Canada’s housing market is undergoing one of its most significant structural shifts in decades. For years, condominium construction outpaced purpose-built rental development, supported by strong investor demand, rapid population growth, and rising home prices. Today, that model has largely broken down, as developers increasingly pivot away from condo projects in favour of purpose-built rentals. Rental starts totalled about 130,000 units over the past four quarters, while condo starts fell below 50,000 for the first time since the aftermath of the Global Financial Crisis.
But the two forms of supply are not interchangeable. Purpose-built rentals add to Canada’s dedicated rental stock, while condos may be purchased to be owner-occupied or to form part of the secondary rental market. Although the shift toward purpose-built rentals helps to address Canada’s longstanding shortage of dedicated rental accommodation, it also raises an important question: could today’s rental boom become tomorrow’s homeownership shortage?
This pivot reflects a dramatic change in market conditions. Condo projects depend heavily on investor presales to secure construction financing, but those presales have fallen sharply as investors retreat from the market. Higher interest rates have eroded affordability and made borrowing more expensive for both buyers and developers. Slower population growth, resulting from recent federal immigration policy changes, has softened asking rents and weakened expected investor returns. At the same time, elevated construction costs and government fees have further squeezed already-thin margins, making some condo projects uneconomical at current selling prices.
By contrast, targeted Canada Mortgage and Housing Corporation (CMHC) financing programs and the removal of the GST on new rental construction have significantly improved the economics of purpose-built rental projects. The shift meets a genuine market need following decades of underbuilding. But increased rental construction doesn’t appear to be driving the condo downturn. Rather, collapsing presales have made many condo projects unviable, prompting some developers to shift toward rental projects that are better supported by current market and policy conditions. In doing so, rental construction is helping sustain development activity as the ownership market falters.
The ownership supply problem
However, the longer-term implications need to be considered. For many aspiring homeowners, condos are the first rung on the property ladder, particularly in major cities where detached housing is priced beyond their reach. As investor presales have weakened, condo starts in Montreal, Toronto, and Vancouver have all fallen well below their 2019 levels.
The decline in ownership-oriented construction extends beyond condos. In the four quarters ending in Q2 2026, total housing starts were 43,000 units higher than in 2019, driven by a 73,000‑unit surge in rental starts. Yet this increase masks a 30,000‑unit decline in starts intended for ownership. As a result, the ownership share of housing starts plunged from more than 70 per cent to about 45 per cent. Simply put, Canada is building more homes, but fewer of them are being built for purchase.
With large condo developments taking several years to move from presales to completion, today’s sharp decline in starts may not be fully visible in completed supply until later this decade. For now, there is no shortage of homes for sale. But there is a risk that demand from investors and prospective owner-occupiers alike could grow faster than new projects can be approved, financed, and built. Even a gradual recovery in demand could coincide with relatively few new ownership units coming to market, renewing upward pressure on prices.
None of this suggests that policies supporting purpose-built rental construction should be reversed. Canada needs substantially more dedicated rental supply, and recent policy changes have helped correct decades of underinvestment. But strong rental construction may obscure a deteriorating ownership pipeline in headline housing-start numbers. Housing policy should recognize that rental and ownership markets are complementary rather than interchangeable, preserving momentum in rental construction while addressing the separate barriers preventing condo projects from moving forward.
Ultimately, a balanced housing system requires a robust pipeline of both rental and ownership construction. Building more rental units is essential, but it cannot come at the expense of the homes Canadians will need to buy.
Building the homes buyers want
Most homebuyers in the Greater Toronto and Hamilton Area (GTHA) prefer ground-related housing, such as single-detached homes, yet land-use planning policies have favoured apartment construction for much of the past two decades, according to a new report from the C.D. Howe Institute.
In Room to Grow: Building More of the Housing Homebuyers Want, author Frank Clayton argues that planning policies have become increasingly disconnected from consumer preferences, limiting the supply of ground-related housing and worsening affordability. The report calls on policymakers to focus not only on how much housing is built, but also on whether it reflects the property types homebuyers actually want.
“It is clear Ontario homebuyers prefer homes with an exterior entrance, a garage, and a plot of green space. The evidence is in the numbers,” says Clayton, a senior research fellow at the Centre for Urban Research and Land Development at Toronto Metropolitan University. “Between 2017 and 2024, single-detached homes accounted for 40 to 62 per cent of all first-time home purchases in Ontario, far exceeding demand for condominium apartments. Yet, by the end of 2022, apartments accounted for 86 per cent of all approved and proposed housing units in the GTHA development pipeline.”
The report finds that this mismatch has wide-ranging consequences. Limited construction of new ground-related housing reduces resale supply as move-up buyers remain in their existing homes. Buyers seeking more affordable options are pushed farther from employment centres, while renters stay in rental housing longer as homeownership becomes increasingly out of reach, reducing turnover in the rental market. Together, these trends worsen affordability and limit opportunities for households to build wealth through homeownership.
The report also challenges the assumption that housing demand can be met simply by relying on seniors to downsize, increasing the supply of “missing middle” housing in existing neighbourhoods, or adding density around transit stations.
As a solution, the report recommends increasing the supply of the housing types homebuyers prefer while lowering the cost of alternatives to traditional single-detached subdivisions. This includes maintaining an ample supply of serviced greenfield land, reducing government-imposed development costs, and encouraging greenfield communities that combine townhouses, low-rise apartments, and smaller-lot single-detached homes. This approach has already gained market acceptance and improved affordability in municipalities including Oakville, Waterloo Region, and Ottawa.
“Housing policy cannot succeed if it ignores consumer demand,” says Clayton. “Canadians continue to aspire to ground-related homes. Planning for the housing people want, rather than simply counting units, is key to restoring affordability.”
Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward–looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.
