Carney’s housing agency vows to build as Canadian prices plunge

In Canada, home prices have plunged 20 per cent and thousands of unsold condominiums sit empty. The head of Prime Minister Mark Carney’s housing agency says this is precisely the moment to build.

Ana Bailão, chief executive of Build Canada Homes, said regardless of the market cycle, the country needs more housing supply — and the right kind. That means more purpose-built rental apartments and fewer investment condos.

“We don’t work in the cycle. We know that the country is going to need more housing,” she said in an interview. “We’re a practical organization with the key objective of getting shovels in the ground to increase affordability and to create the housing the market is not creating.”

Carney created Build Canada Homes after he was elected last year, in a push to get the federal government back in the business of financing homebuilding. Ottawa retreated from construction of affordable housing in the 1990s, contributing to a supply gap in segments of the market.

But Bailão is trying to get shovels in the ground just as the economics of homebuilding have rarely looked worse. Higher interest rates and an immigration cap have triggered one of Canada’s biggest housing corrections, forcing developers to shelve projects as new condos gather dust.

She said her agency, armed with $13 billion (US$9.2 billion) in government funding, offers flexible financing tools and partners with municipalities, provinces and private developers to make building easier. It’s also freeing up land owned by the Canadian government.

It has committed funding to about 19,000 affordable units so far, with about 2,300 of those under construction. (Build Canada Homes defines housing as affordable when total shelter costs require no more than 30 per cent per cent of a household’s gross income.)

That compares with the roughly 1.9 million to 2.4 million additional homes that Canada Mortgage and Housing Corp. estimates need to be built over the next decade to restore affordability to pre-pandemic levels.

Bailão acknowledged the market slump is affecting the entire construction business, her organization included. But she said it had drawn more than 900 proposals from builders and other proponents in the last year alone, and financed several private-sector-led projects that would not have received funding otherwise, including a development of 600 rental units in Vancouver.

The housing correction “just reinforces the need for Build Canada Homes, to be honest,” she said.

With thousands of newly built condos sitting unsold in Toronto and Vancouver, turning them into affordable housing might seem like an obvious solution. But a June proposal by the British Columbia and Canadian governments to acquire and convert some 2,200 units sparked immediate backlash, with critics calling it a “developer bailout.”

Bailão’s answer was brief when asked where that project stands today: “The partnership with the government of British Columbia continues to be developed and the details of that partnership will absolutely be unveiled at the appropriate time.”

The condo market’s collapse has given way to a new driver of housing starts. Purpose-built rental housing now accounts for two-thirds of all apartment starts in key markets, propelled by government policies including financing programs, lower development charges and zoning reforms.

The shift is easing pressure in rental markets. Vacancy rates are rising and rent growth is slowing after years of severe shortages, according to CMHC.

But construction of condos and “ground-oriented” homes — detached houses, multiplexes, townhomes — has weakened sharply. Those projects have traditionally provided both ownership opportunities and a source of secondary rental housing.

As a result, Canada still faces acute affordability pressures in the ownership market. While Build Canada Homes is focused on expanding affordable rentals, many younger Canadians may continue to face steep barriers to buying a home. The benchmark price of a Toronto home is still $924,600.

Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, believes the adjustment in the condo market is necessary, even if it causes short-term pain. He expects it will eradicate “Mickey Mouse developers” that entered the market despite being undercapitalized, and most condo buyers will be families, rather than investors.

“Families mean larger units,” he said. “Therefore we are talking about larger units now, as opposed to those shoeboxes that we used to build.”