Residential home construction is moving at a brisk pace across Canada by historical standards but the results are uneven, with Ontario emerging as the clear laggard, according to a TD Economics report.
“On a historical basis, Canadian homebuilding is indeed running strong,” said Rishi Sondhi, an economist at TD Economics. Canada is building homes at an annualized pace of roughly 264,000 units, a level exceeded only a handful of times since the postwar era.
However, one province remains a drag. Housing starts are at or above long-run averages in every region except Ontario. While the province has seen some recovery from subdued levels reported early in 2025, starts are still trending around levels seen between 2015 and 2019, before ultra-low interest rates sparked a surge in pandemic-era housing activity and the 2022 to 2024 population boom, Sondhi says.
In Ontario itself, the Greater Toronto Area highlights the weakness in housing activity. Condo construction is “trudging rock-bottom depths, with starts trending near their lowest level since the Global Financial Crisis,” he says.
Condo pre-sale activity has also struggled amid investor pullback. Rising interest rates have made units more difficult to purchase and, for investors who pre-qualified at lower rates, more difficult to close on. Falling condo prices have further reduced the appeal of these units.
While purpose-built rental construction has ramped up, construction of other types of ownership housing remains “muted,” Sondhi says. Shortages are more often found in “ground-oriented” homes, such as detached houses, semi-detached units and townhouses, which have been underbuilt for decades.
In contrast, housing starts are running well above long-term norms in Alberta, driven by strong population growth and job gains, and in Atlantic Canada, where building is heavily concentrated in rental housing. Quebec’s market has also been propped up by rental construction, while condo building in British Columbia has proven more resilient than expected.
Beyond strong demand for purpose-built rental units, housing starts have also been supported by cuts to the GST/HST paid by builders, and by federal financing programs.
Despite the strong pace of construction, Sondhi says Canada has not yet eliminated the housing shortage created during the population surge between 2022 and 2024. He estimates the national shortfall is about 400,000 units, though he notes that shortages vary by housing type.
Housing starts are expected to slow as population growth cools, reducing demand for new housing, particularly in the rental market. The development of new households is also expected to slow to a crawl this year and remain low through 2027.
As a result, Sondhi says the gap between housing demand and new housing supply could close in 2027, marking a reversal from conditions seen during Canada’s population boom.
However, he cautions that closing the supply gap would not be enough to solve the housing affordability crisis.
“An important point here is that while housing completions are likely to make up for their prior shortfall, they will probably need to be amped up even further on a sustained basis, if affordability were to be restored to its pre-pandemic level,” Sondhi said.
Interest rates are expected to be largely neutral for the outlook, as TD assumes bond yields will hold steady and the Bank of Canada will leave its policy rate unchanged.