Analyze the Current State of Canadian Housing: Growth vs. Demand

As the Canadian housing market navigates through unprecedented challenges, recent reports indicate that new home starts are slowing. In Q1 2025, builders broke ground on more homes than the population growth dictated. However, while the construction pace has decelerated, the implications are more nuanced. This article delves into the statistics, trends, and underlying factors impacting the Canadian housing landscape.

Canadian New Home Starts Fell 10% In The First Quarter

In the first quarter of 2025, Canadian new home construction experienced a significant slowdown, with approximately 47,300 new homes starting construction, reflecting a 10.5% decrease from the previous year. This marks the weakest quarter since Q1 2023 and sits 8.6% below the quarterly average for the five years preceding 2020. Policymakers, who have committed to doubling peak construction rates, face an uphill battle as the pace of building continues to lag.

The decline follows a robust 64,600 starts in Q4 2024, which was 3% higher than the same period last year and 24.9% above the pre-2020 average. However, despite promises of heightened construction efforts from policymakers, the current numbers starkly contrast with their ambitious targets.

Canadian Population Growth Is Right On Target—Flat

In stark contrast to the slowing construction rates, Canada added just 22,100 people in Q1 2025. This figure is considered negligible given the country’s population of approximately 41.1 million. The growth rate during this quarter was nearly 92.1% smaller than last year, indicating that the decline in new home starts may not be as alarming as one might expect.

After a robust addition of 63,400 people in Q4 2024, the drop in population growth reflects a significant slowdown, particularly after the record population increases witnessed in the post-pandemic period.

Canada Started 2 Homes Per Person Added In The First Quarter

Looking at the relationship between home starts and population growth reveals a revealing statistic: Canadian builders initiated construction on 2.35 homes for every person added in Q1 2025. By contrast, this ratio was 1.02 homes per person in Q4 2024. Such figures suggest that new home construction may be addressing some of the existing housing deficit, albeit slowly.

Since 2020, Canada has averaged 2.82 people per home started, which equates to about 0.35 homes per person. While the recent slowdown in population growth will take some time to balance out ratios to healthier levels, it hints at the prospect of stabilization in the housing market.

Canadian Housing Will Be The Best Supplier On Record If This Persists By Next Year

The average Canadian household consisted of 2.5 individuals in 2021, consistent with previous years. If the rate of new home starts regarding population growth continues, we may see a return to more traditional household sizes by the end of this year.

Should the Canadian government maintain its commitment to manage population growth and sustain this construction pace through 2026, we could witness historically low average household sizes. However, such stats don’t inherently translate to affordable housing solutions.

Policymakers aim to double annual construction rates, despite rising prices that have left many homebuyers priced out. According to insights from the Canada Mortgage and Housing Corporation (CMHC), achieving 450,000 units per year could restore affordability experienced in 2019 by 2035. Yet, this translates to an impossible feat of needing to build 6 homes per person by next year.

Supply & Demand Undermined By Government Policies To Bolster Home Prices

The dynamics of supply and demand extend beyond finished homes to encompass all constituent elements of the housing process: land, labor, and materials. Historically, increasing supply has not consistently resulted in lower prices. Last year, for example, rental vacancy rates surged in the Greater Toronto Area, yet prices dipped only marginally.

Moreover, government interventions—ranging from taxpayer-backed loans to institutional investor incentives—martially tip the scales. Institutional landlords, now predominant in the housing sector, face less pressure from vacancies due to their insulated financial mechanisms. This disparity in power dynamics creates an environment where price reductions are unlikely, regardless of supply levels.

Conclusion

As the Canadian housing market grapples with stagnation in construction and a faltering growth rate in population, the complexities of supply and demand become increasingly evident. While new home starts may momentarily align with population growth, substantial challenges remain, primarily stemming from government policies that elevate costs rather than reduce them. The next few years will be crucial in determining whether the dream of affordable housing can be met amid these evolving dynamics.

In the end, Canada’s journey toward sustainable housing solutions will require innovative thinking and decisive action to create a balanced and equitable market for all.