Slowdown in housing construction deepens as builders pull back

New home construction in Milton, Ont. on July 9. Photo by Peter Power/Postmedia files

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Housing construction in Canada continued to thin in June — further evidence that homebuilders are pulling back amid weak demand, rising costs and a surplus of unsold homes.

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Canada Mortgage and Housing Corp. (CMHC) said the six-month trend in housing starts fell 2.8 per cent last month to a seasonally adjusted annual rate of 248,123 units. At the same time, the monthly annualized pace slipped six per cent to 239,971 units, while actual housing starts in centres with populations of 10,000 or more fell 13 per cent year over year.

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The latest figures support economists’ expectations that residential construction will remain subdued through the rest of the year despite modest improvements in home sales and recent government efforts to stimulate new-home demand.

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“There is little doubt that the slowdown reflects rising uncertainty, higher development costs, weaker demand and more unsold homes,” Kevin Hughes, CMHC deputy chief economist said in the release.

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According to Hughes, the Crown corporation expects housing starts in 2026 to finish below last year’s levels.

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The broader construction pipeline also appears to be slowing.

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While the number of homes under construction in centres with populations of 50,000 or more was essentially unchanged from May, increasing by just 0.2 per cent to 375,469 units in June, the number of approved units awaiting construction slid 1.1 per cent to 137,324.

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Completions climbed 8.4 per cent to 18,298 units as projects already underway continued to reach the finish line.

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Taken together, the data suggests an industry that is completing projects faster than they’re launching new ones.

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Robert Kavcic, senior economist at BMO Capital Markets, said the weakness is particularly pronounced in the ownership market. Housing starts for condos and other homes intended for ownership across Canada’s largest metropolitan areas have fallen to their lowest levels since the 2009 recession — and before that, the recession of the mid-1990s — “while rental starts continue to run near record highs. Most regions of the country saw starts pull back in June,” he said.

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Among three of the nation’s largest metropolitan areas, the results are mixed. Montreal posted a 10 per cent annual increase in housing starts, driven by multi-unit construction. Toronto recorded a 25 per cent increase, also led by multi-unit residential buildings. Starts in Vancouver, however, tumbled 35 per cent as both single detached and multi-unit construction weakened.

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Economists say there’s little reason for a turnaround.

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TD Economics economist Marc Ercolao said “weak population growth, elevated levels of unsold inventories, climbing rental vacancy rates and past weakness in pre-construction sales” continue to weigh on builders. While Ontario’s recently expanded HST rebate for new homes should eventually support demand, he said the lag between pre-sales and construction means any meaningful gains in housings starts is more likely to emerge in 2027 or 2028.

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Stephen Brown, chief North American economist at Capital Economics, echoed that view stating the resale market has gradually improved but developers remain under pressure. Even government measures to convert unsold condos into affordable housing are expected to provide only moderate relief, he said, leaving housing starts to trend lower over the coming year.

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