Housing Construction Trends in Canada: A Look at 2024

As Canada navigates through the complexities of a housing crisis, the Canada Mortgage and Housing Corporation (CMHC) has reported an intriguing trend in new home construction. In the first half of 2024, construction in Canada’s six largest cities rose by a modest four percent year-over-year. However, this increase did not sufficiently meet the burgeoning demand for housing, leaving many Canadiands to question the state of the housing market.

Mixed Results Across Major Cities

The growth seen in housing starts was uneven across various metropolitan areas. Notably, Calgary, Edmonton, and Montreal recorded significant increases in construction activity. In contrast, major markets like Toronto, Vancouver, and Ottawa experienced declines ranging from 10 to 20 percent compared to the same timeframe last year. This disparity highlights the challenges that different regions face within the overarching context of Canada’s housing landscape.

According to CMHC, a total of 68,639 new units began construction during this period, marking the second strongest figure since 1990. However, when assessed per capita, the rate of housing starts closely aligned with historical averages, indicating that current efforts still fell short in addressing the existing supply gap and enhancing affordability for Canadians.

Challenges in the Largest Markets

The difficulties in building new homes, particularly in Toronto and Vancouver, have been attributed to a combination of traditional issues such as high construction costs and regulatory delays. However, the added impact of increased interest rates in early 2024 intensified these challenges. "Building some of these tall structures is very sensitive to interest rates, and that’s put a bit of a drag on particularly the condominium apartments," noted Aled ab Iorwerth, CMHC’s deputy chief economist.

Due to the reluctance of individual buyers and investors to make commitments amid these escalating costs, construction of condominium apartments has slowed. This trend raises concerns about the future supply of housing, particularly in high-demand markets.

Shift Towards Rental Units

Interestingly, the market for rental apartments appears to be on an upward trajectory. The report indicated a 2.5 percent increase in apartment starts, reaching 49,117 units. This growth was primarily driven by new units designated as purpose-built rentals, suggesting a strategic pivot in the construction landscape. With nearly half of the apartments initiated in the first half of 2024 constructed specifically for rental purposes, the trend seems promising for addressing some immediate housing needs.

However, condominium apartment starts plummeted in most cities during the same period. As developers struggle to secure the minimum pre-construction sales needed to commence projects, CMHC foresees this trend continuing in the near future.

The Rental Market Dilemma in Toronto

In the Greater Toronto Area, the compound effects of high-interest rates and a surge in new condo completions have resulted in slower sales activity that fails to absorb supply effectively. While the demand for rental units remains robust, the need for a balanced development of both purpose-built rentals and condominiums is clear. "We need a lot of purpose-built rentals in Toronto, but we also need a lot of those apartment structures for individual investors or for buyers to be built," ab Iorwerth remarked.

The delayed response in housing development and the complexities involved in obtaining approvals and financing further exacerbate concerns about the market’s ability to rebound quickly.

Housing Policy Shifts in British Columbia

In British Columbia, housing has emerged as a central issue in the election campaign amid soaring rents and limited property listings. CMHC’s report pointed out that the slowdown in construction in Vancouver has been largely driven by high financing costs and sluggish sales. Nonetheless, government policies aimed at promoting the development of rental units have been supporting a growing share of new apartment builds.

Changes in provincial and municipal zoning laws aimed at increasing density could pave the way for more housing options in the future. As ab Iorwerth stated, "More purpose-built rentals under construction would help with affordability challenges down the road by increasing the vacancy rate and keeping rents in check."

Looking Ahead: A Promise of Change?

With the Bank of Canada recently decreasing its key policy rate, decreasing borrowing costs, and generating expectations for lower fixed mortgage rates, there might be new impetus for further developments. "The demand is there, but obviously the maths need to work," ab Iorwerth observed. He emphasized that developers are eager to build, yet they must maintain control over their costs in light of fluctuating interest rates and economic conditions.

Conclusion

While the construction of new homes in Canada’s largest cities witnessed a welcome increase in early 2024, multiple challenges hindered progress and sustainability. The uneven growth across regions, especially in light of high interest rates and regulatory hurdles, leaves a significant supply-demand gap that requires urgent attention. With shifting focus towards rental units and potential changes in housing policy, the pathway to greater affordability and availability of housing in Canada is fraught with both obstacles and opportunities. How these elements converge in the coming months will be crucial for shaping the future of Canadian housing.