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New apartment construction in Toronto and Vancouver offsets slump in housing starts in first half of 2023: CMHC

New home construction increased slightly in the first half of 2023, mostly due to a surge in new apartment builds in Toronto and Vancouver, according to a new report from Canada Mortgage and Housing Corporation (CMHC).

Overall, housing supply across the six cities examined experienced a nominal one per cent growth year-over-year. CMHC says Toronto and Vancouver accounted for nearly two-thirds of the housing starts, with apartment starts making up nearly three-quarters of all housing construction.

Toronto and Vancouver were the only markets that saw starts increase, recording 32 per cent and 49 per cent, respectively, and surpassing levels seen over the past five years. In most other cities, housing starts fell below historical benchmarks.

Montreal, Edmonton and Ottawa saw decreases of 58 per cent, 29 per cent and 18 per cent respectively. Calgarys’s housing starts, on the other hand, were flat.

“Given larger building size and resulting longer preparation time of the buildings started in Toronto and Vancouver, the numbers posted in these cities are the result of a process that began at a time when financing and building conditions were considerably more favourable,” says CMHC Deputy Chief Economist Kevin Hughes.

In contrast, Montreal’s data better reflects the current, more challenging environment characterized by higher financing and construction costs, Huges adds.

CMHC identifies several factors contributing to the muted growth in housing construction. Tighter borrowing conditions, elevated construction and labour costs, and high-interest rates are collectively presenting hurdles for homebuilders.

The agency predicts strong demand for rentals in the second half of the year, driven by higher barriers to homeownership due to soaring prices and interest rates. Overall, it says current levels of new construction remain too low to address the country’s affordability and housing supply crisis over the long term.

CMHC emphasizes the need for “significant increases” in the construction industry’s productivity. This, it suggests, is a critical step towards ensuring Canadians have access to affordable and quality housing in the coming years.

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