If increased supply is the solution to the housing crisis, Canada is making no progress.
The city of Toronto is on pace to build fewer new homes this year than at any time in the past 30 years.
“If you think we don’t have enough homes, fast forward two or three years, and it’s going to be an absolute catastrophe,” Marlon Bray, executive vice-president of Clark Construction Management, a Mississauga-based builder, said at an online summit this month of residential builders.
The Canada Mortgage and Housing Corp. (CMHC) forecasts that housing starts in Canada will not exceed 237,000 units this year or even in the next two years, down from 245,367 units in 2024.
The CMHC, which identifies Toronto as the “epicentre of weakness” in new-home construction in a recent report, has said that Canada needs 430,000 to 480,000 new homes each year until the early 2030s to restore housing affordability to pre-pandemic levels.
The Carney government has committed to doubling annual housing construction to 500,000 new homes to the end of the decade.
But that’s over-and-above existing levels of construction, which have significantly declined.
“Forget achieving the federal government’s goal of 500,000 homes per year,” Justin Sherwood, senior vice-president of industry association BILD, said in a recent report on the GTA housing market.
“Over the next few years, it will be a stretch to keep annual housing starts in the 200,000 range,” Sherwood said.
A slump in demand is now the heart of the crisis so soon after the frenzied buying during the pandemic.
A glut of unsold housing units is keeping builders from adding further to supply.
Many housing projects have been cancelled and some builders with excess inventory they cannot sell have gone into receivership.
The GTA’s residential construction sector lost about 10,200 jobs in the first half of 2025.
“Builders and developers are eager to get shovels in the ground, but projects need to be financially viable to succeed,” Re/Max Canada said in a report this year.
“Constraints include high land costs and development fees, zoning restrictions, lengthy approval processes and red tape.”
Re/Max adds that “there’s a disconnect between what is being built and buyers’ needs. Smaller units are overwhelming the market, when more spacious product is desperately needed to support urban family living.”
Prospective home buyers must climb what Wall Street calls a “wall of worry” before committing to the biggest investment that most will make.
Potential buyers worry about recession and job loss in the current economic slowdown, which many fear will worsen before Canada resolves its trade dispute with the U.S.
Canadian new-home prices are still too high at an average of $691,634 in June, 24 per cent higher than the pre-pandemic level. The average price of a detached house in Toronto was $1,524,066 in August, down 10 per cent over the past year.
Mortgage rates also remain too high. The Bank of Canada’s policy rate declined to 2.5 per cent this month. But that’s still 10 times the ultralow rate of 0.25 per cent in the pandemic years.
Canadians are already highly leveraged. Canadian residential mortgage debt has soared to $2.3 trillion, up from $1.6 trillion in 2019.
Canada’s average household debt-to-disposable income ratio of 174.9 per cent is among the highest in the G20 economies.
And wage gains have been eclipsed by inflation.
The population of buyers has dwindled as the foreign investors and speculators who help push the market to record heights in 2020-2022 have fled the GTA and Vancouver markets, where windfall profits from flipping properties are scarce.
The decline in house prices also diminishes the “halo effect” for homeowners whose consumer confidence was boosted by ever-increasing housing valuations.
The bidding wars of the past have given way to houses selling for $100,000 or more under asking.
And population growth is at a standstill after federal cuts in immigration levels beginning last year.
Where all that could lead is another housing bubble late this decade, as the economy recovers, raising buyer confidence, and mortgage rates fall further.
But at that point, pent-up demand accumulating now might result in another severe housing shortage due to today’s drought of new housing construction.
Heading off the “catastrophe” requires that Carney’s ambitious house-building project succeeds.
It also needs a reduction in house prices that could be achieved if Ottawa and provincial governments financed “holidays” in steep municipal development fees which, with taxes, add an estimated $350,000 to the price of a $1 million home.
Short-term government subsidies to assist builders in covering high land and raw materials costs would also help, accompanied by an excess profit tax to ensure that the assistance is used to reduce home prices.
That’s not such a tall order, given what’s at stake, including the livelihoods of tens of thousands of residential construction workers whose jobs are at risk.
