By Paul Vieira

OTTAWA--Housing starts in Canada are set to decline over the next three years due to higher construction costs, weaker demand and elevated levels of unsold inventory, the country's housing agency said Wednesday.

The outlook from Canada Mortgage and Housing Corp. represents another setback for the country's residential real-estate sector, where prices and sales have declined following a prolonged period of strength fueled by immigration. It's also a sign that, unlike in the recent past, housing-market activity won't help propel the Canadian economy into a higher gear.

Canada's economy is struggling with slow growth, with manufacturers under duress from hefty U.S. tariffs. Furthermore, firms are scaling back spending and hiring plans as the future of a North American trade treaty is in doubt.

CMHC said in a report that it expects housing starts to drop during the 2026-to-2028 period. Data covering Canada's seven largest urban markets indicate that unsold housing units reached record highs in 2025. The bulk of unsold units are in the condominium market, which analysts say has basically collapsed in Toronto and Vancouver, British Columbia, where house prices are steepest.

A report in January from Urbanation, a real-estate data company, said condominium sales in the greater Toronto region fell in 2025 to their lowest level in over four decades.

"When completed units don't sell, lenders restrict credit and developers delay or cancel new projects because many rely on high presale thresholds to secure financing. This slows the pipeline of future housing supply," CMHC said in its report.

Confidence among construction firms was already in record-low territory, according to data from the Canadian Home Builders' Association. Meanwhile, existing-home sales are nearly 20% below year-ago levels on an unadjusted, or nominal, basis, and prices have dropped 19% from a peak reached in February, 2022--or the just before the Bank of Canada raised interest rates aggressively to tame inflation.

For 2025, housing starts--which CMHC defines as the point when the footing of a foundation is poured--rose 6% in 2025 to 259,000 units. In almost all markets, CMHC said housing-starts activity exceeded the 10-year average. Tania Bourassa-Ochoa, the agency's deputy chief economist, said 2025 starts reflected decisions made in prior years, when population growth was strong due to immigration and when financing conditions were accommodative.

She said the agency expects demand to bounce back in the coming years. But "because it takes so long to actually build new housing, there is a real risk that the decisions today could become tomorrow's shortage in the pipeline for a new housing supply," she said.

Daren King, an economist at National Bank Financial, said last week that the federal government might have to step up to help spur home building in Canada due to conditions that point to a sharp slowdown. He said efforts to cap population growth, via limits on immigration, has helped improve housing affordability--but that might lead to a slowdown in home building due to softer demand.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

March 11, 2026 11:43 ET (15:43 GMT)

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