Canada’s Housing Market: A Stabilizing Yet Pressing Challenge

By Sammy Hudes

The state of Canada’s housing market is under continuous scrutiny, especially in its major urban centers. Recent data from the Canada Mortgage and Housing Corporation (CMHC) reveals a nuanced picture of stability amid rising demand and evolving economic challenges.

Consistent Housing Starts

According to CMHC’s biannual housing supply report, the construction of new homes across Canada’s six largest cities remained relatively stable last year, totaling 137,915 new units. This figure represents a slight 0.5% decrease compared to 2022, aligning closely with the three-year annual average of about 140,000 units. CMHC Deputy Chief Economist Aled ab Iorwerth expressed mild optimism about the 2023 figures, noting they were “better than we thought” despite initial projections that higher interest rates would heavily impact construction activity.

The Apartment Surge

A noteworthy trend in the report is the significant growth in apartment construction, which saw an increase of seven percent, culminating in a historic high of 98,774 new apartment units. This surge has partially mitigated the impact of a 20% decline in new single-detached homes. The drop in single-detached starts can be attributed to weakening demand for higher-priced homes amid a challenging mortgage rate environment.

Addressing the Rental Housing Crisis

Despite positive developments in apartment construction, the CMHC warns of critical issues concerning affordability and rental supply. The demand for affordable rental housing continues to outpace supply, reflecting a pressing crisis that requires immediate attention. CMHC’s forecast suggests that Canada will need an additional 3.5 million housing units by 2030 to restore affordability to levels seen in 2004.

Challenges in Construction

The report outlines several factors contributing to construction challenges, including rising costs, labor shortages, and the increasing size of housing projects, which have extended construction timelines. These challenges have prompted various levels of government to announce new programs aimed at stimulating the development of rental housing. Ab Iorwerth highlighted the magnitude of the demand, stating, "We’re still not building enough, particularly on the rental side. The demand is enormous."

Interest Rates and Building Economics

While high interest rates have cooled demand for home purchases—causing many potential buyers to remain on the sidelines—their effects extend beyond just single-detached homes. Higher borrowing costs make it less appealing to invest in new rental structures, as construction costs must be incurred upfront while rental income is realized in the future. This economic backdrop complicates the landscape for builders and prospective investors in rental properties.

City-Specific Insights

The report reveals marked differences in housing starts among the six major cities. Vancouver, Calgary, and Toronto each demonstrated growth in housing starts, primarily through the construction of new apartments. Vancouver achieved a remarkable 27.9% increase, with 33,244 new housing starts, while Calgary saw a 13.1% uptick to 19,579 units. Toronto reported a 5.1% rise, yet alarming trends emerged, notably that only 26% of new apartment starts were designated as rentals—the lowest percentage among the cities reviewed.

Conversely, Montreal, Ottawa, and Edmonton experienced declines in housing starts. Montreal suffered the most significant drop, with a staggering 36.9% decrease in total construction, attributed partly to labor shortages and supply chain disruptions. Ottawa and Edmonton reported decreases of 19.5% and 9.6%, respectively.

Conclusion: A Call for Action

As Canada navigates a complex housing landscape, the need for increased investment and innovative solutions becomes ever more pressing. The data underscores a precarious balance between supply and demand, with particular attention needed for rental housing to ensure affordability and accessibility for all Canadians. The CMHC emphasizes that immediate action is required to address these challenges and maintain the stability of the housing market in the face of significant population growth and economic pressures.

This ongoing dialogue about housing in Canada is not just about numbers; it reflects the lived experiences of countless families striving for safe and affordable homes. As stakeholders, from government entities to private developers, work together to address these issues, the focus must remain on fostering a resilient and inclusive housing market for the future.

This report highlights not just the statistics, but the stories that lie behind them, prompting further exploration into the potential pathways forward for Canada’s housing market.