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Housing starts stable in 2023, but demand still outpaces growing supply of apartments

The Canada Mortgage and Housing Corp. recently disclosed that the construction of new homes across Canada's major urban centers maintained stability in 2023, hovering near record-high levels. This was primarily propelled by a notable upswing in the construction of new apartments. Despite this, the demand for rental housing continues to outpace the supply.

According to the agency's biannual housing supply report released on Wednesday, the collective housing starts in cities like Toronto, Vancouver, Montreal, Calgary, Edmonton, and Ottawa experienced a marginal decline of 0.5 per cent compared to the previous year, summing up to 137,915 units. This figure remains consistent with the average of approximately 140,000 new units initiated over the past three years.

Deputy Chief Economist of CMHC, Aled ab Iorwerth, expressed optimism regarding the 2023 figures, stating they surpassed initial expectations. He noted that while higher interest rates did have an impact, particularly on smaller structures like single-detached homes, the effect was less pronounced than feared.

Notably, the construction of apartments witnessed a significant surge, recording a seven per cent growth, resulting in a record number of 98,774 units. However, this surge was counterbalanced by a notable decline of 20 per cent in the construction of new single-detached homes. This decline was attributed to subdued demand in the face of elevated mortgage rates.

Despite the steady construction pace, CMHC reiterated the pressing need to escalate housing development efforts to bridge the affordability gap, especially considering the substantial population growth in Canada. It projected a decrease in housing starts for 2024, even though forecasts suggest an additional 3.5 million units will be required by 2030 to restore affordability levels seen around 2004.

The report cited various challenges such as rising costs, labor shortages, and longer construction timelines, prompting governmental interventions to stimulate the supply of rental housing. Ab Iorwerth emphasized the necessity for increased investment in housing, particularly on the rental side, to meet the staggering demand.

The impact of higher interest rates extended beyond curbing home purchases; it also rendered the construction of new rental structures less appealing. Ab Iorwerth highlighted the challenges associated with financing rental projects amidst rising interest rates.

Among the six cities analyzed, Vancouver, Calgary, and Toronto witnessed growth in total housing starts, primarily driven by the construction of new apartments. Conversely, Montreal, Ottawa, and Edmonton recorded declines, with Montreal experiencing a significant decrease across all housing types, attributed partially to labor shortages and supply chain disruptions.

In conclusion, while housing starts remained stable in 2023, the persistent gap between demand and supply, particularly in the rental housing segment, underscores the urgent need for sustained efforts to address affordability and accommodate the growing population.