The national housing market may be sluggish, but the lacklustre pace of housing construction could worsen affordability problems
Canada’s housing market has been mired in a years-long slump, pushing prices lower amid plunging demand – but economists still say the sluggish pace of homebuilding could worsen the affordability crisis in the long run.
Mathieu Laberge (pictured top), chief economist and senior vice president at Canada Mortgage and Housing Corporation (CMHC) and Stéfane Marion, chief economist and strategist at National Bank of Canada, sounded an ominous note on the construction outlook during speeches at the recent Mortgage Professionals Canada (MPC) National conference in Calgary.
Laberge highlighted how the slower pace of construction in 2026 could have significant negative consequences for the market down the line.
“Our latest housing supply report points to the central issue: right here, right now across Canada, construction is slowing faster than the underlying need for housing,” he said. “If we react to a softer market by stopping too much construction, we may be protecting ourselves from today’s risks – but we’re also creating tomorrow’s shortages.
“We are at a very high risk that by not providing the appropriate and sufficient supply today, we will lose the improvement in affordability we’ve seen two or three, or five years down the road.”
Residential construction continues to slide
The Canadian Real Estate Association (CREA) recently revised its home price growth forecast downward for the year, basing that adjustment on waning purchase demand because of wider economic uncertainty and rising interest rates.
Construction in certain sectors is grinding to a halt against that backdrop. Marion noted that a sizable portion of recently-built condos has not been absorbed, marking the highest proportion seen since the early 1990s – and the resulting homebuilding slowdown has been stark.
Laberge said just six companies of more than 500 employees currently build residential homes across the country, and the sector is also being left behind in the new digital era. In a recent McKinsey study of the level of digitization across industries, construction came second last, he pointed out – only ahead of hunting and agriculture.
Canada building the wrong home types, says Laberge
It’s also often pointed out that the type of home construction currently being prioritized is missing the mark. Condominium construction, particularly in Toronto and Vancouver, has dominated homebuilding in recent decades – leaving a surplus of smaller condos rather than family-sized homes.
“Canada doesn’t simply have too much or too little housing,” Laberge said. “The reality is that we have a mismatch between the homes people need and the homes the system is producing. What’s small is unaffordable and what’s large is unavailable.
“This is the supply families need and they are seeking desperately, and they cannot find it right now.”
What’s more, the homebuying lull isn’t destined to last forever, and a ramping-up of purchase activity could put even further strain on national housing supply if construction doesn’t gather pace.
“It takes, give or take, six to eight years to deliver a big housing unit, whether it’s condo or rental, in any of the larger centres across Canada. Demand can shift on a dime,” Laberge cautioned.
“Young adults living with parents, people sharing homes longer than they plan, newcomers settling permanently, and families delaying their next move can all come back into the market when confidence returns. And that will return at some point. This is not a one-year story. This is a pent-up demand story that will play out over the next three, four, five years.”
For now, there seems little prospect of homebuilding accelerating to meet the required annual level – particularly with more than a million extra workers in the construction industry needed, according to Marion, to satisfy demand.
Laberge said it makes no sense to ease off on construction even in a quieter market because it will ultimately have a negative effect on the affordability outlook. “We should not close a fire station because it’s raining,” he said. “We should welcome the rain but not sell the truck.”
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