Ontario's pace of new home construction slows to 2018 levels

New home construction in Ontario has slowed to a pace not seen since 2018,putting Premier Doug Ford's government further off track fromhitting its housing targets.

Housing starts in April in urban areas of Ontario were down a whopping 37 per cent from the same month last year, according to the latestfigures reportedby the Canada Mortgage and Housing Corporation (CMHC).

Economists see no signs of the slowdown reversing in the months to come, creatingthe potential for a grim 2024 when it comes to new home construction.

"Over the rest of the year, we expect [housing starts] to continue to trend down in the province and particularly in the GTA,"saidAnthony Passarelli, CMHC's lead economist for southern Ontario.

It's a problem not unique to Ontario. TD Economics predicts that housingstarts nationally "will continue to decline through the remainder of this year, reflecting more recent weakness in pre-sale activity in key markets like Toronto, elevated construction costsand high interest rates."

Construction began on 5,589 homes in Ontario last month, fewer than in any April since 2018.

Interest rates are the primary factor driving the new construction slowdown, according to a range of industry experts.Not only does the higher cost of a mortgage drive down the demand from purchasers, higher interest rates also drive up costs for developers.

"It's sometimes forgotten that the developers are also having to arrange financing for these large-scale projects," said Scott Andison, chief executive officer of the Ontario Home Builders' Association.

Developers putting projects on hold

Higher interest rates have curtailed some of the optimism that developers were feeling during the housing construction boom in 2021 and 2022, said Andison.

"Projects that certainly seemed viable before may not be as viable as they once were," Andison said.

Urbanation, a condominium market analysis firm,recentlyreportedthat 60 new projects totallingmore than 21,000units in the Greater Toronto and Hamilton Area have been put on hold indefinitely.

New condominium sales in the region in the first three months of 2024 hit their lowest quarterly total since the depths of the global financial crisis in early 2009, according to Urbanation.

"Outside of that brief period in early 2009, new condominium sales haven't been this low since the late 1990s," said the Urbanation report.

Richard Lyall, president and CEO of Rescon, the Residential Construction Council of Ontario, says while the recent rise in interest rates is a key factor, the housing affordability crisis has been decades in the making.

'It's going to get worse'

"Sales have fallen dramatically, starts are falling, housing supply is going to fall and it's going to get worse," Lyall said in an interview. "Sometimes you've got to hit bottom before you can start building back up again, and we haven't hit the bottom yet."

Construction in the first quarter puts Ontario's urban areas on pace for just 77,920 housing starts in 2024, CMHC projects. That would be a 15 per cent drop from 2023 and the lowest annual total since 2020, when the pandemic began.

Provincewide, the bulk of thedecline is in multi-unit residential construction.

Ontario saw 4,587 starts in April for non-detached homes (including multi-unit apartment, condominiums, townhomesand row housing homes), down 41 per cent from the same month in 2023,according to the CMHC numbers.

WATCH | How interest rates are affecting new construction in the province:

New home construction has slowed in Ontario. Heres why

3 months ago

Duration 5:03

Construction began on 5,589 homes in Ontario last month, fewer than in any April since 2018. Thats putting Premier Doug Ford's government further off track from hitting its housing targets. As CBCs Mike Crawley explains, industry experts say interest rates are the primary factor driving the slowdown.

There were 1,002 single-detached home construction starts last month, down only slightly from the 1,088 starts in April 2023.

Still, that does not mean the single-family home construction sector is healthy. In the first quarter of the year, non-multi-unit housing starts in Ontario totalled fewer than 5,000, and it's only the third time that has happened this century,notedMike Moffatt of the Smart Prosperity Institute think tank at the University of Ottawa.

The Ford government's budget tabled in March projected fewer new housing starts in 2024 than Ontario achieved in the previous year.

The slump has got developers and some economists urging the government to take steps to bring down the costs of new construction.

At a legislative committee hearing last week, Andisonraised concerns about Bill 185, which wouldgive municipalities the freedom to apply any increasesin development charges immediately, rather than phasing them in over a five-year period as the province has required since 2022.

"Who raises development charges and taxes in a housing crisis?" Andison asked. "This is not the time to allow municipalities to makethe new cost of home ownership even more unattainable."

Development charges levied by municipalities are ostensibly to cover the cost of providingthe new housing with new infrastructure and services. Toronto's development charges for a two-bedroom condominium unit total $68,500.

Municipal Affairs and Housing Minister Paul Calandrahas defended his legislation, also known as the Cutting Red Tape to Build More Homes Act

"These measures recognize the struggles that our municipal partners have faced in building homes," Calandra saidwhen he tabled Bill 185 last month. "We're supporting them by giving them the funding and tools they needtobuildmuch-needed infrastructure and more housing, of all types."

Ontario's drop-in housing starts last month compared with April of 2023was largely driven by a 38 per cent decline in Toronto and the GTA, which typically accountsfor more than half of new home construction in the province.

Housing starts droppedeven more dramatically in Ontario's next-largest urban centres, with Ottawa down 58 per cent in April compared with the same month in 2023, and Hamilton down 91 per cent.

Starts were up in the smaller urban areas of Kitchener-Waterloo-Cambridge, London and Windsor, which between them accounted for more than 1,200 construction starts, more than 20 per cent of the provincial total.