Canada’s Housing Relief Is Growing as Construction Slows

Canada’s housing market is showing a fragile split: rents and home prices are easing in several markets, while the construction pipeline is weakening. In its Summer 2026 Housing Market Outlook, published July 22, the Canada Mortgage and Housing Corporation forecast national housing starts of 241,400 units in 2026, down from 259,028 in 2025.

That is a forecast, not a final result. CMHC says slower population growth, economic uncertainty, high mortgage rates and slow income growth are weighing on demand. The result is short-term relief for some renters and prospective buyers, but a longer-term risk if builders retreat before Canada’s housing supply gap is fully addressed.

Affordability is improving, but unevenly

CMHC expects rental markets to continue easing in 2026 as new purpose-built rental buildings add supply. Higher vacancies should slow average rent growth, particularly advertised asking rents for units available to new tenants.

The distinction matters. A lower asking rent on a new listing does not automatically reduce the rent paid by an existing tenant under an established lease. People moving or negotiating a new lease may have more choice and face slower rent growth, while current tenants may continue paying rents set under earlier market conditions.

The federal Spring Economic Update reported that home prices were about 20% below recent peaks and national rents were roughly 9% below their peak. It also reported that the national rental vacancy rate reached 3.1% in 2025, up from a historical low of 1.5% in 2023. Those are government-reported measures and analysis of observed conditions, not a claim that affordability stress has disappeared.

CMHC’s national outlook uses forecasts and market-specific measures. Its baseline projection puts the national rental vacancy rate at 3.6% in 2026, compared with 3.7% in 2025, while average two-bedroom rents continue to rise modestly. The different figures describe different measures and time frames rather than a contradiction.

Regional conditions are diverging

CMHC expects rental-market easing to be especially visible in larger centres such as Toronto and Vancouver, where slower population growth and a larger supply of condominiums entering the secondary rental market are increasing competition among landlords. CMHC forecasts a 2026 vacancy rate of 3.6% in Vancouver, compared with 3.7% in 2025 and 1.6% in 2024.

Prairie markets are expected to remain relatively stronger. CMHC forecasts Calgary’s 2026 vacancy rate at 5.9%, while average two-bedroom rent is still projected to rise from 2025. The agency says stronger demand in the Prairies should support modest rent increases even as some markets add vacancies.

The split also appears in home sales and prices. CMHC expects Prairie markets to lead price growth, while Ontario and British Columbia face weaker activity because of affordability challenges, slower population growth and higher supply. The Canadian Real Estate Association, an industry association rather than a government forecaster, also revised its 2026 resale outlook lower in July and cited weak population growth and regional divergence.

Slower population growth is reducing demand

The federal Spring Economic Update said population growth slowed from a peak of 3.2% in the second quarter of 2024 to negative 0.2% at the end of 2025 and is expected to remain subdued over the next two years. Statistics Canada’s first-quarter 2026 population estimates are preliminary and may be revised.

That demand slowdown is helping rents and prices adjust, but it also changes the economics of new construction. CMHC says builders are responding to unsold inventory, high construction costs and weak near-term demand. Rental construction is expected to ease gradually from its historic 2025 peak.

The federal update similarly warns that weaker homebuilding activity could create future supply risks if the pullback lasts. In other words, the same conditions that are helping some renters today could make housing less affordable again if demand strengthens before construction recovers.

Lower prices do not remove mortgage stress

The Bank of Canada says the price of a typical Canadian home fell about 5% over the previous 12 months and 20% from its 2022 peak. But falling prices can also reduce equity buffers for households that need to refinance, making it harder for some borrowers to manage higher payments.

Over the next 12 months, the final group of five-year, fixed-payment mortgages taken out during the pandemic will renew. The Bank estimates that this group represents about 12% of outstanding Canadian mortgages and that its borrowers will face average payment increases of about 15%.

That helps explain why lower home prices have not brought all buyers back. A cheaper home may still be difficult to finance when mortgage rates, income growth and renewal costs remain constraints. The Bank estimates that only a small share of borrowers would be unable to refinance at current prices, but that risk would increase if prices fell another 10%.

The risk after the current adjustment

CMHC expects housing conditions to improve gradually in 2027 and 2028 as economic growth, incomes and buyer confidence strengthen. Sales are expected to recover but remain below typical levels seen over the past decade.

If demand recovers faster than construction, the current retreat by builders could recreate shortages later. The next indicators to watch are housing starts, rental vacancies, asking rents, population growth, mortgage renewals and whether developers restart projects as financing conditions improve.

Canada’s affordability gains are real but uneven and fragile. Durable improvement will depend on maintaining rental and broader housing construction while demand normalizes, rather than allowing a temporary market adjustment to become another supply shortage.

Sources

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