The slowdown in home construction is concerning for both buyers and Justin Trudeau.
Residential construction activity in Canada has slowed down recently due to a tight labor market and higher borrowing costs. This could hinder the government's efforts to address the housing shortfall and could also impact the recovery of home prices, posing a challenge for Prime Minister Justin Trudeau, who has promised to improve housing affordability. Housing affordability is a major concern for Canadians, especially as the government aims to welcome 500,000 immigrants annually by 2025, which is expected to increase housing demand. The slowdown in construction contradicts the government's plan to increase housing supply to keep up with immigration, according to Randall Bartlett, a senior director at Desjardins. Canada Mortgage and Housing Corporation (CMHC) projected a decline in housing starts from 262,000 units in 2022 to 212,000 units in 2023, citing labor shortages, high material costs, and increased financing expenses for developers. CMHC also warned that this limited supply, coupled with the surge in demand from immigration, would further drive up home prices.
The Canadian Home Builders' Association reported that 64% of builders expect fewer starts this year compared to last, and investment in residential building construction has fallen to its lowest level since June 2020. Meanwhile, home prices have seen a 17% increase since January, causing concerns about affordability. Higher mortgage rates, combined with rising home prices, could make it more expensive for Canadians to buy homes, a point that opposition leader Pierre Poilievre has already criticized.
Housing affordability is a key priority for Canadians, particularly in the Greater Toronto Area, where housing supply shortages are significant. The government plans to unveil a long-term infrastructure plan with a strong focus on housing in the coming months. However, borrowing costs are not the only obstacle to new construction. Opposition to building on protected land and resistance to urban density also contribute to slower construction processes. These challenges, including the "not in my backyard" mentality, further complicate efforts to address the housing crisis in Canada.