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[Visual: Mathieu Laberge and Joëlle Hamilton are sitting facing each other in brown leather armchairs. The woman has long dark hair and wears a dark blazer over a white turtleneck shirt. The man has brown hair and sports glasses. He is wearing a dark blue blazer, a plaid shirt and dark blue pants. They are both talking into microphones.]

Joelle Hamilton: Why does it still feel so hard to create new supply?

00:03:15

Mathieu Laberge: I think we can still lower the regulatory burden in order to make the pace of housing starts increase across Canada.

00:11:00

Joelle: Where did we see the biggest changes in housing starts last year?

00:14:10

Mathieu: We had a good momentum early in 2025 and, as the year went on, we saw that momentum taper off.

00:21:15

Joelle: What forces shaped Canada's rental market last year? 00:24:15

Mathieu: What we see is a balancing out of the rental market, going from very, very tight to something a little healthier.

00:31:20

Joelle: What should we be watching for this year in Canada's housing market?

00:34:10

Mathieu: I think the macroeconomic environment will remain challenging and top of mind.

With the rental market balancing out, and condo markets still absorbing inventories, the question is what will sustain the markets in 2026 and 2027?

00:49:20

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Joelle: You're listening to In-House, Canada's housing podcast, where we share the latest on Canada's housing market.

00:59:15

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01:06:00

[Visual: A box with the words “Joëlle Hamilton, Communications and Marketing, CMHC” appears briefly.]

Joelle: Hello, and welcome back to In-House. I'm your host, Joelle Hamilton. As 2026 begins, we're taking a step back to reflect on the trends, challenges, and pivotal shifts that defined Canada's housing landscape last year. We're looking at the themes that defined 2025. We'll look at why supply is struggling to keep pace, why it takes so long to build in Canada, what's changed in the rental market, and affordability, among other things. Joining me in the studio today is Mathieu Laberge, CMHC's chief economist. Welcome back, Mathieu, and happy new year.

01:40:15

Mathieu: Happy new year. Good to see you, Joëlle.

01:42:05

Joelle: It's good to see you too. Did you do anything fun over the holidays?

01:44:20

Mathieu: Oh, we hosted both families back-to-back.

01:49:15

Joelle: Okay. Well, you look well rested even though you're entertaining family. So let's get right into this. I want you to just look back really quickly at 2025. What stands out to you and why does it still feel so hard to create new supply?

02:06:15

[Visual: A box with the text “Mathieu Laberge, Chief Economist and SVP, Housing - CMHC” appears briefly.]

Mathieu: I think there area two broad reasons why it felt so hard to create supply. The first one is contextual. The second one is structural. On the contextual side, I don't think anyone will learn anything new from what I'm going to say, but it's been a very uncertain and volatile year, with the new administration south of the border coming in in early January, the trade tariffs put in place, and all that creating not only supply chain challenges in the industry, but overall uncertainty in the economy as well. And so what happens when an economy is more uncertain? Well, businesses, individuals, and households take a step back and try to understand what's coming down the road. So they slow down decision-making. That obviously impacted housing markets in 2025. Now, on the more structural side, what we see is the industry struggling with low productivity and high regulation that are actually slowing down the pace of housing supply in Canada.

03:21:13

Joelle:  Last year, we updated Canada's housing supply gap estimate. Why was this change important and what exactly did we change?

03:31:05

Mathieu: We changed a couple of things in the model. We started by acknowledging that the current housing crisis was here for some time and we needed to actually look at the longer-term trend for addressing it. And we also changed the level of affordability, recognizing that COVID played a critical role in deteriorating affordability in most major markets in Canada, except Toronto and Vancouver that were already unaffordable before COVID. But the overarching message remains the same: we need to increase supply significantly in Canada in order to meet demand over time. And the overarching message is we need to double housing starts over the next 10 years if we are to meet demographic demand going forward. That may sound a bit counterintuitive because in 2025, we went through a moderation cycle in the housing industry. But at the same time, when you take a step back and look at the longer term trend, what we're observing is pent-up demand in the system, which means that younger people stay at home because of economic uncertainty. They're not ready to commit to housing right now. Or recent comers to Canada, who are actually doubling up and sharing a flat or other co-living arrangements because they don't have the means to be on their own. But eventually, those people, these Canadians, will want to create households of their own—hit the market—and that will raise demand. And it will be important at that point to have the appropriate supply to meet the demand.

05:10:07

Joelle: So let's move on to another key piece of the housing story last year—how quickly homes are getting built. An important question throughout 2025 was whether policy changes, zoning reforms, and new incentives were truly speeding up housing delivery on the ground. My question to you is, are they?

05:33:17

Mathieu: Well, yes, they are, but it's uneven across the country. When you look at municipalities where the regulation burden is lower, they build more houses. It’s as simple as that. Look at Edmonton, especially Alberta. These are municipalities where the pace of building is higher per capita than in other municipalities that have higher regulatory burdens like Toronto and Vancouver, for example. But there's still some way to go. I think we can still lower the regulatory burden in order to make the pace of housing starts increase across Canada. The other thing that needs to happen as well is to foster innovation and adoption of new technologies in house building. But for that, we need the industry to be at scale. When you think about it right now, there are only five businesses with more than 500 employees in the residential construction industry in Canada. That's not a lot of scale. Most—a vast, vast majority—have fewer than five employees. So what you're seeing on the ground is a lot of mom-and-pop shops building houses, and that's great. But if you want to invest in prefabrication and offsite building, you need to have the capacity to invest. And in order to have the capacity to invest, you need skill.

06:57:20

Joelle: One question pops into my mind about the fact that the majority of Canadian construction companies have fewer than five employees. How does this compare internationally?

07:08:12

Mathieu: Generally speaking, economies are made up of small- and medium-sized enterprises, at least in Canada. But when you look at the bigger countries, they have more scale. They have more scale in the industry. They have more scale even in the not-for-profit sector. This is another area where we would benefit from having larger players.

07:29:10

Joelle: Where did we see the biggest changes in housing starts last year?

07:33:00

Mathieu: The year started quite strong. We had a good momentum early in 2025 and, as the year went on, we saw that momentum taper off, which means that we're starting 2026 with pretty low momentum actually on housing starts. The main driver of that obviously has been economic uncertainty. It's also been a relatively strong supply of condos in Toronto and to some extent Vancouver. And so we see those segments should keep slowing down in 2026. Now, interestingly, that means that there was actually a shift in the makeup of housing starts in Canada. As a lower number of large condo towers were built in the bigger centres, there was a rebalancing towards what was faster to build, the missing middle, if you want, like row houses, semi-detached houses, smallplexes. We see that across the country. It's also very consistent with an uncertain environment. If the environment is uncertain, will you take years to build a big condo tower or a couple of months to turn over a smaller unit that comes to fruition a lot faster? But that also means there's been a shift geographically in where we build in Canada, away from the larger centres and towards Alberta, for example, where the missing middle is especially big. In Quebec as well, there's a lot of missing middle, but they're very different. In Alberta, we see more semi-detached row and townhouses. In Quebec, it's smallplexes. And so as the year went on—2025—what we saw was a shift both in the makeup of what we were building and where we were building.

09:20:20

Joelle: Alright, now we're going to shift gears again. We definitely have to talk about one important part of the housing sector, one that impacts millions of people directly, and that's the rental market. What forces shaped Canada's rental market last year?

09:38:10

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Mathieu: That's a great question. What we saw over 2025 was an influx of new rental. Actually right at the end of the year, we released our rental market report that showed vacancy rates were up. The pace of rent growth was slowing down. So rents were still increasing. but at a slower pace than before, and actually turnover rents—the rents of units that change hands during the year versus those that changed hands in 2024—were actually decreasing. And so what we see is a balancing out of the rental market, going from very, very tight to something a little healthier. Now, it's a bit of a tale of two stories, where on the higher end of rental, the supply was healthy, but it was also very competitive with condos, higher end rental condos. It's very competitive between the two. And so in Toronto and Vancouver, where there are a lot of rental condos on the market right now, the higher end of rental had competition and saw higher vacancy rates and lower rent growth. However, on the affordable end of rental, it's a completely different story. What we see is still a very tight market. So for households in lower income brackets, it remains very challenging to find housing.

11:06:00

Joelle: So, Mathieu, the Bank of Canada held interest rates steady for much of the year before finally cutting them in the fall. What impact did that have on borrowers?

11:17:10

Mathieu: Obviously, when policy rates go down, everyone expects more affordability for borrowers. Now, this year has been a bit different because when the policy rate went up in 2022 and 2023, the spread—the difference between mortgage rates and the policy rate—narrowed compared to history, which means that the full extent of the increase wasn't passed on to borrowers. But now the policy rate has normalized, and so has the spread—the spread has increased again. So the full extent of the decrease wasn't passed on borrowers—it was smoothed out, so to speak—and the affordability and unaffordability effect in 2022-23, and the affordability effect in 2025, weren't fully felt throughout the market. Which brings me to again talk about the uncertain environment and the overall financial conditions of households and housing finance in Canada. One area we're really monitoring and is top of mind right now for us is mortgage arrears. When you look at them, they've been increasing quite steadily, especially in Toronto and Vancouver over the last year. They have somewhat stabilized in Vancouver, fortunately, but in Toronto, we do still expect increases in mortgage arrears. And when you look a bit further into the smaller markets—those that are most impacted by the current tariffs and economic uncertainty, think about southwestern Ontario, ressource-rich areas of BC, and Quebec, for example—we are observing right now an increase in non-mortgage arrears. And non-mortgage arrears are typically a good early indicator of increases in mortgage arrears. So, generally speaking, when non-mortgage arrears go up, you may expect mortgage arrears to go up about 12 to 18 months later. That's something we're watching very closely because that could mean stretched finances for some households across the country.

13:22:15

Joelle: A lot of us who locked into mortgages during the pandemic are going to be renewing. I'm one of those people. I’m renewing next year, in the first quarter. Can you give us an idea what borrowers are leaning towards? Fixed rates? Variable rates? What are the terms?

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13:46:20

Mathieu: The typical product in mortgage finance in Canada usually has been five-year fixed. During the increase in the policy rate and with the uncertainty that was created for households, we saw an increase in variable rates over fixed, but that has come back. So over 2025, because of the policy rate environment going down, households have taken on fixed rates again more predominantly. The difference is that it's for shorter terms, though. It's not the typical five-year. What we see is three to five right now. And so what that tells me is households are actually looking out and waiting to see what the situation will be in the medium term to actually have the opportunity to restructure their mortgages when the time comes.

14:38:20

Joelle: I'm down to my final question. And I always like to look ahead when we wrap up these year-in-reviews. What should we be watching for this year in Canada's housing market?

14:51:00

Mathieu: I think the macroeconomic environment will remain challenging and top of mind. Think about it—2026 is the year where we're scheduled to review CUSMA with the U.S. It's also a year when the midterms south of the border will happen. It's hard to predict how the U.S. administration will react to both events together. So that may have an impact on Canada. That's something we'll be watching very closely. At the same time, we have a very slow momentum right now in Canadian housing markets. We're starting off the year in an environment that's probably even more uncertain than it used to be in 2025. We're not seeing a lot of vitality right now in the market and, to the extent that in some of the most predominant markets—I have Toronto in mind specifically and somewhat Vancouver—the rental market is balancing out, condo markets are still absorbing inventories, the question is, what will sustain the markets in 2026 and 2027? That's something we'll be out there informing the market on on a regular basis going forward.

16:12:05

Joelle: And it's something that we can talk about at the 2026 year in review as well.

16:16:00

Mathieu: Absolutely.

16:17:00

Joelle:  Mathieu, thank you so much for your time. Thank you for sitting down with us and giving us a really great overview of what defined the housing market last year and a better idea of where the housing market may go this year.

16:30:00

Mathieu: Thanks a lot for having me. It's always a pleasure.

16:32:15

Joelle: And thank you to our viewers for joining us for In-House.

16:35:20

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Joelle: Did you know we're not just on YouTube? You can now find us on Spotify, Apple Podcasts, and Amazon Music. Don't miss our next episodes for more real, data-driven discussions.

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16:48:00

[Visual: Joelle reappears on screen.]

Joelle: If you're keeping track of the housing story, CMHC is releasing housing starts data for 2025 next week, and our 2026 housing market outlook a few weeks later. Subscribe to this channel and follow us on your favourite social media platforms so you don't miss them.

17:03:05

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Joelle: Thanks for listening, and see you next time.

17:08:20

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