Canada Is Building More Homes, But Fewer Are Being Built for Buyers

Canada’s housing construction numbers may look strong on the surface, but a major shift is taking place underneath them.

According to recent data highlighted by Desjardins, developers are increasingly moving away from condominium projects and toward purpose-built rental housing. While the increase in rental supply is important, the decline in homes being built for ownership could create another challenge for Canadian buyers in the years ahead.

The Shift Toward Rental Construction

Over the past year, approximately 130,000 rental units began construction across Canada. Meanwhile, condominium starts fell below 50,000 units for the first time since the Global Financial Crisis.

The shift is even more significant when compared with 2019.

Total housing starts are approximately 43,000 units higher than in 2019, but that increase has been driven entirely by rental construction. Rental starts have increased by roughly 73,000 units, while housing starts intended for ownership have actually declined by approximately 30,000 units.

As a result, the share of new housing starts intended for ownership has fallen from more than 70% to approximately 45%.

In other words, Canada may be building more homes overall, but a much smaller proportion of them are homes Canadians will eventually be able to purchase.

Why Are Developers Moving Away From Condos?

The economics of condominium development have become increasingly difficult.

Higher borrowing costs, elevated construction expenses and government fees have made many projects difficult to build profitably at prices buyers are willing or able to pay.

At the same time, investor demand for pre-construction condos has weakened. Because developers often rely heavily on presales to secure construction financing, fewer buyers and investors can mean fewer projects moving forward.

Purpose-built rental projects, on the other hand, have received additional support through government initiatives, including financing programs and the removal of GST on qualifying new rental construction.

The result has been a significant shift in where developers are putting their capital.

Why This Matters For Future Homebuyers

There is currently no shortage of homes listed for sale in many Canadian markets. The bigger concern is what happens several years from now.

Large housing projects take years to plan, finance and construct. A condominium project that does not begin today represents hundreds of potential ownership units that may not reach the market later this decade.

If population growth and homebuyer demand strengthen while the pipeline of new ownership housing remains limited, buyers could once again find themselves competing for a constrained supply of homes.

That imbalance could eventually place renewed upward pressure on home prices.

Canada Needs Both Rental and Ownership Housing

The increase in purpose-built rental construction is a positive development for a country that has struggled with insufficient rental supply for years.

But increasing rental construction does not eliminate the need for new ownership housing.

A healthy housing market requires options for Canadians at different stages of their lives, including those who rent and those working toward homeownership.

For policymakers and the housing industry, the challenge will be ensuring that today’s rental construction boom does not come at the expense of tomorrow’s ownership supply.

For prospective buyers, the changing construction pipeline is another reminder that housing supply, interest rates and affordability are closely connected. Understanding those trends can help buyers make more informed decisions about when and how to enter the market.

Sources: Financial Post