High interest rates have significantly impacted Canada's housing sector in 2023, leading to 30,000 fewer housing starts, according to the Canada Mortgage and Housing Corporation (CMHC). The steep rise in borrowing costs, driven by the Bank of Canada’s efforts to curb inflation, has resulted in a sharp decline in residential construction. This slowdown in housing starts is concerning, as it could exacerbate the already tight housing supply in cities like Toronto and Vancouver, where affordability is a major issue.
CMHC had originally projected higher numbers of new homes, but developers have been hesitant to launch projects amid high financing costs and uncertainty in the market. The reduced housing starts in 2023 are part of a larger pattern of delayed construction activity across the country, especially in urban areas that are experiencing the greatest demand for housing.
The housing shortfall is likely to worsen as fewer new homes come to market, making it even harder for prospective buyers, particularly first-time buyers, to find affordable options. With high interest rates pushing up mortgage costs, the market may continue to face challenges unless there is relief in borrowing rates or alternative solutions to boost housing supply.
The CMHC has warned that the current trajectory of housing starts must improve if Canada is to address its ongoing housing crisis. High costs and reduced construction could lead to a more prolonged period of housing scarcity, which could further inflate home prices in an already overheated market.
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