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Canada's building more condos than ever. Why are rents still so high?

Canada's real estate landscape is bustling with construction activity, yet the challenge of soaring rents persists, leaving many puzzled about the paradox. The Canada Mortgage and Housing Corp. (CMHC) reports that the building of new homes in the nation's largest cities is maintaining near-record levels, a testament to the fervent construction pace. Despite this, the demand for housing continues to outstrip the available supply, prompting concerns from experts.

Aled ab Iorwerth, deputy chief economist at CMHC, emphasized the urgency of addressing this shortfall. In an interview with CTV News Channel, ab Iorwerth stressed the need for a diverse array of housing solutions, particularly underscoring the importance of more apartment units as a gateway to homeownership for many Canadians.

The housing crunch has not gone unnoticed, with business leaders identifying it as the foremost risk to Canada's economy in a recent survey. Responding to this concern, the federal government has made commitments to safeguard renters, acknowledging the gravity of the situation.

Despite the record-high construction of apartments, ab Iorwerth warns that it falls short of meeting the burgeoning demand. He points out that while these units are relatively more affordable, there is an acute need for a substantial increase in their numbers.

Challenges loom on the horizon, with financing for new housing starts becoming increasingly complex. Factors such as elevated interest rates and constraints in labor and material supply contribute to this complication, exerting pressure particularly on the initiation of detached housing projects.

This pressure is most palpable in cities like Montreal, where smaller housing structures dominate the landscape. The shift towards condominiums becomes inevitable in the face of the housing crisis and the scarcity of available housing options.

Ab Iorwerth underscores the changing preferences among Canadians, highlighting the diminishing affordability of single-detached homes. Despite a temporary surge in interest in suburban living during the COVID-19 pandemic, many are now gravitating back towards urban centers, driving up the demand for apartments.

However, concerns loom over the impact of rising interest rates on housing starts. While apartments currently offset some of these effects, there are apprehensions about their sustainability in the face of continued interest rate hikes.

The stagnating growth in housing construction poses a significant challenge to resolving Canada's housing crisis. Ab Iorwerth advocates for the urgent development of more condos and apartments, emphasizing the need for increased density to address the affordability issue effectively.

In summary, while Canada's construction sector remains active in erecting new homes, the persistently high rents indicate a structural imbalance between supply and demand. Addressing this challenge requires concerted efforts to diversify housing options, streamline financing, and promote densification in urban areas to ensure affordability for all Canadians.