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Housing starts have been the strongest ever in Canada in the last four years, totalling more than one million units, and remain robust in much of the country this year.
However, Ontario stands out with a steep decline since mid-2024, particularly in the Greater Toronto Area. British Columbia has also seen a moderation, but to a much lower extent.
This divergence is concerning, because it threatens to perpetuate severe affordability problems that exert social and economic hardship on Canadians in these regions.
The country’s housing supply has been a persistent challenge amid a population boom until recently with growing unmet demand—especially at the more affordable end of the spectrum.
This is at the root of the housing crisis. Fixing the situation is complex and requires many solutions, but the general direction is simple─build more homes.
While homebuilders and municipalities are keen to respond, factors like the high development and building costs in Ontario, and substantial inventory are weighing on the initiation of new projects. This raises concern about whether future housing stock can meet demand.
Residential construction is strong in many regions but Ontario
Homebuilding in Canada has been largely resilient with overall housing starts averaging more than 250,000 annualized units in the first half of this year—well above the 201,000 units average in the 10 years before the pandemic.
Alberta and Atlantic Canada are experiencing record high residential construction, buoyed by relatively affordable home prices. Saskatchewan and Quebec are in the midst of a significant upswing as well, while Manitoba sustains solid levels.
Yet Ontario’s six-month average has fallen to the lowest level in a decade—trending in the opposite direction of what’s needed to achieve the provincial government’s ambitious goal of building 1.5 million new homes over 10 years.
It’s a similar, albeit less pronounced, situation in B.C.
What’s holding back housing starts in Ontario?
Several factors explain Ontario’s underperformance. High development and construction costs are major barriers.
Builders saw a rapid escalation of expenses for land, labour, and materials, compounded by municipal development charges and other fees in the past several years.
These costs make it exceedingly difficult to bring new housing projects to market at prices prospective buyers can afford, particularly in the expensive GTA.
Another issue is the inventory of existing homes, which has grown more in Ontario than provinces.
This larger supply of readily available homes—often with lower prices than new projects—has dampened the demand for new builds.
Meanwhile, investor interest in pre-construction condos—a key driver of housing starts in the GTA—has nearly collapsed.
The Bank of Canada’s earlier interest rate hikes, a cooling rental market and declining condo prices have deterred investors, leading to a sharp drop in pre-construction condo sales.
Without investor confidence, many projects are unable to get off the ground, further stalling new construction.
At the same time, Ontario municipalities, including Toronto, are issuing more building permits than builders are acting on. This suggests a major bottleneck in projects are costs instead of permit approvals.
That said, high development charges or heavy regulatory requirements imposed by municipal governments contribute to the steep costs of building homes, inhibiting builders from following through on approved permits.
Slump bodes poorly for future housing stock expansion
The full impact of the current slowdown in housing starts won’t be felt for years in Ontario.
It can take two, three or more years to complete a large multi-unit project once the foundation has been poured.
Indeed, the GTA market is still absorbing the wave of condo units completed in 2024 started during the pandemic or even earlier.
Units currently under construction (more than 93,000 units as of July) are just 11% off from all-time highs in the region, which suggests completions are likely to stay relatively plentiful (albeit diminishing) in the near term.
The downturn in Ontario’s housing construction pipeline could have dire consequences for 2026 and beyond if not addressed.
Any material drop in completions causing a slowdown in the housing stock’s expansion would make it that much harder to close the province’s housing supply gap. It could increase the shortfall and aggravate the affordability crisis if it coincides with a rebound in population growth once Canada’s immigration policy is readjusted.
Robert Hogue is the Assistant Chief Economist responsible for providing analysis and forecasts on the Canadian housing market and provincial economies.
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