Market Stability
In 2023, Canada witnessed a 0.5% decrease in housing starts compared to the previous year, totaling around 140,000 new units. Despite this slight decline, the numbers remained consistent with the average of the last three years. CMHC’s deputy chief economist, Aled ab Iorwerth, noted that the overall stability was largely due to a surge in apartment construction. However, he acknowledged that demand for rental housing continues to outstrip supply, creating a precarious situation for potential renters.
Surprising Outcomes Despite Interest Rate Concerns
Ab Iorwerth expressed positive surprise regarding the numbers in 2023, especially considering concerns over the impact of higher interest rates. While these rates did affect the market, their consequences seemed to primarily influence smaller housing structures, like single-detached homes. Apartment starts surged by 7%, reaching a record 98,774 units over the year. This robust growth was somewhat overshadowed by a significant 20% decline in single-detached home constructions due to a weaker appetite for high-priced properties in a market burdened by elevated mortgage rates.
The Rental Market: A Focused Need for Growth
Addressing the pressing need for affordable housing, experts like Western University’s associate professor Diana Mok emphasize that the current pace of construction is inadequate. Although more units are being built, the rapid population growth in Canada means that demand for rental units is rising—yet rents have not sufficiently decreased to reflect this increase in supply. Mok warns that the impressive construction figures from 2023 were primarily based on projects initiated two to three years ago, prior to the sharp uptick in interest rates.
Future Projections: A Challenging Road Ahead
Looking ahead, the CMHC projects a decrease in housing starts for 2024, even as the nation is expected to need an additional 3.5 million housing units by 2030 to restore affordability levels to those seen in 2004. Rising construction costs, larger project sizes, and labor shortages were identified as significant factors contributing to prolonged construction timelines in 2023. Various levels of government are now being urged to introduce new initiatives aimed at boosting the rental housing supply to tackle these ongoing challenges.
The Economic Dynamics of Rental Construction
The correlation between interest rates and the construction of rental properties is crucial to understanding the current market dynamics. Ab Iorwerth highlighted that rising mortgage rates make building new rental structures less attractive for developers. The necessity of borrowing for construction costs, when rental income is only realized in the future, creates a financial strain on potential developers. As interest rates continue to climb, securing funding has become increasingly costly and challenging.
Regional Variations: Gains and Declines
Among the major Canadian cities, Vancouver, Calgary, and Toronto experienced growth in housing starts driven by new apartment constructions. Vancouver set a remarkable record with 33,244 new housing starts—a substantial 27.9% increase from 2022. Calgary also documented significant improvement, boasting 19,579 new homes, a 13.1% rise. In contrast, Toronto’s increase was modest at 5.1%, yet ab Iorwerth pointed out that only 26% of these starts were designated for rental housing, raising concerns about affordability in the region.
Meanwhile, cities like Montreal, Ottawa, and Edmonton saw declines in total housing starts. Montreal was notably affected, experiencing a drastic 36.9% decrease, attributed to labor shortages and supply chain disruptions. Ab Iorwerth remarked that Montreal’s smaller building projects are more sensitive to interest rate hikes, leading to faster fluctuations in housing starts.
Conclusion: A Path Forward
The Canadian housing market in 2023 represents a complex interplay of growth and challenges. While there are positive signs in apartment construction, the overall trend points to significant hurdles ahead. Policymakers, developers, and financial institutions must work collaboratively to address the widening gap between housing supply and demand, particularly in the rental sector. As Canada continues to navigate this evolving landscape, concerted efforts are essential to foster a more affordable and accessible housing environment for all.
