Ontario developers in a panic as new home construction falls off a cliff

Developers who are accustomed to rolling in the dough from Ontario's booming housing industry have been panicking this year amid record-low sales and a glut of inventory, and are pulling back on progressively more new builds in the province as a result.

Those behind condo and townhome projects in the GTA have fared the worst in the last few months, with multiple complexes put on hold or even going into receivership after they've already begun.

A new update from the Canadian Home Builders' Association (CHBA) helps quantify the magnitude of the situation, turning developers' overall sentiment about the market into a numerical value to offer a "leading indicator about the current and future health of the residential construction industry in Canada."

NEW! CHBA releases the results of its Q2 Housing Market Index (HMI), a leading indicator of the current and future health of Canada’s #residentialconstruction industry. Get it now! https://t.co/GTj3FK30VY #CHBAHMI pic.twitter.com/sxjupSoCmH

— CHBA National (@CHBANational) August 22, 2024

The organization writes that in the second quarter of this year, there have been "broadly negative views about the health of new home sales" across the industry, with the outlook from stakeholders being the worst in Ontario than any other province.

When it comes to new single-family homes, builder sentiment across Canada — measured as a "Housing Market Index" — has hit a low 29.9 out of a potential 100, marking a five point decline since the first few months of the year and 10 from the same time in 2023 when the slump began.

For multi-family developments, the index was a slightly better 32.5 (a 5.4 per cent drop from the previous quarter and 8.5 point drop from 2023).

In Ontario, though, this figure was a drastically lower 11.6 out of a potential 100 in regards to both housing types, while housing starts are also down 15 per cent year-over-year in the province despite it being among the most in need of more new homes — affordable homes for first-time buyers in particular. 

This is silly.

There’s lots of liquidity/buyers; the price needs to go lower to find it.

— W8 (@teletonic) May 11, 2024

CMHA writes that this low HMI "points to severe drops in housing starts ahead, and a worsening deficit in housing supply," noting that "housing starts are dropping where housing is most needed, which also coincides with where houses are most expensive, keeping would-be buyers locked out."

"These latest results indicate that builder sentiment has been downbeat for two full years," it continues, saying that because of this, more and more people are leaving the province. B.C. is also seeing the same trends, though to a lesser extent.