Housing starts could slow through 2027 as Canada faces new economic challenges
Canada’s housing market is bracing for a slowdown in new home construction over the next three years as economic uncertainty, declining investor interest, and shifting demand reshape the industry, according to the latest forecast from Canada Mortgage and Housing Corporation (CMHC).
While housing starts were strong at the beginning of 2024, the momentum is not expected to last. CMHC points to factors such as lower immigration targets, affordability challenges, and the possibility of US trade tariffs as key risks that could weigh on housing activity in the coming years.
“Foreign trade risks add significant uncertainty for housing construction going forward,” CMHC deputy chief economist Tania Bourassa-Ochoa said in a media release.
Although CMHC expects moderate economic growth in 2025, the housing market will likely face a mix of pressures.
“Slower population growth and economic challenges will limit housing activity,” the report noted. “On the other hand, some households will see improved buying power, boosting housing activity in the short term.”
Condo construction slows
CMHC forecasted that housing starts will decline starting this year and continue slowing through 2027, though they will remain above the 10-year average.
One of the biggest drivers of the slowdown is the cooling condominium market. With investor demand weakening and young families looking for larger homes, developers are struggling to secure enough pre-sales to launch new condo projects.
“The increase in unsold units will likely reduce new project launches, leading to a decline in new condominium apartment construction,” CMHC said.
This shift is particularly pronounced in Ontario, where the Greater Toronto Area, Hamilton, Kitchener, Cambridge, and Waterloo have seen pre-construction condo sales dwindle over the past two years. High interest rates have further dampened demand, leading to fewer land deals and development approvals.
In British Columbia, condo construction is also under pressure, though a stronger resale market may help support planned projects. The trend extends to eastern cities, with Ottawa, Gatineau, Montreal, Quebec City, and Halifax all experiencing a slowdown in condo starts.
At the same time, rental housing construction remains a bright spot in the market. Government incentives for purpose-built rentals have fuelled a surge in apartment developments, and CMHC expects this trend to continue in 2025 and 2026.
Rental housing starts have been particularly strong in the Prairies, where federal programs are driving growth, while Vancouver and Victoria are seeing new projects emerge to address historically tight rental markets.
In Ontario, where condo construction is cooling, purpose-built rentals are stepping in to fill some of the gap. However, developers remain cautious, keeping an eye on potential rising vacancies and shifting market conditions.
Trade war woes
One of the biggest uncertainties is the potential for new US tariffs on Canadian imports, which could have far-reaching consequences for the economy.
In its 2025 housing market outlook, CMHC laid out three potential economic scenarios – low, medium, and high growth – depending on how trade policies unfold. In the most severe case, a 25% tariff on all Canadian exports could trigger job losses, a weaker dollar, rising inflation, and an increased risk of recession.
A more moderate scenario assumes a 25% tariff on only 10% of Canadian goods, with Canada imposing retaliatory tariffs. In this case, the economic impact could be softened by strong US government spending and continued demand for imports.
Even with these challenges, CMHC expects housing market activity to recover over time, as lower mortgage rates and policy changes make homeownership more accessible.
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Many homebuyers who were previously priced out of the market could take advantage of improved affordability, while existing homeowners may re-enter the market to upgrade or refinance as their mortgages come up for renewal. First-time buyers, particularly millennials, are expected to remain a major force in urban housing demand.
“By 2027, we expect much of the pent-up demand to be met,” CMHC stated. “Although mortgage payments and prices will rise, improved job markets and income growth will make housing more attainable than during the 2022 to 2024 period. This will support further recovery in sales.”
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