Higher borrowing costs are expected to drive drastic slowdowns in homebuilding for Canada’s largest urban centres after a surge in activity that started the year, according to the Canada Mortgage and Housing Corp.
The CMHC’s mid-year housing supply report released Thursday shows Canada’s six largest housing markets had wildly different paces of homebuilding in the first six months of the year.
Vancouver and Toronto experienced surges of 49% and 32%, respectively, in homebuilding compared to the first half of 2022. These two cities accounted for two-thirds of all housing starts in Canada’s six largest urban centres in the first six months.
In contrast, Montreal saw a sharp drop of 58% in new housing starts, while Ottawa and Edmonton also experienced annual declines. Calgary, on the other hand, maintained a steady pace.
Overall, housing starts across all six markets increased by just 1% year-over-year, according to CMHC.
The difference in the pace of homebuilding between cities like Montreal and the behemoths of Vancouver and Toronto might come down to timing, the report noted.
Buildings in Toronto and Vancouver tend to be taller than developments in Montreal, which means they require a longer timeframe before construction can begin.
This implies that projects in Toronto and Vancouver that broke ground in the first half of 2023 likely secured financing in 2022, before the Bank of Canada’s rapid interest rate hikes reached their peak.
In contrast, buildings in Montreal with shorter turnaround times likely obtained financing more recently, and higher borrowing costs have limited the feasibility of some projects.
From this perspective, CMHC predicts that the delays experienced by Montreal in the first half of the year may eventually affect Toronto and Vancouver.
“Economic challenges will likely slow the pace of apartment starts in Toronto and Vancouver in the second half of the year,” stated the report.
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