The State of Housing Starts in Canada: A Dual Perspective

By Sammy Hudes

In recent developments, the Canadian housing market has shown a mixture of resilience and challenges. As reported by the Canada Mortgage and Housing Corporation (CMHC), total housing starts in Canada surged to 68,639 units, marking the second strongest performance since 1990. However, this growth paints a more complex picture when viewed through the lens of regional disparities and broader economic conditions—most notably high interest rates.

Regional Variations in Housing Starts

The growth in housing starts is largely attributed to significant increases in cities such as Calgary, Edmonton, and Montreal. Conversely, major markets like Toronto, Vancouver, and Ottawa faced declines ranging from 10 to 20 percent compared to the previous year. This disparity highlights the uneven recovery across different regions, primarily driven by local market dynamics and economic health.

The CMHC’s deputy chief economist, Aled ab Iorwerth, pointed out that while the overall figures are promising, the rate of housing starts per capita aligns more closely with historical averages. Thus, despite the uptick in numbers, it remains insufficient to bridge the existing supply gap or improve housing affordability across Canada.

The Impact of High Interest Rates

High interest rates have emerged as a significant barrier to housing construction in Canada’s largest markets. Both Toronto and Vancouver are grappling with traditional challenges such as escalating costs and regulatory hurdles. Adding to these complications is the reluctance of individual buyers and investors to commit financially amid rising borrowing costs.

“Building some of these tall structures is very sensitive to interest rates,” ab Iorwerth remarked, noting that the increased cost of financing condominium projects has resulted in a slowdown in construction activity, particularly for condominium apartments. This hesitation from developers is a critical factor influencing the market’s ability to meet growing housing demands.

Profile of New Housing Units

In the first half of 2024, there was a notable 2.5% increase in apartment starts across six regions, reaching a total of 49,117 units. This rise was driven primarily by the construction of purpose-built rentals, highlighting a shift in focus towards affordable rental housing. Nearly half of the newly constructed apartments were designated for rental purposes, reflective of growing demand in urban centers.

However, the trend of condominium apartment starts has declined in most cities. Aled ab Iorwerth predicts that this trend will likely persist as developers struggle to secure minimum pre-construction sales, exacerbated by a market that has not yet fully adapted to high financing costs.

The Situation in the Greater Toronto Area

In the Greater Toronto Area (GTA), the intersection of high interest rates and a rise in new condo completions has hampered sales activity. Consequently, this disconnect has resulted in slower absorption rates of available housing—an issue that could linger without a sustained solution.

Ab Iorwerth emphasized the urgent need for not only purpose-built rental units but also apartments geared towards individual investors and buyers. “I have to admit to being a little bit concerned that the situation in Toronto will not turn around quickly,” he said, underscoring potential delays in the housing supply chain due to prolonged approval and financing processes.

Broader Context in British Columbia

Meanwhile, the British Columbia election campaign has brought housing issues to the forefront, with high rents and limited property listings sparking widespread concern. The CMHC’s report revealed that new construction in Vancouver has been stymied by sluggish sales and elevated financing costs, which in turn reduced developer profitability.

However, the report also pointed towards positive developments. Changes in provincial and municipal zoning policies aimed at increasing density could foster more housing opportunities in the future. Moreover, rental construction continues to grow, buoyed by government incentives, which could address some affordability challenges.

Looking Ahead: Signs of Hope?

The foreseen decrease in borrowing costs—speculated to continue into mid-2025—offers a glimmer of hope for the Canadian housing market. Ab Iorwerth remains optimistic, stating that as financial pressures ease, there will be renewed motivation among developers to construct new structures. “Developers are willing to build, but they need to keep their costs under control,” he commented, emphasizing that lower interest rates could significantly impact the market dynamics.

In conclusion, while current trends in housing starts exhibit promising growth, they are accompanied by sobering realities that highlight the complexity of the housing landscape in Canada. Understanding regional variances, the impact of financial conditions, and future forecasts will be crucial as policymakers and stakeholders navigate the ongoing challenges in urban housing markets.