Experts say Ontario is the reason for Canada's housing downturn

Ontario real estate has been performing so sluggishly this year that the province is now being blamed for skewing market trends for the entire country.

In a new report, experts at RBC point out how poorly the industry is faring around the GTA, especially emphasizing just how dramatically home sales — and, somewhat by extension, new home construction — have fallen in Canada's most populous region.

In the aptly-titled "Canada isn't in a housing starts slump — Ontario is," published on Wednesday, the Big Five bank's economists outline the factors that have caused residential construction in and around Toronto to lag far behind almost everywhere else nationwide.

RBC

The first roadblock to new units coming onto the market is the cost, which is sky-high in Ontario, and not just because of heightened price tags for lumber, labour, land and more.

"High development charges and heavy regulatory requirements imposed by municipal governments contribute to the steep costs of building homes, inhibiting builders from following through on approved permits," the report states.

Indeed, in Toronto, some of these fees have grown by nearly 1,000 per cent in less than 15 years. Developers have pleaded with various levels of government to lower their taxes and other levies, promising that doing so will translate to lower consumer-facing prices — one huge force behind the presently slow market.

Another Ontario-specific problem that the report identifies is, quite counterintuitively, the record levels of resale homes on the market. Active residential listings in the GTA alone reached an astonishing peak of more than 32,000 earlier this summer — driven by a steady influx of existing properties onto the market — setting a new bar for the gap between supply and demand.

RBC's economists say the inventory of these homes, "which has grown more in Ontario than provinces," is an "issue" preventing new development, as "this larger supply of readily available homes — often with lower prices than new projects — has dampened the demand for new builds."

This is especially the case for condos, for which the pre-construction investor-driven market has "nearly collapsed," the bank writes.

One may ask, though, why we require so much new construction activity if there are already so many homes available for sale. Part of the worry is what the present pause in new builds will mean a few years down the line.

"The downturn in Ontario’s housing construction pipeline could have dire consequences for 2026 and beyond if not addressed," the analysis continues.

"Any material drop in completions causing a slowdown in the housing stock’s expansion would make it that much harder to close the province’s housing supply gap. It could increase the shortfall and aggravate the affordability crisis if it coincides with a rebound in population growth once Canada's immigration policy is readjusted."

RBC

And, that material drop is beyond significant — remarkable, even — in Toronto, where the 12-month rolling sum of condo starts has fallen by 68 per cent since this time in 2023, which is bad news for anyone in the city, not just builders and owners.

"Housing starts have been the strongest ever in Canada in the last four years, totalling more than one million units, and remain robust in much of the country this year. However, Ontario stands out with a steep decline since mid-2024, particularly in the GTA," the experts say.

"This divergence is concerning because it threatens to perpetuate severe affordability problems that exert social and economic hardship on Canadians in these regions."