Apartment starts in '23 offset sluggish home building: CMHC

Single-detached construction sees 20% drop

The number of single-detached homes being built in Canada's big metropolitan areas plunged in 2023, even though overall starts were only down slightly, according to housing supply data released March 27 by Canadian Mortgage and Housing Corp.

CMHC's report on new housing construction trends in Canada's six largest census metropolitan areas (CMAs) — Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montreal — found housing construction dropped by 0.5 per cent compared to 2022, with a total of 137,915 units started.

While apartment construction surged by seven per cent to a record high of 98,774 units, the gains were offset by a decline in ground-oriented homes, with single-detached starts falling by 20 per cent.

The findings suggest building single-detached homes is becoming a challenge for developers.

“Ground-oriented homes, especially single-detached properties, have become increasingly unaffordable for homebuyers,” the report reads. “The share of construction accounted for by single-detached homes reached a record low and is expected to remain low in the near term.”

Even with a surge in apartment construction, the overall level of new home construction in Canada's six largest cities for 2023 remains virtually unchanged from 2022.

CMHC deputy chief economist Aled ab Iorwerth said overall home construction in Canada's six largest cities for 2023 remained virtually unchanged because many housing starts last year involved projects that secured funding in 2022, when interest rates were lower. This timing explains why there was enough construction to maintain the level of starts in 2023 compared to 2022, but not enough to see an increase in numbers.

“Higher interest rates ... really put a dent in the developers' ability to get access to financing, and so the level of interest rates ends up being quite important,” ab Iorwerth said. “The effect of higher interest rates on getting access to borrowing will be more significant this year, so we're a little bit concerned about housing starts this year.”

Supply barriers such as escalating costs and labour shortages were also listed as hurdles when it comes to getting projects off the ground in the CMAs.

While CMHC flagged risks from higher interest rates, the Ontario government is anticipating a surge in new home construction this year. However, it acknowledged the province is still not on pace to reach its goal of building 1.5 million homes by 2031.

In the budget released Tuesday, Ontario forecast that 88,000 will be built, up from 80,000 predicted in last year's budget.

These numbers are expected to gradually increase to 95,800 in 2027, based on projections using an average of private sector forecasts.

Ontario is nevertheless still lagging in its goal of 1.5 million homes, which would require constructing at least 125,000 homes this year, increasing to a minimum of 175,000 annually.

The budget's provision of $1.6 billion in new funding for housing-enabling infrastructure is expected to mitigate housing target shortfalls. According to the federal government, municipalities can use these funds to address critical needs such as water lines and roads, addressing long-standing barriers to housing development.

On the day of the budget's release, Finance Minister Peter Bethlenfalvy admitted housing starts have not met his expectations. He attributed this slowdown in construction largely to high interest rates. Despite this, he expressed confidence.

“That too shall pass, and what we won't waver on is our commitment to find more ways to get more houses (built),” he said.

CHRISTINA RYAN / POSTMEDIA NEWS FILES CMHC economist Aled ab Iorwerth says interest rates have “put a dent” in developers' ability to acquire financing, which has him concerned about this year's housing starts.