Canada might not have a problem growing its population, but it has a big problem building housing. CMHC data reveals that new housing starts fell in August, despite the population boom. Only two provinces, BC and Ontario, have seen growth over the past year. The declines are expected to continue, prices were driven out of reach for end-users, and investors are no longer interested due to climbing rates.
Canadian Housing Starts Declined Slightly
Canada has seen the new housing construction starts take a dip on the back of weak demand. The seasonally adjusted annual rate (SAAR) of new home starts fell 1% to 253k units in July. Construction starts for urban housing fell 1%, with urban multi-unit construction falling 1.4%, pulling down the 1.7% increase when it came to single-detached urban starts.
Only BC and Ontario Saw New Housing Starts Increase
BC and Ontario are the only two provinces to see growth, concentrated in their largest cities. In BC, Vancouver saw new construction rise 47% higher compared to last year. In Ontario, Toronto saw a 28% increase over that time. The rest of the provinces have actually seen new construction starts pull back, despite population growth.
Canadian Housing Starts Expected To Pull Back Even Further
Experts expected the pullback to occur with such stretched affordability and rising interest rates. New construction doesn’t begin until a good share of the project is sold, but end-users have seen investors drive prices out of reach. As a result, most demand for new construction is driven by investors, who own the majority of recent builds. Higher interest rates reduce the leverage they have, and without a major decline in prices, end-users still can’t afford to pick up the slack.
The result is housing starts are expected to erode even further in the near future. “The August dip in housing starts was smaller than we expected, but starts have now fallen for the second consecutive month,” said Tony Stillo, Director of Canada at Oxford Economics.
Adding, “We anticipate housing starts will weaken further – likely to less than 200,000 units SAAR later this year and into early next year – as Canada’s emerging recession deepens and higher mortgage rates raise financing costs both for home buyers and for home builders.”
Stillo doesn’t expect to see any signs of improvement for at least a year. By the second half of 2024, his team anticipates a recovering economy and government measures will encourage more supply. Until then, expect it to get worse before it gets better.