Construction of new homes across Canada’s six largest cities increased by 4% in the first half of 2024, according to the Canada Mortgage and Housing Corporation (CMHC). However, despite this growth, the surge in housing starts still falls short of closing the supply gap and meeting the increasing demand for homes.
Significant increases in cities like Calgary, Edmonton, and Montreal largely fueled this growth in housing starts. However, Toronto, Vancouver, and Ottawa experienced notable declines, with drops ranging from 10% to 20% compared to the same period last year, CMHC reported on Thursday.
A total of 68,639 new housing units began construction, marking the second-highest figure since 1990. Yet, the housing starts per capita remained close to the historical average, leaving the current supply shortage unresolved and posing continued affordability challenges for Canadians.
With the Bank of Canada starting to cut its key policy rate in June, the central bank has reduced interest rates by a total of 0.75 percentage points, bringing them down to 4.25%. As a result, fixed mortgage rates have also begun to decline.
While overall apartment starts in the six largest cities rose by 2.5%, reaching 49,117 units, much of this growth stemmed from the construction of purpose-built rental apartments. Nearly half of the apartments started during this period were intended for rental use. However, condominium construction experienced a decline across most cities, a trend that CMHC expects will persist due to developers struggling to meet pre-sale requirements.
In the Greater Toronto Area, the combination of high interest rates and a significant number of new condo completions has slowed sales activity, further contributing to the construction delays.
“Toronto has a critical need for purpose-built rental units, but individual buyers and investors also play a key role in the market,” said Iorwerth. “Unfortunately, we are not seeing the situation improve quickly, as approvals and financing take time.”
In Vancouver, the slowdown in new construction was driven by sluggish sales and high financing costs, which have reduced developers’ profitability. However, rental apartment construction remains robust, supported by government policies and incentives aimed at increasing rental supply.
Changes to provincial and municipal zoning laws, particularly those focused on increasing housing density, could provide more opportunities for future housing projects, CMHC noted. More purpose-built rental apartments could help ease affordability challenges by increasing the vacancy rate and stabilizing rent prices.
“Cities like Toronto and Vancouver have become so expensive that many people must rely on rentals,” Iorwerth explained. “If someone is relocating for work, they are likely to enter the rental market, so increasing the supply of rental units is essential.”
With borrowing costs expected to decline further into mid-2025, Iorwerth anticipates that construction activity will regain momentum. “Developers are eager to build, but they need to control their costs, and lower interest rates will make projects more feasible.”
While the demand for housing remains strong, ensuring affordability and meeting the growing needs of Canadians will continue to hinge on increased construction, particularly in the rental market.
