Rental construction drives housing growth as condominium markets struggle with low investor interest and demand
Canada Mortgage and Housing Corporation (CMHC) reports that Canada’s housing market began 2025 with gains, but economic uncertainty from declining immigration levels and shifting US trade policies is weighing on the broader outlook, as reported by Financial Post.
The CMHC’s 2025 housing market outlook revealed that the seasonally adjusted annual rate for housing starts rose 3 percent in January.
Meanwhile, actual housing starts in urban areas with at least 10,000 residents increased by 7 percent year-over-year.
CMHC deputy chief economist Tania Bourassa-Ochoa noted the early-year gains but cautioned about foreign trade risks.
“While these increases show early signs of progress to begin the year, foreign trade risks add significant uncertainty for housing construction going forward,” she stated in a release.
Despite predicting “modest” economic growth in 2025 and further improvements into 2026 and 2027, the CMHC sees mixed conditions in the housing sector.
“Slower population growth and economic challenges will limit housing activity,” the report stated. “On the other hand, some households will see improved buying power, boosting housing activity in the short term.”
The CMHC projects housing starts will decline from 2025 to 2027 but remain above the 10-year average.
This slowdown is largely due to weakening investor interest in condominiums and shifting demand toward family-friendly housing.
“With low investor interest and more young families looking for family-friendly homes, developers will find it harder to sell enough units to fund new projects,” the report stated.
“The increase in unsold units will likely reduce new project launches, leading to a decline in new condominium apartment construction.”
Ontario’s condo-heavy regions—including the Greater Toronto Area, Hamilton, Kitchener, Cambridge, and Waterloo—have seen demand weaken due to higher interest rates.
As a result, fewer land deals, project launches, and pre-construction sales have occurred in the past two years. British Columbia’s condo market faces similar struggles, with pricing, low demand, a lack of presales, and limited land deals restricting new starts.
However, a strong resale market could support planned developments.
The CMHC expects eastern markets, including Ottawa, Gatineau, Montreal, Quebec City, and Halifax, to experience “quite weak” condominium starts.
More affordable options, such as row houses and other ground-oriented housing, may drive a “small recovery” in home construction.
“Regionally, new construction in Quebec will recover from recent lows. In Alberta, new construction will slow down from high levels,” the report stated.
Rental housing starts played a major role in Canada’s overall housing activity in 2024 and are expected to remain strong in 2025 and 2026. Government incentives have driven new rental construction, particularly in the Prairies.
Meanwhile, Vancouver and Victoria continue to see new developments due to a “historically tight rental market” and provincial programs.
In Ontario, declining condominium starts will be offset by “robust” purpose-built rental construction in 2025.
However, the CMHC warns that this momentum could ease in 2026 as developers assess increasing vacancy rates and a slowdown in high-rise land acquisitions.
In eastern markets, rental housing will make up “most new construction,” according to the report.
The CMHC outlined three economic scenarios—low growth, medium growth, and high growth—based on potential US tariffs and lower immigration targets over the next three years.
The most severe scenario involves the US imposing a 25 percent tariff on all Canadian imports.
“This could have a major impact on Canada’s economy as early as 2025, including: investment uncertainty, a weaker Canadian dollar, lower export revenues, job losses, higher inflation [and] a greater risk of recession,” the report stated.
In a medium-growth scenario, the US would impose a 25 percent tariff on 10 percent of Canadian goods, with Canada responding in kind.
The report suggests that stronger US government spending and increased demand for imports could lessen the impact.
Despite these economic headwinds, the CMHC anticipates that housing market activity in Canada will improve as lower mortgage rates and changes to mortgage rules allow more buyers to enter the market.
First-time homebuying millennials are expected to drive demand in major urban centres, while repeat buyers—whether upgrading, rethinking pandemic-era purchases, or renewing mortgages—will also play a role.
“By 2027, we expect much of the pent-up demand to be met,” the report stated.
“Although mortgage payments and prices will rise, improved job markets and income growth will make housing more attainable than during the 2022 to 2024 period. This will support further recovery in sales.”
