CMHC Projects a Multi-Year Slowdown in Canadian Residential Construction
Canada’s federal housing agency predicts homebuilding will decline over the next two years, even as the federal government says it’s “turbocharging” housing construction.
Canada Mortgage and Housing Corp. is forecasting annual housing starts will fall 7 per cent this year to 241,400 units, and it expects them to continue to drop.
In a report Wednesday, the housing agency cited multiple reasons for the downturn, including the U.S. trade war, buyer hesitation, higher construction costs, a surplus of unsold condos and slowing population growth.
“There is a very heightened level of uncertainty,” Kevin Hughes, CMHC’s deputy chief economist, said in an interview. “There is uncertainty for businesses but also from households.”
Under current economic conditions, CMHC expects housing starts to fall another 7.5 per cent year over year to 223,400 units in 2027 and another 5 per cent to 211,900 units in 2028.
The forecast runs counter to what Prime Minister Mark Carney outlined in his November budget, which included plans to double the pace of homebuilding.
But with the prolonged U.S. trade dispute and recent Middle East war, Mr. Hughes said businesses do not know if their costs will rise. This, he said, has injected uncertainty into their plans.
CMHC predicted that homebuilding would decrease more than forecast if the trade dispute with the U.S. worsens and the U.S.-Iran war pushes oil prices higher and wreaks more havoc on supply chains.
The estimated drop in housing starts is also due in part to the sharp downturn in preconstruction condo sales, particularly in the Toronto region, where developers in the country’s largest real estate market are completing thousands of new condo units this year.
The Toronto and Vancouver regions are currently awash in unsold units because of low demand from mom and pop investors. In response, the Carney government has funneled taxpayer funds to Ontario and B.C. to help developers clear out the inventory. Ottawa has also provided funding to help municipalities in the two provinces cut the hefty development fees they charge developers to build infrastructure such as sewers and roads to their new homes.
The CMHC report said low levels of construction would be most visible in the condo markets in Ontario and B.C. “Housing starts are expected to decline further as builders continue to respond to unsold inventories and high construction costs.”
The two provinces are home to the priciest real estate and highest rental rates in the country. Even though pricing has dropped from its peak in 2022, many units are still not affordable for would-be buyers and renters.
CMHC said the lack of affordability and slower population growth would also keep home sales relatively low in Ontario and B.C.
Last year’s sales in both provinces were 40 per cent below their peak in 2021, according to Canadian Real Estate Association data.
In Ontario, CMHC predicts sales climbing nearly 2 per cent in Toronto from 2025 to 2026 but decreasing in other areas such as Hamilton, St. Catharines-Niagara and Ottawa over the same period.
In B.C., the report forecast sales falling 6 per cent in Vancouver and dropping 9 per cent in Victoria.
This article was first reported by The Globe and Mail
