Canada Is Building More Homes — But Fewer Are Available to Buy
Canada is still building homes at a relatively strong pace, but the type of housing being built is changing dramatically.
Canada is still building homes at a relatively strong pace, but the type of housing being built is changing dramatically.
According to Kari Norman, senior economist at Desjardins Group, Canada’s housing market is undergoing one of its biggest structural shifts in decades. Developers are pulling back from increasingly difficult condo projects and turning toward purpose-built rental housing.
Over the past year, rental housing starts reached 130,000 units, while condo starts fell below 50,000 units for the first time since the Global Financial Crisis.
Developers Are Moving Away From Condo Projects
The slowdown in condo construction reflects several pressures facing developers.
Higher interest rates, elevated construction costs and government fees have made many condo projects too expensive to build at current selling prices. At the same time, investors have been retreating from the condo market, causing the presales that developers often rely on to secure financing to fall sharply.
Purpose-built rental projects, however, are moving in the opposite direction.
After decades of under-building rental housing, the economics of these projects have improved with targeted financing programs from the Canada Mortgage and Housing Corporation (CMHC) and the removal of GST on new rental construction.
Norman stressed that booming rental construction is not causing the condo downturn. Instead, rental development is helping keep overall housing construction activity elevated while the ownership market weakens.
Only About 45% of New Housing Starts Are Now Intended for Ownership
The shift extends beyond condos.
Over the past year, total Canadian housing starts were 43,000 units higher than in 2019. But that increase came entirely from rental housing.
Rental starts increased by approximately 73,000 units, while housing starts intended for ownership fell by 30,000 units.
As a result, the share of new housing starts intended for ownership has fallen from more than 70% to approximately 45%.
As Norman summarized it, Canada is building more homes, but fewer of them are being built for people to purchase.
This represents a significant change in the structure of Canadian housing construction. For the first time, less than half of new housing starts are intended for ownership.
Today's Construction Slowdown Could Affect Supply Years From Now
Canada does not currently face a shortage of homes listed for sale. However, the impact of today's construction decisions may take years to become visible.
Condo developments have long construction timelines. A project that does not begin today could represent housing that never reaches the ownership market several years from now.
Norman warned that the current decline in ownership-oriented construction may therefore not become apparent until later this decade.
If housing demand eventually recovers while the pipeline of new ownership housing remains weak, reduced supply could put upward pressure on prices.
Canada Needs Both Rental and Ownership Housing
Despite the shift, Norman does not believe policies supporting rental construction should be reversed.
Canada still needs substantially more purpose-built rental housing after decades of insufficient construction, and the current rental boom is helping address that shortage.
The concern is that strong rental construction numbers can make Canada's overall housing construction market appear healthier than the ownership side actually is.
Policymakers therefore need to consider both sides of the market: maintaining rental development while ensuring there is also a viable pipeline of homes intended for purchase.
As Norman noted, a balanced housing system ultimately requires a strong supply of both rental and ownership housing.