Canada’s Homebuilding Pace Drops 6% as Ottawa Promises to Double Construction

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Canada’s housing challenge can be measured in the widening distance between what is being built and what governments say must be built. Housing starts fell 6% in May, reducing the seasonally adjusted annual pace to 261,377 units from 278,380 in April. Yet Ottawa continues to pursue a long-term goal of nearly 500,000 new homes annually—roughly twice the country’s recent construction rate.

The monthly decline does not mean building activity suddenly stopped. Completions increased, thousands of homes remained under construction and the longer-term trend was nearly unchanged. However, weakening project pipelines, high development costs and major regional differences show why doubling construction will require more than federal funding announcements. It will depend on whether governments can turn approved projects into financially viable homes that actually get built.

The May Decline Was Real, but the Market Was Not Uniformly Shrinking

Canada’s total monthly housing-start rate fell to 261,377 units in May, a 6% decline from April’s revised rate of 278,380. Actual starts in communities with populations of at least 10,000 also declined 5.2% from a year earlier. Builders began work on 22,633 homes in those communities during May, compared with 23,879 in May 2025. Those figures point to softer activity, particularly after April’s stronger annualized performance.

Other measurements were more encouraging. The six-month trend increased slightly—by 0.5%—to 258,010 units, while year-to-date starts reached 93,644, approximately 3% above the same period in 2025. The number of homes under construction in larger urban centres rose to 374,662, and builders completed 16,880 units, a monthly increase of 10.6%. This creates an unusual picture for households watching cranes move across city skylines: considerable construction is still underway, but fewer future projects may be entering the pipeline. Approved units that had not started construction fell 2.4% to 138,842, a warning that momentum could weaken later.

Why a Single Month Can Exaggerate the Direction of the Market

The seasonally adjusted annual rate does not count how many homes will actually be built over the next 12 months. It takes one month of activity, adjusts for normal seasonal patterns and expresses that pace as an annual figure. A large apartment building beginning construction—or failing to begin on schedule—can therefore move the national number substantially. CMHC specifically cautions that multi-unit projects create considerable month-to-month volatility and recommends examining its six-month trend alongside the headline rate.

Recent results demonstrate those swings. The annualized pace dropped 15% in January, increased 4.5% in February, declined 6% in March, rebounded sharply in April and then fell another 6% in May. Canada nevertheless recorded 259,028 starts during all of 2025, the fifth-highest annual total on record and 5.6% more than in 2024. May’s result should therefore be treated as evidence of uneven and potentially weakening momentum—not proof that national homebuilding has collapsed. The more important question is whether several months of permits, financing decisions and starts begin moving downward together.

Canada Is No Longer Building at One Speed

The national figure hides dramatically different conditions from one city to another. Actual May starts increased 18% year over year in Montréal, supported by multi-unit construction. Toronto recorded a 12% decline, while Vancouver fell 7%. A tower beginning construction in Montréal can lift the national total at the same time that cancelled or delayed projects leave Toronto and Vancouver moving in the opposite direction.

The divide extends beyond the three largest metropolitan areas. Calgary surpassed both Toronto and Vancouver in actual housing starts during 2025, while Edmonton also reached record construction levels. More affordable land, zoning changes and stronger demand helped Alberta’s two largest cities maintain activity that would be difficult to reproduce in higher-cost markets. Montréal’s construction boom has been heavily concentrated in rentals, which accounted for more than 80% of its starts in 2025. These differences mean a policy that works in Edmonton may have a limited effect in Toronto. Canada does not have one housing market, and doubling national output will require city-specific responses to land prices, fees, buyer demand, rental conditions and construction capacity.

The 500,000-Home Promise Reveals the Size of the Gap

Ottawa’s ambition is to increase residential construction to almost 500,000 homes annually over the next decade. CMHC’s independent affordability modelling arrives at a broadly similar order of magnitude. It estimates that Canada needs approximately 430,000 to 480,000 annual housing starts through 2035 to bring affordability closer to pre-pandemic conditions, compared with a projected business-as-usual pace of around 250,000.

May’s annualized rate of 261,377 was about 238,600 units below the federal government’s 500,000-home objective. Reaching that target would require construction to increase by approximately 91% from May’s pace. Even the bottom of CMHC’s estimated range would require an increase of roughly 65%. These comparisons are not exact forecasts—starts and completed homes are different measurements—but they illustrate the scale of the promised transformation. CMHC has also noted that construction itself may take one or two years, while rezoning and approvals can take several more. Doubling output would consequently require sustained gains in labour, private investment, infrastructure, approvals and productivity, rather than a temporary surge in one or two cities.

Builders Are Confronting a Project-Math Problem

Canada’s housing shortage does not automatically make every proposed development profitable. Residential construction costs increased 0.6% during the first quarter of 2026 and were 2.8% higher than a year earlier across the 15 metropolitan areas tracked by Statistics Canada. Builders also reported subdued demand, material-sourcing difficulties and skilled-labour shortages in parts of the country. CMHC expects high costs, weaker sales and growing inventories of unsold homes to weigh on construction through 2028.

Municipal development charges add another layer. CMHC found that charges for a two-bedroom apartment ranged from approximately $40,000 per unit in Ottawa to $122,000 in Markham. Charges on detached homes ranged from about $125,000 in Pickering to more than $180,000 in Toronto. In some municipalities, these fees can represent 8% to 16% of a new home’s price. A project may therefore receive zoning approval and still fail to secure financing because expected sales or rents cannot cover land, materials, borrowing costs, labour and municipal fees. For a prospective buyer, that complicated calculation eventually appears as a cancelled launch, an unaffordable asking price or an empty construction site.

More Cranes Do Not Always Mean More Ownership Options

Canada’s 2025 construction performance looked strong on the surface. Housing starts rose approximately 6%, rental apartment construction reached record levels in several cities and starts of “missing middle” homes—such as multiplexes, row houses and smaller apartment buildings—increased by about 10% across seven major metropolitan areas. Rental construction has helped increase vacancies and moderate rent pressure in some communities.

The ownership side of the market has been far weaker. CMHC reported collapsing condominium presales, increasing inventories of unsold units and projects being delayed, cancelled or converted into rentals. In the City of Toronto, rental starts exceeded condominium starts in 2025 for the first time this century. Montréal’s new construction was even more rental-dominated. This distinction matters to a young household trying to enter the ownership market. A skyline filled with rental cranes can improve the supply of apartments without creating many attainable homes for purchase. Canada needs rental, non-market and ownership housing, but a national total alone cannot reveal whether construction matches the needs and financial circumstances of the people expected to live in it.

Build Canada Homes Is Significant, but Not Large Enough on Its Own

Build Canada Homes is Ottawa’s flagship vehicle for supporting affordable and non-market construction through financing, public land, acquisitions and direct project assistance. The government allocated approximately $13 billion in planned cash expenditures to the agency, including about $11.6 billion in new funding. That is a substantial commitment, particularly for community housing organizations that have struggled to compete for land and financing.

The Parliamentary Budget Officer nevertheless estimates that Build Canada Homes will produce approximately 26,000 additional units over five years. That would increase projected completions by about 2.1%, with roughly 13,000 of the units expected to be affordable to low-income households. The same analysis found that total planned federal housing-program spending was set to fall from $9.8 billion in 2025–26 to $4.3 billion in 2028–29 as existing programs expire and planned reductions take effect. Twenty-six thousand additional homes would make a meaningful difference for the people receiving them, but it is small relative to an annual construction gap measured in the hundreds of thousands. The agency can be part of the solution without being capable of doubling national output by itself.

Doubling Construction Will Depend on Execution, Not Announcements

Federal programs can encourage municipal reform, but approvals must still become starts. Communities participating in the Housing Accelerator Fund have issued more than 334,000 residential building permits, according to the federal government. Permits are an important first step, although May’s decline in approved-but-not-started units illustrates why they cannot be counted as finished homes. Projects can stall because of financing, infrastructure limitations, weak presales or rising costs.

Reducing development charges could improve feasibility, but the effects vary by city. CMHC modelling found that cutting charges by 50% to 60% could make approximately 5% more projects viable in Toronto and Vancouver, while eliminating them could raise viability by about 10%. Municipalities would still need another way to finance roads, sewers, parks and transit. Productivity is equally important: CMHC cited research estimating that weak residential-construction productivity between 2019 and 2024 added $6 billion to $8 billion to costs, accounting for as much as one-fifth of the increase in new-home prices. Modular construction, standardized designs and staged financing can help, but the real test will be sustained growth in starts, completions and affordable units across multiple regions. Without that execution, the promise to double construction will remain far ahead of the homes appearing on the ground.

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