RBC Economics just put out a detailed report on housing starts in Canada, and it does not look good for Ontario. Canada's housing construction is booming, but one province, specifically, is lagging behind.
But let's start with the bright spot, Canada overall. According to RBC, housing starts have hit record highs over the past four years, topping 1 million units in total. In the first half of 2025 alone, annualized starts averaged 250,000 units above the pre-pandemic 10-year average of 200,000 units according to RBC.
But that overall strength masks a sharp contrast — Ontario is seeing a noticeable slowdown. Housing starts in the province to steeply since mid 2024, particularly in the greater Toronto area.
As we know, the GTA is seeing a huge collapse in its pre-construction condo market, which means that buyers aren't lining up to invest in these projects, and therefore builders aren't going to build them. But outside of the province of Ontario, it's not like those markets really rely on the pre-construction sales industry to keep them going. So, if everybody else can build without a pre-construction industry, why can't Ontario?
Data from CMHC sources show housing starts in Q1 in 2025 dropped to just 12,000 units, down about 20 per cent from the previous quarter, marking the lowest quarter, marking the lowest quarter since 2029 in the fallout of the global financial crisis.
So, it really seems like here Ontario is behaving like it's in a recession and not just the construction industry. Toronto's unemployment is almost 10 per cent and Ontario's population growth is actually shrinking because people are leaving the province.
Now, zooming in on Toronto reveals a little bit more of an alarming shift. For the first five months of 2025, Toronto housing starts plunged 58 per cent and the rest of the GTA were down 29 per ent compared to the same period in 2024.
One of the big reasons for this is Ontario has a huge supply of resale homes for sale, and so there's not a lot of excess demand to spill over into the pre-construction space or the new build space. And we know that pre-construction activity has hit a 30-year low as of June 2025. And developers are seeing major slowdowns.
RBC did a really good job of illustrating this on a chart where they basically just took pre-construction sales 18 months earlier and mapped it beside housing starts in the city of Toronto. You can see there's a pretty strong correlation. And both are falling off of a cliff. And so without these pre-construction sales in the city of Toronto, we're not going to see more housing starts anytime soon.
Now, in a lot of the other provinces, you're seeing housing starts backfilled by rental, and you're seeing a huge increase in rental housing starts across Canada except Ontario. The main reason for this is because of the cost structure of developing housing in Ontario. We have some of the highest development charges in the country. We have some of the highest construction costs in the country. Ontario construction costs increase pretty much stayed with the Canadian average until the beginning of the pandemic and then it started to increase at a much higher rate to the point where now the cumulative increase is about 15 per cent higher than the rest of the country.
In places like Vancouver, there are very little development charges on rental product. We know that the city of Toronto is actually considering moving development charges from when you start your project to occupancy, which has helped a lot in cost structuring on the capital stack, but it's still not enough.
We've seen a couple of GTA municipalities like Vaughn, Mississauga and Hamilton start to reduce development charges. But until the cost structure of housing comes down and developers can actually afford to deliver units at a lower price, we're not really likely to see a lot of projects be able to successfully pivot into purpose-built rental projects away from condo.
Everybody's trying to do this right now. They obviously want to keep their projects moving. They want to keep shovels in the ground. They want to keep sights moving. They want to realize the revenue that they have tied up in this land. But if the projects don't work and can't qualify for these Canada Mortgage and Housing Corporation's (CMHC) multi-unit mortgage (MLI) select financing programs, then they just can't do that.
Outside of Ontario, it's a lot easier for these projects to pencil because land costs are lower, construction costs are lower, incomes relative to rents are higher, which is a big underwriting criteria that the CMHC uses on their housing affordability points that you get for MLI select.
Ontario's projects take a lot longer and cost a lot more. Quite simply, in a market where there was excess demand, where there were a lot of pre-construction buyers, they could pass a lot of those extra costs on to those pre-construction buyers. But in a market where there isn't pre-construction buyers and there's still no cost savings, it's virtually impossible to absorb all those costs and still qualify as a rental project.
So, what does this mean for home buyers and builders? For buyers, these trends can lead to tighter supply in the future and potentially aid in the recovery of Toronto's real estate market. We still have a long way to go to get there. We have years of inventory that's coming on the market. We have 50,000 units closing this year, 25,000 condos closing next year, 20,000 the year after that.
And so, you've got a huge flood of supply still coming to the market. Until that all gets absorbed, you're probably not even going to be thinking about a recovery in either rents or prices. For builders, this slump really signals needing to adapt, possibly shifting focus to different product types or different regions.
The bigger picture from RBC is that they say how Canada's housing market remains resilient outside of Ontario. And Ontario's municipalities are still issuing lots of building permits, but we're just not seeing those projects actually get built. So, people will go, they'll apply, they'll go through their entitlements, they'll get their building permit, and then they when they go to break ground, they realize, we actually can't make this project viable.
Our construction lender won't give us the money because CMHC won't give us a certificate of insurance or commitment of insurance for the term loan, the takeout loan, or the long-term mortgage on the property. And most construction lenders won't give you debt if you don't have your CMHC takeout financing lined up. and CHC won't give the money to them because the projects don't economize. They don't meet CMHC's criteria.
All in all, I would say this to me is really a reflection of how much pain we're seeing in Ontario's market and how it actually translates to construction activity. I think we've still got a more of this to come to be honest, but I am seeing a lot of optimism for activity in the multiplex missing middle space. I'm seeing a lot of interest even from institutional or subinstitutional investors. And so I'm optimistic that while I just don't think that missing middle and multiplexes are capable of creating enough supply to compete with how much we were doing from a high-rise perspective, I do think that it will deliver some meaningful supply to keep housing affordability where we need it to be.
Daniel Foch is the chief real estate officer for Valery.ca.
The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.