Apartment construction surged last year but demand still outpacing supply, says CMHC

A surge in new apartment construction drove housing start increases in some major Canadian cities last year, but demand continues to outweigh supply,according to a report released Wednesday by the federal housing agency.

The report from Canada Mortgage and Housing Corporationfocuses on six major cities: Toronto, Montreal, Vancouver, Calgary, Edmonton and Ottawa. Their combined housing startsdipped 0.5 per cent compared with 2022, totalling 137,915 units, as apartment starts grew seven per cent, to reach a record 98,774 units.

That number was offset by declines in the number of new single-detached homes, which fell 20 per cent year over year, due to weaker demand for higher-priced homes in an elevated mortgage rate environment.

"We ended up being positively surprised by 2023. We were really quite concerned that higher interest rates were going to really have an impact," said CMHC deputy chief economist Aled ab Iorweth.

"They did have an impact, but it seems to have been on smaller structures, single-detached [homes]and so forth."

Toronto, Vancouver, Calgary break records

Toronto, Vancouver and Calgary all saw an increase in total housing starts boosted by record-high levels ofapartment construction.

Montreal, meanwhile, saw a 35 per cent decline in apartment starts due to higher financing and construction costs its lowest level in eight years, according to CMHC. It was the only market with a significant decrease in new homes being built across all housing types.

Ottawa and Edmonton saw drops in total starts, with the former logging a 20 per cent decline and the latter a 10 per cent decline.Yet apartment starts in Ottawa reached their highest level since the 1970s, according to the report.

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The federal government is reviving a war-time plan for pre-approved home designs to accelerate building across the country. Andrew Chang breaks down why it takes so long to build housing in Canada, and whether a new version of the plan could help.Purpose-built rental construction accounted for 42 per cent of all apartment construction in 2023 reachinga record 41,460 units which contributed heavily to the total starts.

But low vacancy rates and a rapid increase in the cost of rent have indicated that demand is outpacing supply for these types of properties.

The agency continued to warn about the need to ramp up housing construction to address affordability gaps and significant population growth in Canada.

'We're still not building enough'

It said housing starts are projected to decrease in 2024, despite the CMHC's forecast that Canada will require an additional 3.5 million units by 2030, on top of what is currently projected to be built, to restore affordability to levels seen around 2004.

Its report cited rising costs, larger project sizes and labour shortages last year that led to longer construction timelines, prompting various levels of government in Canada to announce new programs aimed at stimulating new rental housing supply.

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Ontarios finance minister said new home construction is still a priority for the government, even though the 2024 budget forecasts less building than in previous years. CBCs Lorenda Reddekopp has more on what the province is promising."We're still not building enough, particularly on the rental side," said ab Iorwerth.

"The demand is enormous. I don't think we're keeping up with demand. So we need a lot more investment."