The recent decline in housing starts exacerbates the affordability crisis in many urban centres. Photo Credit: iStock.
A recent report by the Canada Mortgage and Housing Corporation (CMHC) found that rising interest rates has led to approximately 30,000 fewer housing starts since 2023. Which represents a significant decrease, between 10 to 15 percent, in new construction. This slowdown in construction has serious implications for Canada’s already struggling housing market, particularly in urban areas where affordability and housing supply are in short supply.
The report pointed to increased mortgage rates as having a key factor affecting the construction of condominium buildings, a key segment of the housing market, in the GTA and Vancouver. CHMC points to financial hurdles faced by both investors and potential homeowners, who have significantly reduced their purchases of new condominiums as higher interest rates have raised the cost of borrowing. This is making it harder for buyers to secure financing, and in turn, developers have struggled to meet the minimum pre-sales thresholds necessary to start new construction projects.
CHMC found that there is a regional disparity in housing starts across Canada’s largest cities. While housing starts increased in cities like Calgary and Edmonton, where strong economic growth and affordable homeownership attracted buyers, other major urban centers like Toronto, Vancouver, and Ottawa saw declines of up to 20 percent in new home construction. The decline in condominium development starts, in particular, to signal a broader issue for the housing market in these cities, where condos play a critical role in meeting both homeownership and rental demand.
Condominium apartments have been a key driver of urban housing supply in places like Toronto and Vancouver, largely due to their dual function as both primary residences and rental properties for investors. The report notes that high interest rates have made pre-construction condo sales less attractive, as buyers are deterred by increased borrowing costs and developers face difficulties in securing financing. This has led to delays and cancellations of new condominium projects, further tightening the already limited housing supply in these cities.
The report also underscores the key role of rental housing in meeting Canada’s growing housing demand. In the first half of 2024, purpose-built rental apartments made up nearly half of all apartment starts in Canada’s six largest census metropolitan areas, a record high. This trend reflects the shifting demand toward rental housing as homeownership becomes increasingly unaffordable for many Canadians. However, even the rental market has not been immune to the impact of rising interest rates, with developers in some cities delaying or reassessing their plans due to financial viability concerns.
In the long term, CMHC warns that Canada’s housing market faces significant challenges due to an ongoing supply shortage. With housing supply already struggling to keep pace with demographic demand, the recent decline in housing starts exacerbates the affordability crisis in many urban centers. To help restore the market, more needs to be done, including increasing private sector investments, government action to streamline approval processes, while also reducing regulatory costs to help ensure that housing supply can keep up with demand, even in a high-interest rate environment.
As Canada grapples with a challenging housing market, it is clear that addressing the supply gap will require a coordinated effort from both the government and private sector. While lower interest rates may provide some relief in the future, the long-term solution lies in creating conditions that enable consistent and sustainable housing development across the country.
Daniel Perry is a consultant with Summa Strategies Canada, one of the country’s leading public affairs firms. During the most recent federal election, he was a regular panelist on CBC’s Power and Politics and CTV Morning Ottawa.
