Canada’s homebuilding crisis may be even worse than it seems

The pace of housing starts across Canada jumped to a three-year high in July, accelerating at a faster clip than most analysts had expected and hitting an annualized pace of 294,100 units.

But that improvement could paint a false picture of the homebuilding outlook, with builder sentiment remaining gloomy and rental units accounting for a significant portion of those new starts.

A closer look at recent starts data reveals some concerning trends, according to Canadian Home Builders’ Association chief executive officer Kevin Lee.

“It’s still pretty dismal, especially from a units-for-home-ownership perspective,” he told Canadian Mortgage Professional. “When we look at what’s happening with housing starts, we’re not seeing the kind of drop-off that would be reflected from our really brutal industry sentiment.

“The market’s kind of being held together by purpose-built rental and affordable housing starts. So we’re trading off rental units for homeownership units at this time. Meanwhile, when we look at starts of any type for ownership, be they low-rise or high-rise, we’re seeing the complete drop-off.”

In centres with a population of 10,000 or over, housing starts totalled 23,464 last month, according to Canada Mortgage and Housing Corporation (CMHC). But just 4,128 of those were single-detached starts, compared with 19,336 in an “All Others” category that includes multi-unit and purpose-built rental projects.

The crisis is especially pronounced in the Greater Toronto Area (GTA), where starts have plunged. “But even in the rest of the country, kt’s really bad – particularly in British Columbia as well as Ontario,” Lee said.

CHBA’s housing market index, a gauge of homebuilder sentiment, remains mired at just 24.9 (out of a possible 100) on the single-family outlook, and 22.8 on the multifamily front.

Builder confidence in Ontario and BC remains much worse than in the Prairie and Atlantic provinces, but Lee said construction prospects also appear to be darkening elsewhere.

“Things are starting to slow a little bit in Alberta where things had been going pretty well,” he said. “So from a builder-developer outlook in most cases in the country, it’s not good. In Ontario and BC, it’s quite bad.”

Why Ontario is facing a particularly sharp crisis

Much has been made of the condo market meltdown in Toronto, a crisis that’s raised the prospect of scores of construction projects being cancelled as builders step to the sidelines.

But a host of factors are contributing to a particularly bad construction outlook across Ontario, Lee said, separate from that fiasco.

“You’ve got certain parts of Ontario that are hit especially hard by the Trump tariffs. You’ve also got a province that has a lot of larger urban centres and those larger urban centres have been increasing their development taxes,” he explained. “And while some are reducing them now, others are continuing to increase.

“It’s just become so expensive to build in Ontario between all those development taxes, plus rising construction costs, plus rising labour costs – and the numbers don’t pencil out to build right now.”

‘Things are going to have to change’

All that means urgent action is required now more than ever, according to Lee, to remove some of the hurdles currently facing builders in the province and across Canada.

“Things are going to have to change in Ontario,” he said. “Municipalities are going to have to step up and do something about development charges if we’re going to see some more turnaround. We’re optimistic that we’re going to get that GST change, at least for first-time homebuyers, from the federal government once the House of Commons returns.

“That’s been another drag on construction across the country and in Ontario. So hopefully that’ll come in in September – but we’ve been advocating that we really do need it for all buyers. There’s no way we’re getting anywhere near that 500,000 housing starts goal [prime minister Mark Carney’s target for annual construction] if we don’t do something about the GST for all buyers.”

Source CMP
By Fergal McAlinden