Ontario's pace of new home construction slows to 2018 levels

New home construction in Ontario has slowed to a pace not seen since 2018, putting Premier Doug Ford's government further off track from hitting its housing targets.

Housing starts in April in urban areas of Ontario were down a whopping 37 per cent from the same month last year, according to the latest figures reported by the Canada Mortgage and Housing Corporation (CMHC).

Economists see no signs of the slowdown reversing in the months to come, creating the potential for a grim 2024 when it comes to new home construction. 

"Over the rest of the year, we expect [housing starts] to continue to trend down in the province and particularly in the GTA," said Anthony Passarelli, CMHC's lead economist for southern Ontario.

It's a problem not unique to Ontario. TD Economics predicts that housing starts nationally "will continue to decline through the remainder of this year, reflecting more recent weakness in pre-sale activity in key markets like Toronto, elevated construction costs and high interest rates."

Construction began on 5,589 homes in Ontario last month, fewer than in any April since 2018.

Interest rates are the primary factor driving the new construction slowdown, according to a range of industry experts. Not only does the higher cost of a mortgage drive down the demand from purchasers, higher interest rates also drive up costs for developers. 

"It's sometimes forgotten that the developers are also having to arrange financing for these large-scale projects," said Scott Andison, chief executive officer of the Ontario Home Builders' Association.

Higher interest rates have curtailed some of the optimism that developers were feeling during the housing construction boom in 2021 and 2022, said Andison.

"Projects that certainly seemed viable before may not be as viable as they once were," Andison said.

Urbanation, a condominium market analysis firm, recently reported that 60 new projects totalling more than 21,000 units in the Greater Toronto and Hamilton Area have been put on hold indefinitely.

New condominium sales in the region in the first three months of 2024 hit their lowest quarterly total since the depths of the global financial crisis in early 2009, according to Urbanation.

"Outside of that brief period in early 2009, new condominium sales haven't been this low since the late 1990s," said the Urbanation report. 

Richard Lyall, president and CEO of Rescon, the Residential Construction Council of Ontario, says while the recent rise in interest rates is a key factor, the housing affordability crisis has been decades in the making.