Ontario is falling behind in new housing construction, and that’s a problem

Homes under construction in Richmond Hill, Ont. Photo by Cole Burston/Bloomberg files

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Ontario may be Canada’s most populous province, but it might soon cease to be the national leader in new housing construction. Recent quarterly data on housing starts, adjusted for seasonality and a six-month trend, reveals a startling reality: residential construction in Ontario is slowing, and other much less populated provinces are rapidly catching up.

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Construction began on 60,236 seasonally and trend-adjusted annualized dwellings in Ontario in June. Closely behind Ontario is Alberta, where work began on 58,882 dwellings at an annualized rate of construction. Meanwhile, Québec, Canada’s second most populous province, with 9.1 million people, is also trailing Alberta with 58,849 seasonally and trend-adjusted annualized starts.

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These figures should be a concern for policymakers in Ontario. Alberta, with fewer than five million residents, is now building almost as many homes as Ontario, which has a population more than three times the size of Alberta’s.

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In a functioning housing market, new construction tends to align with population growth. Larger provinces, which attract more people and businesses, should, at least theoretically, lead in housing development. Yet, the evidence points elsewhere. Alberta and Quebec have accelerated residential construction, whereas Ontario and British Columbia appear to be stuck in a lower gear.

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Interestingly, a large increase in new residential construction was recorded in June in British Columbia. However, when adjusted for the six-month trend, the sharp increase still leaves British Columbia’s starts behind the other three populous provinces.

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This shortfall matters. A lack of adequate new housing supply has long-term implications for affordability. While rental markets across Canada have recently shown signs of softening, homeownership remains out of reach for many mid-income households, particularly in Ontario and British Columbia. The average selling price in places like Toronto has stubbornly stayed above the $1.1 million mark, far beyond the reach of average earners.

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Decades of academic research and real-world experience have affirmed a central truth: when housing supply grows in tandem with demographic demand, prices and rents rise predictably and sustainably. However, when supply lags population growth, prices tend to increase rapidly, putting stress on household budgets and exacerbating inequality.

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Residential construction in Ontario has been trending downward in the post-pandemic period. Understanding this decline requires a closer look at the composition of new housing. Much of Ontario’s recent construction, especially in cities like Toronto, has focused on multi-family dwellings, predominantly mid- and high-rise condominium and rental buildings. With weakening investor interest, tighter financing conditions and increased construction costs, the pipeline for such projects has become considerably thinner.