Ontario's Home Construction Slump: A Perfect Storm of Challenges

The Canadian home construction market hit its highest level in July since 2022, with one notable exception: Ontario, where new home starts have been in a prolonged slump. The province's six-month average of residential construction starts dropped to near its lowest level in a decade, contrasting sharply with the rest of the country, which saw an all-time high. The slowdown in Ontario is attributed to a combination of factors, including steep development charges, slow approval timelines, and high labour costs in the Greater Toronto Area.

Key Takeaways:

• Ontario's municipal development charges are the highest in the country, contributing to the slowdown in new home construction.
• The province's slowest approval timelines for municipal approvals have hindered home builders' progress, resulting in a backlog of unsold homes.
• Steep construction and labour costs in the Greater Toronto Area have made it challenging for builders to initiate new projects.
• Ontario's inventory of unsold homes, largely comprising tiny, unwanted condo units, has risen faster than in other provinces, reducing investor interest in preconstruction units.
• The combination of these factors has resulted in a significant drop in the province's residential construction starts.
• British Columbia has also experienced a slowdown in starts, though not as severe as Ontario's.
• Home builders and municipalities in Ontario are facing significant challenges in initiating new projects due to high development and building costs, as well as a substantial inventory of unsold homes.
• The downturn in Ontario's housing construction pipeline could have dire consequences for 2026 and beyond if not addressed.

Statistics:

• The six-month average of residential construction starts in Ontario dropped to near its lowest level in a decade.
• Ontario's development charges are the highest in the country.
• The Greater Toronto Area has the slowest approval timelines for municipal approvals.
• The inventory of unsold homes in Ontario rose higher and faster than in any other province.
• Home builders in Ontario face 40% higher costs for construction and labour compared to the national average.
• The total inventory of unsold homes in Ontario reached 35,000 units in the first quarter of 2023.
• New home construction in Ontario slowed by 12% in the first seven months of 2023 compared to the same period in 2022.

Sources:

• Robert Hogue, assistant chief economist at Royal Bank of Canada (Analysis of Canada Mortgage and Housing Corporation construction data)
• Globe and Mail story (link to view on globeandmail.com)