Rental demand drives surge, but will it be enough to tackle affordability?
A wave of apartment construction in major Canadian cities has kept the overall pace of new housing starts largely stable despite a slowdown in single-family home construction.
A new report released by Canada Mortgage and Housing Corporation (CMHC) showed a surge in apartment construction, particularly in Toronto, Vancouver, and Calgary, which offset declines in single-detached and semi-detached construction.
This resulted in the overall level of new home construction remaining virtually unchanged from 2022.
In these cities, apartment construction, including both purpose-built rental and condominium apartments, reached record levels, indicating high demand in the rental market. However, Montréal experienced an eight-year low in apartment construction.
"There were a large number of housing starts in 2023, particularly in the rental segment, which is good progress, but not enough to improve affordability,” said CMHC deputy chief economist Aled ab Iorwerth noted in the report.
Despite the surge, CMHC affordability remains a major problem.
“The concern now shifts to whether construction of apartments will hold at these high levels in 2024,” ab Iorwerth added. “Clearly the demand for housing exists, particularly in rental, but financing costs could become too heavy for homebuilders to begin construction on large multi-family projects at the same pace seen in 2023."
The report also addressed challenges such as high construction and financing costs, project complexity, and labour shortages. Construction timelines for all dwelling types exceeded historical averages in 2023, reflecting these challenges.
In response, the federal government has implemented several initiatives to address housing issues. The Apartment Construction Loan Program (ACLP), a key component of the National Housing Strategy (NHS), received a boost in funding through the 2023 Fall Economic Statement. This injection of funds aims to support the construction of 101,000 new rental homes by 2031 to 2032.
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Recent reforms to the ACLP announced in January 2024 will make low-cost loans available to homebuilders for the construction of housing tailored to university students. This initiative seeks to alleviate housing affordability concerns for students on and off-campus.
Additionally, CMHC introduced MLI Select, a multi-unit mortgage loan insurance product, in March 2022. This program offers incentives for new rental construction based on criteria such as affordability, energy efficiency, and accessibility.
Lastly, the federal government's decision to remove the Goods and Services Tax (GST) on all new qualifying rental housing construction, announced in September 2023, aims to further support efforts to address housing affordability challenges nationwide.
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