Higher mortgage rates and borrowing costs aren’t keeping just home buyers on the sidelines, they are also putting pressures on new home construction, as builders that rely heavily on lenders are finding it increasingly difficult to finance new projects.It adds to Canada's housing crisis and the shortage of housing at a time when the country’s population continues to grow, according to a new report from Royal LePage. “Gradual interest rate reductions could unlock a housing supply logjam,” said Phil Soper, president and CEO of Royal LePage. “Lower rates would not only empower buyers but also incentivize builders, who rely on borrowing for development. This is crucial to meet the diverse needs of our growing population.” “We need affordable options for first-time buyers, growing families and downsizing retirees. Incremental rate adjustments are key to achieving a balanced and inclusive housing market." "Without a significant supply boost, prices will continue to rise, impacting both those who seek home ownership and the one-third of Canadians in rental markets.” Builders have averaged 188,000 new home starts annually since 2015, says a report from the Parliamentary Budget Officer (PBO) which expects that number will grow to about 255,000 starts annually, or 1.8 million by 2030. The report says in order to close the gap between supply and demand would require a total of 3.1 million new homes to be completed by 2030, an average of 426,000 new starts per year. It’s a mark that will be difficult to reach. The Canada Mortgage and Housing Corporation (CMHC) reported starts came in at an annualized rate of 264,500 in May, representing a 10% month-on-month increase from April. The six-month moving average of starts was up 4% month-over-month at 247,800 said CMHC. At the pace of construction recorded in May, that translates into an additional 161,000 new home starts per year. “This pace of housing completion would represent an increase of 80% above the record level of net completions in 2023, sustained for seven years,” says the PBO. “Canada’s housing market faces complex challenges. While raising interest rates was crucial to fighting inflation, it has unintentionally choked off the essential flow of new housing supply," said Soper. "Higher borrowing costs, coupled with labour shortages in the construction trades and rising material prices, have made it economically unsustainable for developers to launch new projects.” "This creates a perfect storm: our population is growing steadily, yet we’re building far fewer homes than what’s needed to meet that demand. This situation urgently needs innovative solutions to ensure Canadians have access to affordable housing options.”
