The Canada Mortgage and Housing Corporation (CMHC) reports that construction of new homes in Canada’s six largest census metropolitan areas remained near record levels last year, largely due to a surge in apartment building—even as rental demand continues to outpace supply.
In its biannual housing supply report, CMHC found that combined housing starts across Toronto, Vancouver, Montreal, Calgary, Edmonton and Ottawa edged down just 0.5% from 2022, totaling 137,915 new units. That figure aligns with the average of roughly 140,000 new units per year seen over the past three years.
CMHC deputy chief economist Aled ab Iorwerth said the 2023 results were “better than we thought,” noting that while higher interest rates did affect the market, their impact was concentrated in smaller projects and single-detached homes rather than larger apartment developments.
Apartment construction rose 7% in 2023, producing a record 98,774 individual units. At the same time, new single-detached starts fell by about 20% year-over-year as demand softened for higher-priced homes in a context of elevated mortgage rates.
More housing is needed to close affordability gaps
CMHC reiterated that Canada must significantly increase the pace of housing construction to address growing affordability challenges and rapid population growth. The agency projects housing starts will decline in 2024, even as it estimates that an additional 3.5 million units will be needed by 2030—on top of currently planned construction—to restore affordability to levels seen in the early 2000s.
The report points to several headwinds that lengthened construction timelines last year, including rising materials and labour costs, larger project sizes that require more coordination, and persistent labour shortages. Those factors prompted federal, provincial and municipal governments to announce programs intended to stimulate new rental housing supply.
“We’re still not building enough, particularly on the rental side,” ab Iorwerth said. “The demand is enormous. I don’t think we’re keeping up with demand. So we need a lot more investment.”
High interest rates have also slowed new rental builds
Although high interest rates cooled demand for home purchases by keeping some buyers on the sidelines, the financing environment also made new rental developments more difficult to finance. Developers typically borrow to cover construction costs today while rental income is earned over many years. As borrowing costs rise, access to financing becomes harder and more expensive, reducing the attractiveness of building rental housing.
Ab Iorwerth explained that the mismatch between immediate construction costs and future rental revenue makes rental projects particularly sensitive to interest-rate increases, which can push margins down and delay or cancel planned builds.
Vancouver posts record new housing starts
Among the six cities examined, Vancouver, Calgary and Toronto recorded growth in total housing starts in 2023, driven mainly by record apartment construction. Vancouver led the group with a record 33,244 new starts, a 27.9% increase over 2022. Calgary followed with 19,579 new starts, up 13.1% year-over-year, and Toronto recorded 47,428 starts, a 5.1% rise.
However, ab Iorwerth flagged a concern about Toronto: only about a quarter of its apartment starts—roughly 26%—were designated as rental units, the lowest proportion among the regions studied. That imbalance highlights the difference between overall apartment construction and the type of supply that directly relieves rental shortages.
Montreal, Ottawa and Edmonton all posted declines in total housing starts. Montreal experienced the most pronounced drop, with about 36.9% fewer starts and decreases across all housing types. The city’s results reflected labour shortages and supply-chain disruptions and, according to CMHC, Montreal’s typically smaller project sizes make its starts more sensitive to interest-rate changes.
“The buildings tend to be a little bit smaller in Montreal and so the housing starts react more quickly to higher interest rates,” ab Iorwerth said. “It’s possible that Montreal has reacted faster to the hike in interest rates.”
Ottawa recorded 9,245 new homes in 2023, a decline of 19.5% from 2022, while Edmonton saw 13,184 starts, down 9.6% year-over-year.
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