Lower housing starts forecast for 2024
By Adam Freill
Construction ResidentialImpact of interest rates on new construction has CMHC predicting negative growth in housing starts this year; recovery in 2025 and 2026.
PHOTO: David Kennedy
After reaching historically high levels in recent years, housing starts in Canada are expected to decline in 2024. Recovery is expected to start in 2025 and 2026, says Canada Mortgage and Housing Corporation (CMHC) in its latest Housing Market Outlook (HMO).
The slip, says the organization, reflects a lagged effect of higher interest rates on new construction. Despite an increase in rental housing coming on the market in 2023, supply is not forecast to keep up with demand, resulting in higher rents and lower vacancy rates throughout the forecast period, added CMHC.
“Purpose-built rental starts, fuelled by unprecedented demand and government support, hit record levels in 2023, sustaining overall housing starts in Canada near historically high levels,” said CMHC chief economist Bob Dugan. “However, unfavourable financing conditions are expected to make it more difficult for homebuilders to start new rental projects in 2024.”
He anticipates a decrease from the record-high level of rental apartment construction observed in recent years, although demand is expected to continue, driven by renter households staying in their units due to the high costs of transitioning to homeownership. Strong population growth is another factor putting pressure on rental markets, said CMHC.
In the homeownership market, both home prices and sales are forecast to rise in 2024. By 2025, prices could reach the peak levels recorded in early 2022 and surpass them in 2026, driven by high demand. Home sales are expected to rebound in 2024, but remain below the record levels seen in 2020 and 2021, restricted by affordability challenges among prospective buyers.
“We anticipate by 2025-2026 lower interest rates, continued government support, and policies encouraging greater density in urban centers should make more projects viable,” added Dugan. “Lower interest rates will also benefit homebuyers, as real income and confidence levels improve. Consequently, more homes are expected to be built in 2025-2026.”
The Housing Market Outlook report is available for review on the CMHC website.
