Canada’s Housing Starts Hit Historic Lows Amid Population Boom: What Does It Mean for the Economy?
November 28, 2025
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
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Canada is experiencing a record-low level of housing starts, raising questions about broader economic impact. According to recent data from the Canada Mortgage and Housing Corporation (CMHC), new housing starts are in a sharp decline, especially in homes built for ownership, even though the population recently experienced historic growth. This raises broader questions about economic implications and the paradox it creates for home prices.
The homeownership dreams of Millennials and Gen Z are getting hit hard once again as developers pull back in response to Canada’s increasingly unstable housing market. |
If current trends hold, 2025 will post the lowest number of single-detached housing starts in nearly 30 years. A market that once set all-time construction highs in the early 2000s has now swung to the opposite extreme, making the path to ownership feel even more out of reach for younger Canadians.
The decline isn’t limited to detached homes. Every major ownership segment has slowed over the year, contributing to the meteoric rise in home prices as the population continued to grow.
Nonetheless, what’s preventing a complete collapse in overall construction is the surge in purpose-built rental development, which hit an all-time high in 2025. Developers have shifted heavily toward rentals as ownership projects became financially unviable as land prices and development fees skyrocketed.
The decline isn’t limited to detached homes. Every major ownership segment has slowed over the year, contributing to the meteoric rise in home prices as the population continued to grow.
Nonetheless, what’s preventing a complete collapse in overall construction is the surge in purpose-built rental development, which hit an all-time high in 2025. Developers have shifted heavily toward rentals as ownership projects became financially unviable as land prices and development fees skyrocketed.
Figure 1.0
Source: Statcan
Figure 2.0
Source: Statcan
Historically, housing starts have fluctuated with economic cycles. A robust economic recovery in the late 1990s spurred a rebound in homebuilding, with starts exceeding 200,000 units by the early 2000s amid strong GDP growth (over 4% in 1997 and 1998)[1]. The 2008–09 global financial crisis brought another sharp contraction: housing starts dropped from over 228,000 in 2007 to about 149,000 in 2009[2] as GDP fell 2.9% in 2009[3]. Each major housing downturn coincided with broad economic slowdowns, highlighting housing construction’s sensitivity to interest rates, employment, and consumer confidence.
Figure 3.0
The pandemic briefly slowed housing starts in 2020, but unprecedented monetary and fiscal stimulus triggered a construction boom in 2021. Starts surged to 271,200 units, the highest since 1976[4], driven by ultra-low interest rates, strong buyer demand, and rapid population growth—Canada added 1.23 million people in 2023, largely through immigration[5].
By 2024–2025, the momentum had reversed. Housing starts fell to about 245,000 in 2024, and 2025 is tracking significantly lower. High interest rates and declining home prices have made development far less profitable. Home prices are still down roughly 20% from the 2022 peak, while construction costs and development fees remain elevated, squeezing margins and reducing permits.
Investor demand has collapsed: Toronto pre-construction condo sales dropped 90% in August 2025 versus the 10-year average[6]. Move-up buyers are also struggling, with fewer first-time home buyers entering the market, leaving many owners of starter homes stuck[7].
Housing construction is both a consequence and a driver of economic activity, making it a key leading indicator[8]. With starts in freefall, broader weakness is emerging. By mid-2025, unemployment rose to 7.1%, and the employment rate slid to 60.5%, both signaling a cooling labour market[9]. Construction has held up better than other sectors, but the overall trend points to a softening economy aligned with the housing downturn.
Economic Growth Outlook: Contraction or Sectoral Shift?
Does the current plunge in housing starts signal an impending economic contraction, or is it more of a housing-specific correction? The evidence suggests a bit of both. On the one hand, the factors behind the housing decline – high interest rates, reduced investor appetite, and affordability challenges – also weigh on the broader economy by curtailing consumer spending and investment. On the other hand, there are unique dynamics in the housing sector that could mean this is a structural shift rather than a classic economy-wide bust.
One key distinction in 2025 is where the decline is concentrated. It is heavily skewed toward housing built for homeownership (single-family homes, condominiums for sale). Meanwhile, rental housing construction is booming. CMHC data show that purpose-built rental starts hit a record high in 2025: in cities over 10,000 population, an annualized rate of ~105,000 new rental units will be started in 2025, roughly double the number of ownership units started[10]. Figure 2.0 above illustrates how rental construction now dominates new construction activity, especially as condo building slowed. In the first half of 2025, rental apartments accounted for 70% of all multi-unit housing starts across major urban centres[11]. Developers that once focused on condos have pivoted to rentals, attracted by new federal incentives and the ability to proceed without needing pre-sales to individual buyers[12]. Government policy changes – such as eliminating GST on purpose-built rentals and offering low-interest construction loans – have also spurred this shift. Moreover, over the last few years, purpose-built rentals have become a lot more profitable than building high-rise condos due to these incentives and market conditions.
This divergence suggests that while homebuilding for sale has collapsed, overall residential construction activity has not disappeared – it’s been reallocating toward rentals. From a macroeconomic standpoint, that means some of the usual negative impact of low housing starts is being offset by continued investment and employment in rental projects.
That said, the rental-focused building boom has its own limits. By late 2025, even builders of rentals have grown more cautious. CMHC’s surveys show developer sentiment in the rental sector weakened in 2025, as rising financing costs and import tariffs on materials squeezed profitability[13]. Nearly all new rental projects in 2024 required support from CMHC financing programs (about 88% of new rentals were backed by such programs)[14], highlighting that government aid has been propping up much of this construction. If interest rates remain high and if market rents soften, some planned rental projects could be delayed or cancelled. In that scenario, the current housing downturn could broaden to all segments, increasing the likelihood of a more pronounced economic slowdown or contraction.
Housing Market Paradox: Why Low Starts May Not Spur Higher Home Prices
Under typical market logic, a collapse in new housing supply would eventually lead to upward pressure on home prices – fewer new homes should mean scarcer supply for buyers, bidding up existing home values. Yet in Canada’s current context, there is little chance of home prices rising despite the construction slowdown. This apparent paradox can be explained by a confluence of factors on the demand side and alternative supply side:
As developers pivot from ownership units to rentals, adding supply that prevents home prices from rising even as for-sale starts collapse, there is a structural shift underway. The sector is essentially rebalancing—correcting years of underbuilt rentals while pulling back on condos and single-family homes. Whether the economy weathers this depends on how long the shift holds. If rental projects remain viable, the slowdown may stay contained to housing. But if oversupply pushes rents down and rental building also stalls, job losses and reduced activity across construction and real estate could drag the broader economy toward contraction.
As Canada confronts a housing market defined by collapsing starts, shifting demand, and unprecedented economic uncertainty, the need for trusted real estate insight has never been greater. REIC continues to equip professionals with the analytical grounding and ethical leadership required to navigate this evolving landscape. Through respected REIC members uphold the highest standards of professionalism and public trust. In a market where signals are mixed and risks are rising, REIC remains a critical source of education, integrity, and industry leadership.
By 2024–2025, the momentum had reversed. Housing starts fell to about 245,000 in 2024, and 2025 is tracking significantly lower. High interest rates and declining home prices have made development far less profitable. Home prices are still down roughly 20% from the 2022 peak, while construction costs and development fees remain elevated, squeezing margins and reducing permits.
Investor demand has collapsed: Toronto pre-construction condo sales dropped 90% in August 2025 versus the 10-year average[6]. Move-up buyers are also struggling, with fewer first-time home buyers entering the market, leaving many owners of starter homes stuck[7].
Housing construction is both a consequence and a driver of economic activity, making it a key leading indicator[8]. With starts in freefall, broader weakness is emerging. By mid-2025, unemployment rose to 7.1%, and the employment rate slid to 60.5%, both signaling a cooling labour market[9]. Construction has held up better than other sectors, but the overall trend points to a softening economy aligned with the housing downturn.
Economic Growth Outlook: Contraction or Sectoral Shift?
Does the current plunge in housing starts signal an impending economic contraction, or is it more of a housing-specific correction? The evidence suggests a bit of both. On the one hand, the factors behind the housing decline – high interest rates, reduced investor appetite, and affordability challenges – also weigh on the broader economy by curtailing consumer spending and investment. On the other hand, there are unique dynamics in the housing sector that could mean this is a structural shift rather than a classic economy-wide bust.
One key distinction in 2025 is where the decline is concentrated. It is heavily skewed toward housing built for homeownership (single-family homes, condominiums for sale). Meanwhile, rental housing construction is booming. CMHC data show that purpose-built rental starts hit a record high in 2025: in cities over 10,000 population, an annualized rate of ~105,000 new rental units will be started in 2025, roughly double the number of ownership units started[10]. Figure 2.0 above illustrates how rental construction now dominates new construction activity, especially as condo building slowed. In the first half of 2025, rental apartments accounted for 70% of all multi-unit housing starts across major urban centres[11]. Developers that once focused on condos have pivoted to rentals, attracted by new federal incentives and the ability to proceed without needing pre-sales to individual buyers[12]. Government policy changes – such as eliminating GST on purpose-built rentals and offering low-interest construction loans – have also spurred this shift. Moreover, over the last few years, purpose-built rentals have become a lot more profitable than building high-rise condos due to these incentives and market conditions.
This divergence suggests that while homebuilding for sale has collapsed, overall residential construction activity has not disappeared – it’s been reallocating toward rentals. From a macroeconomic standpoint, that means some of the usual negative impact of low housing starts is being offset by continued investment and employment in rental projects.
That said, the rental-focused building boom has its own limits. By late 2025, even builders of rentals have grown more cautious. CMHC’s surveys show developer sentiment in the rental sector weakened in 2025, as rising financing costs and import tariffs on materials squeezed profitability[13]. Nearly all new rental projects in 2024 required support from CMHC financing programs (about 88% of new rentals were backed by such programs)[14], highlighting that government aid has been propping up much of this construction. If interest rates remain high and if market rents soften, some planned rental projects could be delayed or cancelled. In that scenario, the current housing downturn could broaden to all segments, increasing the likelihood of a more pronounced economic slowdown or contraction.
Housing Market Paradox: Why Low Starts May Not Spur Higher Home Prices
Under typical market logic, a collapse in new housing supply would eventually lead to upward pressure on home prices – fewer new homes should mean scarcer supply for buyers, bidding up existing home values. Yet in Canada’s current context, there is little chance of home prices rising despite the construction slowdown. This apparent paradox can be explained by a confluence of factors on the demand side and alternative supply side:
- Record-High Rental Construction: The collapse in for-sale housing starts is being offset by a historic surge in purpose-built rental construction. Tens of thousands of new rental apartments are coming online each year, significantly increasing the total housing stock even as new homes for purchase fall to 30-year lows. This fresh rental supply absorbs households who otherwise would have bought, which reduces upward pressure on home prices. CMHC reports that apartment completions in major cities now exceed absorptions, leading to longer lease-up periods and declining asking rents in some markets[15]. The influx of newly built investor-owned condos into the resale market has also expanded for-sale inventory, contributing to declining resale prices in Toronto and Vancouver[16].
- Population Growth and Immigration: Housing demand is fundamentally tied to population growth. Canada saw a record +1.23 million population increase in 2023[17], but this exceptional pace is already cooling. Population gains slowed to ~0.95 million in 2024, and new federal immigration plans aim to “rebalance” flows by reducing temporary residents and capping permanent admissions[18]. With aging demographics and a likely flattening of annual population growth, future housing demand is set to be lower than previously expected. When slowing demand meets surging rental supply, the market shifts from fear of scarcity to risk of oversupply, which limits any price rebound even as new construction for ownership declines.
- Market Sentiment Hangover: National home prices remain ~20% below the 2022 peak. Many investors and buyers who entered late in the cycle suffered losses, creating a deep psychological scar. Loss aversion is now driving behavior:
- Investors who bought pre-construction units at peak values are selling at losses or struggling to rent them profitably.
Developers report sales have “evaporated”, and today’s prices do not cover construction costs. - Builders are cancelling or delaying condo projects due to weak pre-sales and reluctant investors.
- Investors who bought pre-construction units at peak values are selling at losses or struggling to rent them profitably.
- Affordability and the Rent-vs-Buy Equation: With mortgage rates still elevated, owning remains significantly more expensive than renting in many cities. Meanwhile, rents have stabilized or declined slightly—the average rent sits around $2,105/month, lower than in 2024[19]. As rental supply grows and rents flatten, renting becomes the rational financial choice for many households:
- More people choose to rent → fewer buyers → less upward pressure on prices.
- Investor-landlords face shrinking rent spreads, pushing some to sell units → adding to supply.
- The increased resale inventory softens price momentum.
- More people choose to rent → fewer buyers → less upward pressure on prices.
- Post-Boom Psychology: The 2020–2021 boom created unrealistic expectations that “real estate only goes up.” The 2022–2023 correction shattered that belief. Developers who overbuilt during the frenzy are now pulling back sharply, unwilling to launch new projects until pricing and demand normalize. First-time buyers, having witnessed peers go underwater, have adopted a “wait-and-see” mentality. Volatility has changed long-term attitudes: buyers now demand lower prices relative to income and rent before re-entering. The next five years look “grim” for young buyers hoping for stability. This psychological reset ensures that low starts won’t create a price surge, because buyer confidence—not just supply—is the bottleneck.
As developers pivot from ownership units to rentals, adding supply that prevents home prices from rising even as for-sale starts collapse, there is a structural shift underway. The sector is essentially rebalancing—correcting years of underbuilt rentals while pulling back on condos and single-family homes. Whether the economy weathers this depends on how long the shift holds. If rental projects remain viable, the slowdown may stay contained to housing. But if oversupply pushes rents down and rental building also stalls, job losses and reduced activity across construction and real estate could drag the broader economy toward contraction.
As Canada confronts a housing market defined by collapsing starts, shifting demand, and unprecedented economic uncertainty, the need for trusted real estate insight has never been greater. REIC continues to equip professionals with the analytical grounding and ethical leadership required to navigate this evolving landscape. Through respected REIC members uphold the highest standards of professionalism and public trust. In a market where signals are mixed and risks are rising, REIC remains a critical source of education, integrity, and industry leadership.
[1] blogs.worldbank.org
[2] clovermortgage.ca
[3] rcaanc-cirnac.gc.ca
[4] macdonaldlaurier.ca
[5] justice.gc.ca
[6] ictinc.ca
[7] sac-isc.gc.ca
[8] rbhf.ca
[9] law-faqs.org
[10] tdslaw.com
[11] constitutionalstudies.ca
[12] nelliganlaw.ca
[13] wahi.com
[14] nelliganlaw.ca
[15] nelliganlaw.ca
[16] nelliganlaw.ca
[2] clovermortgage.ca
[3] rcaanc-cirnac.gc.ca
[4] macdonaldlaurier.ca
[5] justice.gc.ca
[6] ictinc.ca
[7] sac-isc.gc.ca
[8] rbhf.ca
[9] law-faqs.org
[10] tdslaw.com
[11] constitutionalstudies.ca
[12] nelliganlaw.ca
[13] wahi.com
[14] nelliganlaw.ca
[15] nelliganlaw.ca
[16] nelliganlaw.ca
Allwyn Dsouza is REIC’s Senior Analyst, Market Research and Insights. He can be reached at [email protected]. Media enquiries can be directed to [email protected].