A robust pace of homebuilding in the first half of 2024 won’t be sufficient to restore housing affordability, according to the Canada Mortgage and Housing Corp.
The CMHC said in a new housing supply report Thursday that total housing starts in Canada’s six largest cities rose four per cent in the first half of the year compared with the same period in 2023.
The 68,639 units started marks the second strongest levels since 1990, short only the first half of 2021, CMHC said.
Despite the overall national lift in the first half of the year, differences in construction activity were also highly regional.
Growth was led by Calgary, Edmonton and Montreal, CMHC said, with starts up 40 to 70 per cent year over year in those cities. Conversely, Toronto, Vancouver and Ottawa all saw drops in their annual pace of 10 to 20 per cent.
These disparities weren’t observed in CMHC’s previous housing supply report, the agency noted.
Calgary and Edmonton in particular are seeing homebuilding paces accelerate because they benefit from strong flows of interprovincial migration, CMHC said.
“The influx has created demand for new home construction, with housing starts reaching record highs in Calgary and the second-highest level in Edmonton during the first half of 2024,” the report said.
CMHC pointed to a “lower regulatory burden” in Alberta as helping builders quickly get shovels in the ground to try to keep up with demand.
But despite the national uptick, CMHC is warning that the current pace is not enough to keep up with Canada’s rapidly growing population.
Looking at housing starts per 10,000 population, homebuilding activity is just holding to historical averages, the agency said.
“Given the long history of supply not keeping up with demographic demand, this level of activity isn’t enough to reduce the existing supply gap and improve affordability for Canadians,” CMHC said.
Fresh population figures released Wednesday from Statistics Canada showed that growth slowed in the second quarter of the year as the federal government seeks to tighten the flow of newcomers to the country.
Canada added some 250,000 new residents in the second quarter of 2024, up 0.6 per cent on a quarterly basis, marking a slowdown from the same periods in 2022 and 2023.
BMO chief economist Doug Porter said in a note to clients Thursday morning that despite the slowing inflows, taken with the pace of housing starts, Canada’s latest population figures suggest housing supply tightened further last quarter.
Up until recently, Canada had maintained an equilibrium of adding one new dwelling per two new residents for 30-plus years, Porter explained.
But in the past five years, that ratio has fallen to one start per every three residents, with the last quarter nearing one in four.
“Not heading in the right direction for improved affordability … quite the opposite,” Porter wrote.
Ottawa seeks to speed up homebuilding with mortgage reform
Over the last year, the federal government has been debuting new policies to stimulate building in an effort to construct nearly four million homes by 2031. Many of these policies have been designed to encourage municipalities and provinces to add density and speed up building permissions, particularly for purple-built rentals.
Apartment-style units were up across the major cities included in CMHC’s first-half report.
Nearly half of those apartments were purpose-built rentals, the agency said, representing the highest share on record.
Condo starts were down year-over-year except in Calgary and Edmonton, which CMHC attributed to homebuyers and investors trimming back their appetite for pre-built condos as interest rates rose over the past two years.
CMHC expects that trend to continue as developers struggle to get the minimum pre-construction sales needed to break ground on new builds.
Deputy Prime Minister and Minister of Finance Chrystia Freeland has positioned Ottawa’s recent proposals to expand 30-year amortizations to all new builds as a way to make pre-construction homes more affordable and offer an “extra incentive” to speed up homebuilding.
Builders have hailed the move as helping to get shovels in the ground, while some experts who spoke to Global News argue the moves could indirectly spur more building as home prices rise in response, sweetening the deal for investors.
Where supply and demand stands in the housing market
Declining mortgage rates and stable or falling home prices led to affordability improvements in most major markets over the summer, according to a Ratehub analysis released Wednesday.
But TD Bank economist Rishi Sondhi said in a report on Thursday that overall affordability remains “strained” with interest rates still high and little sustained downward pressure on home values.
He said that housing market activity is “stirring” amid Ottawa’s moves to loosen mortgage conditions and the Bank of Canada’s signals that more interest rate cuts are on the way.
Sondhi expects that most of the meaningful sales will come not this fall, but in 2025, as prospective buyers wait for the new federal mortgage rules to kick in and for interest rates to fall further.
“The federal measures should help unlock powerful gains in Canadian sales and average home prices across Canada in the first half of 2025,” he said.
Ottawa’s plan to raise the insured mortgage cap to $1.5 million from $1 million is likely to stimulate buying in Ontario and B.C., the provinces with Canada’s most expensive markets, Sondhi said, giving a lift to home prices. But he added that overall loose supply-demand conditions, particularly in Toronto’s overstocked condo market, will limit overall growth.
Prices will have more room to grow in tighter markets including Quebec and the Atlantic, but most notably in the Prairies, Sondhi added.