The Canadian housing market is facing a significant slowdown in new construction, with housing starts plummeting as rising interest rates take their toll. After years of rapid growth and booming demand, the landscape has shifted dramatically, especially in key provinces like Ontario and British Columbia.
In the first quarter of 2025, new home starts across Canada dropped by about 10%, marking the weakest quarter since early 2023. This decline comes despite government efforts to stimulate construction through financial incentives and attempts to cut red tape. Builders broke ground on roughly 47,300 homes during this period—a notable decrease from previous quarters and below the average pace seen before the pandemic era[1].
Ontario’s situation is particularly stark. The province saw a massive 38% year-over-year drop in residential construction investment for multi-unit projects alone. Toronto, once a powerhouse driving much of Canada’s housing boom, experienced an astonishing 65% plunge in housing starts just in March 2025. This sharp fall reflects not only higher borrowing costs but also an oversupply issue: Toronto now faces a condo glut that could last nearly five years at current absorption rates[2][3].
British Columbia mirrors this trend with Vancouver’s housing starts down by nearly 60%. Confidence among builders there has hit near-record lows due to persistent high mortgage rates combined with escalating trade-related costs for materials. The result is fewer projects breaking ground amid growing inventories of unsold condos[2].
However, it’s not all gloom across Canada. Some regions are bucking the trend—particularly parts of the Prairies such as Saskatchewan and Manitoba where single-family homes and purpose-built rental developments continue to see strong demand and rising construction activity. These markets benefit from more affordable prices relative to major urban centers and less speculative buying pressure[4].
What lies behind these shifts? Rising interest rates have made mortgages more expensive for buyers, cooling demand sharply after years of frenzied activity fueled by ultra-low borrowing costs during the pandemic period. At the same time, supply chain disruptions have pushed up building material prices while labor shortages persist—both factors squeezing builder margins.
Moreover, large pre-construction inventories especially in cities like Toronto mean developers are hesitant to start new projects until existing units sell off more fully—leading to cancellations or delays on many planned condo developments[3]. This creates a feedback loop where slower sales discourage new builds even as population growth continues.
In essence, Canadian residential construction finds itself at a crossroads: traditional hot spots face painful corrections driven by affordability challenges amplified by higher interest rates; meanwhile smaller markets focused on family-sized homes show resilience thanks to different economic dynamics.
For homebuyers navigating this environment today:
– Expect fewer brand-new condos hitting market shelves soon.
– Single-family homes may remain relatively steadier but still pricier due to ongoing land scarcity.
– Regional differences matter greatly; what holds true for Toronto or Vancouver won’t necessarily apply elsewhere.
For investors or industry watchers:
– Opportunities may emerge outside major metros—in rental properties or non-residential sectors.
– Land banking strategies might gain appeal given tighter approvals for greenfield development.
– Patience will be key as markets adjust from overheated conditions toward more balanced supply-demand dynamics over coming years.
The Canadian housing story right now isn’t just about falling numbers—it’s about how shifting economic forces reshape where people live and build their futures amid changing financial realities brought on largely by rising interest rates biting hard into affordability across much of the country’s biggest cities.