Housing starts expected to decline

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Report points to weakening residential construction market at the very same time more housing is needed 

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Housing starts over the next few years will likely weaken and the already dire supply shortage could get even worse, warns a new report prepared for the Residential Construction Council of Ontario (RESCON).

Further, employment in new residential construction has peaked and will likely keep declining for the next several years at least.

Entitled Housing Market Outlooks in Ontario, the report from economic research firm Will Dunning Inc. concludes that new housing starts will continue to decline “well into 2025, followed by a slow recovery of the economy and housing activity during 2026 to 2028. By the end of 2028, conditions will not have fully recovered.”

Richard Lyall, RESCON president, described the findings as “particularly worrisome for builders as they point to a weakening residential construction market at the very time we need to build more housing.

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“With a critical need for new housing, it is imperative that all levels of government take immediate action to boost construction, by lowering taxes, fees and levies and reducing the red tape and bureaucracy, which slows the industry and adds to the cost of housing.”

In an indication of what might happen in 2025 and beyond, he said in a  interview that local councils in the GTA are now realizing that they “really have to make some serious moves.”

An example of that is a recent decision by Vaughan city council to “cut their development charges in half. Now they had the highest development charges on Ontario, but still, that is a massive move.

“The city realized that there wasn’t much happening in terms of construction, so they had nothing to lose by doing this. The costs were just too high.”

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Lyall said that prior to the cut, development charges totalled $192,000 for a single home, “whereas in Calgary it is $22,000. How do you square that? Well, the fact is, you can’t. London Ont. is $45,000 and Vaughan (was) almost four times higher. It doesn’t make any sense. But that’s what’s happened with development charges, they’ve become this mess. And people say, well, ‘growth pays for growth. Developers have to pay for it.’ Well, no, they don’t. That’s nonsense.”

In the GTA, the average municipal charge is $164,920, about $42,000 higher than in 2022. “The City of Toronto increased their development charges 21 per cent last summer. It is insane.”

For new home sales to recover, the report notes that affordability needs to be returned to prior levels via a combination of interest rate decreases and reduction in government-imposed costs and land prices,

The report cites other factors that need to be addressed, such as delays in land use approvals and infrastructure, the amount of developable land available for purchase by builders, and escalation of mortgage regulations which have reduced mortgage amounts that can be obtained by buyers.

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