Canada’s housing starts fell to 267,443 in August, a 3% drop from July, continuing the decline in the housing sector because of rising interest rates, according to data released on Friday by the Canada Mortgage and Housing Corporation.
The drop, which stemmed entirely from starts of multiunit buildings, was most prominent in Nova Scotia and Alberta. Housing starts increased in Ontario by 4% and were up by a slight 0.3% in British Columbia, two provinces where the housing shortage is most pressing.
The story in the August housing data is consistent and clear: Developers are delaying projects or canceling them altogether.
Rising interest rates have had a profound effect on both buyers and sellers. Many projects were approved when interest rates were much lower, but now cannot be financed as developers lack an additional cash cushion to move ahead.
Demand has also cooled as many buyers can no longer afford more expensive mortgages, or are waiting for prices to drop.
Without buyers willing to pay top dollar and with higher costs of labour, materials and financing, it is simply not profitable to build.
Given that inventory in the resale market is already at critical levels, housing affordability will worsen if there is not enough new construction to meet demand.