Rising interest rates influence housing developers and homebuyers

Ottawa, April 19, 2023

Growth in residential construction was mixed across Canada’s six largest CMAs in 2022, as housing starts increased in Toronto, Calgary, Edmonton and Ottawa, remained unchanged in Vancouver, and decreased in Montréal. This according to the latest edition of Canada Mortgage and Housing Corporation’s (CMHC) Housing Supply Report (HSR), which examines new housing construction trends in Canada’s six largest CMAs.

Significant increases in interest rates influenced the activities of both developers and homebuyers as 2022 progressed. The full impact of the increase in interest rates is not yet reflected in the CMHC Housing Starts and Completions Survey, which measures the pace of construction of new residential housing in Canada.

“In some centres, seasonally adjusted housing starts began moving lower at the end of 2022 and early 2023. The higher interest rate environment will likely slow construction activity in more centres in 2023,” said Francis Cortellino, Senior Specialist for housing market analysis at CMHC.

“Some projects may become unviable at current financing rates, or construction financing will become harder to obtain,” added Eric Bond, Senior Specialist for housing market analysis at CMHC.

CMHC will be publishing its annual Housing Market Outlook forecast later this spring.

This edition of the HSR also summarizes an innovative analysis, conducted by researchers at the University of British Columbia, examining the link between housing affordability and proximity to amenities, such as health care or public transit. The study used data from CMHC’s HSR and Statistics Canada’s Proximity Measures Database to understand the “amenity richness” of new housing supply added in Canada’s six largest urban centres between 2016 and 2021. The analysis determined that almost 80% of housing starts in Canada’s six largest metropolitan areas were in low-amenity neighbourhoods, and fewer than 10% were in high-amenity neighbourhoods.

You can download and read the entire Housing Supply Report (HSR) on the CMHC website.

Report highlights:

Growth in residential construction was mixed across Canada’s six largest CMAs in 2022. Housing starts increased in Toronto, Calgary, Edmonton and Ottawa, remained unchanged in Vancouver, and decreased in Montréal.
Significant increases in interest rates influenced the activities of both developers and homebuyers as the year progressed. The full impact of the increase in interest rates is not yet reflected in our housing starts statistics.
Even with elevated housing construction in some CMAs during the pandemic, inventories of new and unabsorbed homeownership units, which is a housing unit that has been completed but not yet sold, are currently at historic lows. Because of the resulting limited options on the market, households in large CMAs may find it harder to access housing that meets their needs.
In 2022, housing starts in Toronto rose 7.7% to reach their highest level since 2012. The increase was driven by higher condominium apartment construction resulting from strong presales over the past two years (presales are an important source of financing for condominium apartment construction). In contrast, total starts declined 25.3% in Montréal to return to recent average levels following record starts in 2021.
Low vacancy rates and rising rents in 2022 increased developer interest in the rental segment across all CMAs except Toronto. In Vancouver, a decline in condominium construction was offset by a surge in rental starts.
In Edmonton, new purpose-built rental apartment construction increased significantly in 2022. The increase was spurred by projects concentrated near the downtown core and in newly developing neighbourhoods on the periphery.
In Calgary, construction of both purpose-built rental and condominium apartments increased significantly in 2022, with projects concentrated near the downtown core and in newly developing neighbourhoods.
For 2022, residential construction set a new record in Ottawa, as densification continued. 2022 was the first time in more than 20 years that the share of apartment starts accounted for more than 50% of total housing starts in the region. Construction activity was concentrated in the central sectors, where larger and larger buildings are being built.

We strongly believe that better, more informed housing decisions are made with the availability of quality housing market data and insights. The HSR aims to increase understanding on the state of housing supply and provide insights on the gaps and opportunities. We’ll continue to share new data, indicators and insights exploring different aspects of housing supply in Canada.

Additional information:

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For more information, or to request and interview with a CMHC analyst for Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal, please contact CMHC Media Relations.

Media Relations, CMHC
media@cmhc-schl.gc.ca