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CMHC's Homebuilding Forecast Misses the Developer's Real Problem
CMHC's Homebuilding Forecast Misses the Developer's Real Problem
A mid-sized development firm in Markham shelved three projects last fall. The sites are still zoned. The approvals are still valid. The architect drew the buildings. What's missing is 70% presale.
That threshold used to be reachable. In 2021, a developer could hit presale targets in the GTA within 90 days of launch, often with a waitlist. By mid-2024, the same projects were sitting at 40% sold after six months. Construction financing requires proof that buyers exist before a shovel hits dirt. When presales stall below 70%, the entire project stays theoretical, regardless of how badly the city needs the units.
The Canada Mortgage and Housing Corporation's latest forecast flags a decline in housing starts through 2027, citing softwood lumber tariffs, unsold condo inventory, and slower population growth. All true. But the structural problem developers face isn't material costs or immigration caps. It's that the buyers they spent a decade building for have disappeared.
The investor who isn't coming back
Canadian high-density housing ran on a specific economic actor: the small-scale condo investor. Someone who could qualify for a mortgage, put down 20%, and carry a $650,000 one-bedroom at a loss for three years while waiting for resale appreciation. That math required two things. First, interest rates low enough that the monthly shortfall between rent and mortgage stayed under $800. Second, confidence that resale values would climb 25% in five years.
Neither assumption holds in 2025. A buyer who locked a pre-construction unit in 2021 at 1.79% is now facing completion at renewal rates closer to 4.5%. The carrying cost gap has doubled. Worse, condo prices in Toronto peaked in early 2022 and have since moved sideways or down, depending on the building. Investors aren't wrong to walk away from deposits. The deal changed.
Developers priced their feasibility models on that investor existing. When 60% of your buyers vanish, the building doesn't get smaller or cheaper to construct. You're left with a project that pencils at 250 units but can only find buyers for 90.
Absorbing the glut while starting nothing new
CMHC is correct that unsold inventory is a factor. The GTA has thousands of completed or near-completed condo units sitting unoccupied, many of them owned by investors who can't cover the carrying costs and can't sell without taking a loss. That overhang has to clear before new supply makes sense.
But "waiting for absorption" is a polite way of saying the private sector has stopped solving the housing shortage because the immediate financial returns don't justify it. The same dynamics crushing investor demand, higher rates, slower price growth, demographic deceleration, are also killing the willingness to build.
The federal government's cap on temporary residents directly affects this. International students and temporary foreign workers were a significant share of rental demand in the pre-construction condo market, particularly for bachelor and one-bedroom units. Developers built to that demand. Pulling it back by policy doesn't make the buildings more affordable for families. It just leaves them empty or unbuildable.
Trade costs passed straight through
Softwood lumber duties from the U.S. Department of Commerce hit roughly 14.5% in the most recent review, nearly double prior levels. Lumber is 15-20% of total construction cost for wood-frame buildings, which means every new townhouse or low-rise just got 2-3% more expensive before a single worker shows up.
Developers don't absorb that. They pass it to buyers, if buyers exist, or they pause the project if buyers don't. Right now, buyers mostly don't. The CMHC forecast treats trade barriers as a headwind. For the builder trying to make proforma work in a market where purchase prices are flat and financing is expensive, it's a deal-killer.
The agency is documenting a slowdown that's already happening. What it's not acknowledging is that the current model, private developers building units for small investors who rent them out, has stopped functioning, and no replacement model has scaled to fill the gap. Lower starts aren't a forecast. They're a fact, baked in by conditions that existed 18 months ago. The buildings that won't start in 2026 were supposed to be financed in 2024. They weren't.
CMHC's Homebuilding Forecast Misses the Developer's Real Problem
A mid-sized development firm in Markham shelved three projects last fall. The sites are still zoned. The approvals are still valid. The architect drew the buildings. What's missing is 70% presale.
That threshold used to be reachable. In 2021, a developer could hit presale targets in the GTA within 90 days of launch, often with a waitlist. By mid-2024, the same projects were sitting at 40% sold after six months. Construction financing requires proof that buyers exist before a shovel hits dirt. When presales stall below 70%, the entire project stays theoretical, regardless of how badly the city needs the units.
The Canada Mortgage and Housing Corporation's latest forecast flags a decline in housing starts through 2027, citing softwood lumber tariffs, unsold condo inventory, and slower population growth. All true. But the structural problem developers face isn't material costs or immigration caps. It's that the buyers they spent a decade building for have disappeared.
The investor who isn't coming back
Canadian high-density housing ran on a specific economic actor: the small-scale condo investor. Someone who could qualify for a mortgage, put down 20%, and carry a $650,000 one-bedroom at a loss for three years while waiting for resale appreciation. That math required two things. First, interest rates low enough that the monthly shortfall between rent and mortgage stayed under $800. Second, confidence that resale values would climb 25% in five years.
Neither assumption holds in 2025. A buyer who locked a pre-construction unit in 2021 at 1.79% is now facing completion at renewal rates closer to 4.5%. The carrying cost gap has doubled. Worse, condo prices in Toronto peaked in early 2022 and have since moved sideways or down, depending on the building. Investors aren't wrong to walk away from deposits. The deal changed.
Developers priced their feasibility models on that investor existing. When 60% of your buyers vanish, the building doesn't get smaller or cheaper to construct. You're left with a project that pencils at 250 units but can only find buyers for 90.
Absorbing the glut while starting nothing new
CMHC is correct that unsold inventory is a factor. The GTA has thousands of completed or near-completed condo units sitting unoccupied, many of them owned by investors who can't cover the carrying costs and can't sell without taking a loss. That overhang has to clear before new supply makes sense.
But "waiting for absorption" is a polite way of saying the private sector has stopped solving the housing shortage because the immediate financial returns don't justify it. The same dynamics crushing investor demand, higher rates, slower price growth, demographic deceleration, are also killing the willingness to build.
The federal government's cap on temporary residents directly affects this. International students and temporary foreign workers were a significant share of rental demand in the pre-construction condo market, particularly for bachelor and one-bedroom units. Developers built to that demand. Pulling it back by policy doesn't make the buildings more affordable for families. It just leaves them empty or unbuildable.
Trade costs passed straight through
Softwood lumber duties from the U.S. Department of Commerce hit roughly 14.5% in the most recent review, nearly double prior levels. Lumber is 15-20% of total construction cost for wood-frame buildings, which means every new townhouse or low-rise just got 2-3% more expensive before a single worker shows up.
Developers don't absorb that. They pass it to buyers, if buyers exist, or they pause the project if buyers don't. Right now, buyers mostly don't. The CMHC forecast treats trade barriers as a headwind. For the builder trying to make proforma work in a market where purchase prices are flat and financing is expensive, it's a deal-killer.
The agency is documenting a slowdown that's already happening. What it's not acknowledging is that the current model, private developers building units for small investors who rent them out, has stopped functioning, and no replacement model has scaled to fill the gap. Lower starts aren't a forecast. They're a fact, baked in by conditions that existed 18 months ago. The buildings that won't start in 2026 were supposed to be financed in 2024. They weren't.
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