Canadian Housing Starts Fall 13% as CMHC Warns Higher Costs and Unsold Homes Will Keep Construction Down

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Canada’s housing shortage is colliding with a construction slowdown at precisely the wrong moment. CMHC reported that actual housing starts in centres with at least 10,000 residents fell 13% in June 2026 from a year earlier, dropping to 20,265 units. The national seasonally adjusted annual rate also declined, while CMHC warned that uncertainty, elevated development costs, weaker buyer demand and a growing stock of unsold homes will restrain new projects.

The figures do not mean construction sites will suddenly go quiet. Thousands of homes launched during stronger years are still being finished. The concern is what comes next: fewer projects entering the pipeline today could produce fewer completed homes several years from now, particularly in Toronto and Vancouver, where the condominium model is under severe pressure.

The Headline Drop Is Real, but It Needs Context

The 13% decline compares actual June starts in urban centres with the same month in 2025. Builders began work on 20,265 homes in communities with populations of 10,000 or more, down from 23,292 a year earlier. Through the first half of 2026, those centres recorded 113,017 starts, 1% fewer than during the same period last year. That smaller year-to-date decline shows why one month should not be treated as a complete collapse, but it also confirms that the powerful construction momentum of 2025 is fading.

Housing starts are counted when construction reaches the footing stage or its equivalent, not when a permit is issued, a unit is sold or a family moves in. In practical terms, the statistic captures the moment a planned project becomes physical supply. A 13% drop therefore signals more than changing paperwork: fewer homes crossed that critical threshold in June, leaving a thinner pipeline for future completions if the weakness persists.

The Broader Trend Is Also Turning Lower

CMHC’s standalone seasonally adjusted annual rate fell 6% in June to 238,971 units, from 253,083 in May. Its six-month trend measure, designed to smooth the large swings caused by apartment projects, dropped 2.8% to 248,123 units. That was the lowest trend reading in roughly a year, reinforcing the view that the decline is not simply the result of one large tower beginning a month earlier or later than expected.

The distinction matters because multi-unit projects can distort monthly comparisons. A single high-rise may contain hundreds of homes, so its official start can move a city’s total sharply even when broader conditions barely change. CMHC therefore emphasizes the trend alongside the monthly annualized rate. Both measures moved lower in June, while urban multi-family and single-detached starts also declined from May. The synchronized pullback suggests builders are becoming more cautious across several forms of housing rather than retreating from only one niche.

Completions Are Rising Even as New Groundbreakings Slow

Canada can have fewer starts and more finished homes at the same time because construction unfolds over several years. In June, 375,469 units remained under construction in centres with at least 50,000 residents, virtually unchanged from May. Completions rose 8.4% month over month to 18,298 units. Those newly finished apartments, townhouses and detached homes largely reflect financing and sales decisions made when demand expectations were stronger.

This creates a misleadingly busy surface. Cranes may still dominate skylines, tradespeople may remain active and new buildings may continue opening, even while developers quietly shelve the next round of projects. CMHC also reported that 137,324 permitted units had not yet started in June, down 1.1% from May. That pool is substantial, but a permit does not guarantee construction. If financing cannot be secured or expected selling prices no longer cover costs, an approved project can remain on paper for months, be redesigned or disappear entirely.

Unsold Homes Are Freezing the Next Pipeline

The most damaging number may not be the monthly start total, but the stock of completed homes that have not found buyers. Across seven major metropolitan areas, CMHC counted record-high unabsorbed inventories at completion in 2025: 6,134 condominium apartments, 3,783 semi-detached and row homes, and 3,590 single-detached homes. Vancouver had the largest unsold condominium inventory at completion, while Toronto recorded sharp increases in unsold condos and row homes.

For a developer, an unsold finished unit represents capital that has not been recovered. Carrying costs continue, lenders become more cautious and equity that could fund the next site remains tied up. The effect resembles a traffic jam: even projects with valid permits and long-term demand can be delayed because earlier units have not cleared the market. Builders may cut prices, offer incentives, rent completed condos temporarily or redesign future projects. Each response can help absorb current supply, but it usually postpones the launch of the next building.

The Condo Financing Model Is Under Strain

Large condominium projects often depend on presales before construction financing is released. Buyers sign contracts years before completion, giving lenders evidence that enough revenue is committed to make the project viable. CMHC says condominium presales collapsed in 2025 as investors and end-users pulled back, while new units remained expensive compared with resale alternatives. Without reaching required sales thresholds, developers may be unable to borrow the money needed to begin.

This explains why weak condo sales today can reduce housing completions years later. Toronto and Vancouver are especially exposed because both markets rely heavily on high-rise ownership construction and have long, complex building timelines. Developers have responded by delaying launches, reducing project size, shifting toward purpose-built rentals or seeking less expensive land farther from downtown. Those adaptations are rational, but they do not replace the lost volume quickly. A family searching for a larger ownership unit may feel little immediate relief from a market increasingly tilted toward smaller rentals and micro-condos.

Construction Costs Are Still Moving Up

Falling sales have not been matched by falling building costs. Statistics Canada reported that residential construction prices rose 0.6% in the first quarter of 2026 and 2.8% from a year earlier across a 15-city composite. Costs increased in every measured metropolitan area. Montréal posted the largest quarterly rise at 2.6%, followed by Victoria at 1.6%, while Toronto’s increase was a comparatively modest 0.1%.

Several cost categories remained particularly stubborn. Metal fabrication prices rose 2.1% during the quarter, plumbing increased 1.5% and structural steel framing climbed 1.3%. Those figures cover contractors’ charges for labour, materials, equipment, overhead and profit, but exclude land, design, development and real-estate fees. That exclusion is important for builders today: even modest construction inflation can compound with expensive land, municipal charges and financing costs. A project may become unviable without any dramatic spike in one expense; a series of smaller increases can erase an already-thin profit margin.

Municipal Charges Can Decide Whether a Project Proceeds

Development charges fund roads, water systems, sewers, parks and other infrastructure needed for growth, but their size varies dramatically. CMHC found that charges for a two-bedroom apartment ranged from about $40,000 in Ottawa to $122,000 in Markham. For a single-detached home, the range included roughly $125,000 in Pickering and more than $180,000 in Toronto. These amounts are generally built into the economics of a new home and can influence where developers choose to build.

CMHC modelling suggests that modest fee reductions produce limited results, while larger cuts can materially improve project viability. Eliminating development charges was estimated to increase viable projects by about 10% in Toronto, 9% in Vancouver and nearly 14% in Burnaby, though only 3% in Ottawa. The trade-off is real: municipalities still need money for infrastructure. Shifting costs away from new construction may require higher property taxes, different financing tools or provincial and federal support rather than simply removing fees without replacement.

Slower Population Growth Is Cooling Near-Term Demand

Canada’s population declined by an estimated 55,025 people in the first quarter of 2026, a 0.1% decrease that brought the total to about 41.4 million. The number of non-permanent residents fell 4.4% during the quarter to roughly 2.56 million, while the flow of new immigrants was 20.2% lower than a year earlier. Ontario and British Columbia each recorded a 0.2% quarterly population decline, two provinces where high-cost housing markets are already under pressure.

Demographic cooling does not eliminate Canada’s long-term housing shortage, but it changes builders’ near-term calculations. Fewer new households mean slower absorption of recently completed rentals and condos, less urgency among investors and more competition from existing listings. CMHC has also noted that population growth turned negative in Toronto and Vancouver during 2025 as immigration eased. Developers plan for the demand expected at completion, often several years away, so uncertainty about future population growth can be enough to delay a project even when housing remains unaffordable today.

Rental Supply Is Becoming More Balanced

Purpose-built rentals helped keep national construction elevated in 2025, but the rental market is now showing signs of balance. CMHC reported that the national vacancy rate for purpose-built apartments rose to 3.1% in 2025 from 2.2% a year earlier. By mid-2026, asking rents were easing in several major cities, and landlords in newer buildings were increasingly offering free rent, parking discounts, gift cards or move-in credits to attract tenants.

The change is most visible in newly completed, higher-priced units. Toronto and Vancouver landlords also face competition from investor-owned condominiums that could not be sold and were placed on the rental market instead. This is welcome news for renters who have more choice, but it weakens the case for launching another expensive rental building immediately. The market remains uneven: older, lower-rent buildings and family-sized units are still tighter. A broad slowdown in rental starts could therefore occur even while the homes most affordable to lower-income households remain scarce.

Toronto’s June Increase Does Not Erase Its Deeper Slump

Toronto’s actual housing starts rose 25% in June from a year earlier, driven by multi-unit construction. That increase stands out against the national decline, but it should not be mistaken for a full recovery. CMHC found that Toronto’s 2025 apartment starts totalled 18,986 units, far below the city’s 10-year average of 26,856. Ground-oriented starts were also weak at 7,101 units, compared with a decade average of 11,760.

Toronto’s supply mix is changing as well. Purpose-built rental starts exceeded condominium apartment starts in the city for the first time, while small buildings with three to five units became more prominent. Conversions accounted for more than half of Toronto’s missing-middle additions in 2025. These shifts can add useful homes faster than major towers, but they do not fully offset the loss of large ownership projects. June’s jump may reflect the timing of a few sizable starts rather than a broad return of buyer confidence, presales and construction financing.

Vancouver Shows the Sharpest Big-City Retreat

Vancouver recorded the most severe June decline among Canada’s three largest metropolitan areas, with actual starts falling 35% from a year earlier as both multi-unit and single-detached construction weakened. The drop follows a period of heavy building: Vancouver completed a record number of homes in 2025, led by apartments, and its apartment starts that year remained above the 10-year average.

The problem is the handoff from past projects to future ones. CMHC says Vancouver had the highest unsold condominium inventory at completion among the seven major markets it studied. Presales remained subdued, land costs pushed new condominium projects farther from downtown and the city continued to have some of Canada’s longest apartment construction timelines. Vancouver’s 2025 purpose-built rental activity remained historically high, but even that segment faces softer asking rents and a vacancy rate above CMHC’s estimated balanced range. The city can therefore appear well supplied in the short term while simultaneously developing a shortage of new completions later in the decade.

Montréal and the Prairies Offer a Different Picture

The national slowdown is not evenly distributed. Montréal’s actual starts rose 10% year over year in June because of stronger multi-unit construction, and Quebec’s annualized pace increased from May while Ontario, British Columbia and Alberta declined. In 2025, Montréal recorded 25,223 apartment starts, above its 10-year average of 19,979. Rentals accounted for more than 80% of all starts in the metropolitan area, reaching an all-time high even as condominium starts remained near historic lows.

The Prairies also entered 2026 with a stronger base. Calgary and Edmonton posted record construction in 2025, and roughly 60% of their starts came from missing-middle forms such as row houses, townhouses, multiplexes and conversions. CMHC expects Prairie starts to remain above historical averages in 2026, although momentum should slow later. These regional differences show that Canada does not have one housing market. Local land prices, migration, zoning, fees, employment and unit types determine whether a project can still proceed.

Canada Is Moving Away From the Supply Pace It Says It Needs

CMHC estimates that restoring affordability to roughly 2019 levels would require about 430,000 to 480,000 housing starts annually through 2035. Its projected baseline is closer to 245,000 to 250,000 units a year. June’s six-month trend of 248,123 sits near that baseline and far below the pace required to close the affordability gap. The contrast is stark: Canada needs construction to nearly double over the long run, yet current market conditions are pushing it lower.

There is no single lever capable of resolving that contradiction. Lower development charges can help some projects, but cities still need infrastructure funding. Faster approvals matter, but approvals cannot compensate for missing buyers or financing. Rental incentives can support supply, but an oversupply of expensive units will not solve the shortage of affordable family homes. The immediate challenge is to absorb completed inventory without allowing the future pipeline to collapse. Otherwise, today’s softer market could become tomorrow’s renewed shortage once population and demand strengthen again.

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