It’s easy to build housing when prices and rents are rising. It’s a lot harder when they’re falling.
Across Canada, construction activity is moving in very different directions. Montreal is still seeing growth in new housing starts, while Toronto and Vancouver are pulling back sharply.
1-Year Change in Rents
📈 Montreal +6%
📉 Vancouver –11%
📉 Toronto –13%
Change in House Prices From Peak (Feb 2022)
📈 Montreal +12%
📉 Vancouver –7%
📉 Toronto –23%
What stands out most is Vancouver. For years in Ontario, the argument has been that slow construction is the fault of politicians who have not embraced sweeping supply-side reforms. If we simply upzoned everything, particularly around transit, the cranes would fill the skyline.
But Vancouver did exactly that. They aggressively upzoned, removed parking requirements, and accelerated approvals. And yet housing starts are still falling.
Why? Because this is what happens in a housing downturn. When prices fall, financing becomes harder to secure, pre-construction sales slow, and developers pause new projects. The slowdown is being driven by falling prices, not development charges or taxes.
This matters when we think about policy. High development charges may get blamed today, but cutting them will not reverse a downturn on their own. However, temporary tax reductions can be a useful counter-cyclical tool when prices are falling. They can help keep projects viable until market conditions recover.
The same point applies to GST and HST on new housing. GST is not restricting supply in Alberta or Quebec, where housing starts are strong and prices are still rising. Cutting GST there simply hands builders extra margin. But in Ontario, where home prices have fallen sharply and many projects do not pencil, a temporary reduction in GST or HST could stimulate new construction by bridging the gap created by falling prices.
The key takeaway: falling prices are the cause of declining housing starts, and short-term tax relief is the appropriate policy tool to help offset the slowdown.
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn
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