Lower housing starts forecast in 2024

Ottawa, April 4, 2024

After reaching historically high levels in recent years, housing starts in Canada are expected to decline in 2024, before recovering in 2025 and 2026, reflecting the lagged effect of higher interest rates on new construction. This according to the latest Housing Market Outlook (HMO) released by Canada Mortgage and Housing Corporation (CMHC). The HMO provides overviews and forecasts for new home construction, rental markets, home sales and home prices. Along with a national overview, this version of the HMO also provides data and forecasts for Vancouver, Calgary, Edmonton, Toronto, Ottawa, and Montréal. A second version of the HMO, covering 12 more CMAs in Canada, will be released on May 1^st.

Despite an increase in rental housing coming on the market in 2023, supply is not forecast to keep up with demand, resulting in higher rents and lower vacancy rates throughout the forecast period. CMHC anticipates a decrease from record-high rental apartment construction observed in recent years, with demand continuing to be driven by renter households staying in their units due to the high costs of transitioning to homeownership. Strong population growth is another factor putting pressure on rental markets.

In the homeownership market, both home prices and sales are forecast to rise in 2024. By 2025, prices could reach the peak levels recorded in early 2022 and surpass them in 2026, driven by high demand. Home sales will rebound in 2024, but will remain below the record 2020 - 21 levels, restricted by affordability challenges among prospective buyers.

You can read the entire Housing Market Outlook (HMO) on the CMHC website.

Quote:

“Purpose-built rental starts, fuelled by unprecedented demand and government support, hit record levels in 2023, sustaining overall housing starts in Canada near historically high levels. However, unfavourable financing conditions are expected to make it more difficult for homebuilders to start new rental projects in 2024. We anticipate by 2025 – 2026 lower interest rates, continued government support, and policies encouraging greater density in urban centres should make more projects viable. Lower interest rates will also benefit homebuyers, as real income and confidence levels improve. Consequently, more homes are expected to be built in 2025 – 2026.”
— Bob Dugan, Chief Economist for CMHC

Report findings CMAs:

New home construction in Vancouver will slow from record levels in 2023 due to higher interest rates catching up with construction timelines. Meanwhile, demand pressures will push sales, prices, and rents higher throughout the forecast period.
Housing starts activity will remain strong in Edmonton, driven by strong economic conditions, while sales and home prices are expected to see modest growth. The rental market will remain tight as demand continues to outpace supply.
Similarly, Calgary is expected to see strong supply growth as home construction responds to high demand and population growth. This demand pressure will also continue to tighten the rental market and increase resale market activity.
In Toronto, total starts are expected to decline in 2024 and 2025 due to high construction and financing costs. Home prices are expected to resume growth in 2024 making homeownership affordability a persistent challenge, while the rental vacancy rate will increase slightly but overall rental market conditions will remain tight.
Ottawa will see an increase in housing starts, driven by multi-unit construction. Both home prices and the rental vacancy rate should see modest growth, driven by a gradual decrease in mortgage rates and high rates of rental supply growth, respectively.
New home construction in Montréal will see a slight upturn through 2025 due to lower interest rates but will not keep pace with demand. Property prices will see a moderate recovery in 2024, while the rental market will continue to tighten due to supply and demand pressures.