Canada’s Housing Market: A Study of Current Trends and Forecasts
The Canada Mortgage and Housing Corporation (CMHC) recently provided a promising snapshot of the country’s housing starts, reporting a 4% increase in July to a seasonally-adjusted annual rate (SAAR) of 294,085 units, the highest level since September 2022. While this data might suggest a robust housing market, it’s essential to delve deeper into the context behind these numbers to understand the broader implications for housing in Canada, particularly in Ontario and British Columbia.
Current Trends in Housing Starts
The reported increase in housing starts is noteworthy but represents more than just current demand; it reflects the intentions and investments made in the past. Tania Bourassa-Ochoa, Deputy Chief Economist at CMHC, emphasized that the prolonged elevated national results are largely driven by decisions influenced by prior market conditions. Thus, while starts are up, they may not fully indicate a sustainable recovery or growth trajectory moving forward.
Regional Disparities: Ontario and British Columbia
Despite the national uptick in housing starts, a new report from RBC Economics highlights sharply contrasting trends across provinces. Ontario stands out for its significant decline in construction activity, primarily driven by a steep drop in the Greater Toronto Area (GTA). RBC Assistant Chief Economist Robert Hogue pointed out that Ontario’s housing starts fell to 62,700 in July, down from 77,900 the same month last year—a staggering 24% decline.
This regional disparity raises pressing concerns about housing affordability and availability in Ontario, especially as the province aims to meet its ambitious goal of constructing 1.5 million homes over the next decade. In contrast, Alberta and Atlantic Canada are experiencing record highs in residential construction, demonstrating the unequal distribution of development activity across the country.
Factors Hindering Development in Ontario
The slowdown in Ontario’s housing starts can be traced back to several critical challenges that builders face. A rapid increase in development and building costs—including expenses for land, labor, and materials—has created significant barriers. Hogue noted that these financial pressures, compounded by high municipal development charges, make it exceedingly difficult for builders to launch new projects at prices affordable for prospective buyers, particularly in the GTA.
Furthermore, a recent oversupply of inventory has rendered new construction less appealing compared to resale options, which are often available at lower price points. This issue is exacerbated by a marked decline in investor interest in pre-construction condos, a key driver of new housing starts in the region. The cooling rental market and shifting condo prices, influenced by earlier Bank of Canada interest rate hikes, have further contributed to this decline.
The Permitting Bottleneck
Adding to the challenges in Ontario’s real estate landscape is a significant bottleneck in the permitting process. Many municipalities, including Toronto, are issuing more building permits than developers are acting upon, suggesting inefficiencies that hinder overall progress. Development charges, in particular, are cited as a major deterrent for launching new housing projects, raising concerns about future housing supply amidst increasing demand.
Long-term Implications of the Slowdown
The lasting impact of the current slowdown in housing starts in Ontario is expected to resonate for years to come. Many large construction projects take several years to complete, meaning that the effects of decreased starts will not be immediately apparent. As of July, there were still over 93,000 units under construction in the GTA, a figure that remains close to historical highs.
However, Hogue warns that if the construction pipeline is not swiftly addressed, Ontario may face a “construction cliff” anticipated to materialize even sooner than previously projected—potentially by 2026. This scenario could exacerbate the existing housing supply gap, worsening affordability issues as population growth rebounds post-immigration policy adjustments.
The Road Ahead: A Call for Action
Industry stakeholders have long recognized the urgent need for action. The impending “construction cliff” poses a significant risk to Ontario’s housing market, making it imperative for policymakers and developers to collaborate on solutions that can catalyze new development while managing costs effectively. Addressing these challenges will be crucial to closing the housing supply gap and alleviating the affordability crisis that continues to impact many Canadians.
In conclusion, while recent data from CMHC paints an encouraging picture of housing starts nationally, the underlying complexities, particularly in Ontario, cannot be ignored. Addressing these disparities and barriers will be essential for fostering a sustainable and affordable housing market in Canada.
