Balance could be returning to Canada's housing and construction sectors despite recent headwinds

Canada’s housing and construction sectors are entering a period of recalibration as inflation cools, interest rates stabilize, and renovation activity strengthens, according to Altus Group’s latest analysis.

The report projects GDP growth of about 1.4% in 2026, signalling steady, moderate expansion. Inflation has returned to the Bank of Canada’s 1–3% target range, with food and shelter costs easing. This stability has allowed rate cuts to unwind much of the earlier tightening, positioning borrowing costs near levels supportive of investment and consumption.

Altus Group data shows that consumer spending has held up despite earlier uncertainty. Inflation-adjusted retail sales turned positive in mid-2025, reflecting steady employment and household resilience. GDP figures also show a temporary contraction in the second quarter of 2025, followed by modest recovery led by resource-producing provinces such as Alberta and Saskatchewan, while central Canada continues to slow.

Labor market conditions are cooling, with unemployment edging above 7%. Roughly 200,000 new jobs were created in the past year, suggesting that a slower population increase may help moderate wage growth pressures.

Population growth, once exceeding 750,000 annually, is now expected to flatten or decline due to immigration policy adjustments. This demographic transition may shift long-term housing demand, with growth concentrated in the 35–50 age group, while the 20–35 cohort — key to rental and entry-level condo markets — slows.

Housing activity mirrors these demographic and financial trends. Around 500,000 resale transactions are projected nationwide in 2025, close to pre-pandemic norms. New-home sales, however, have dropped more than 60% from 2022 levels in Toronto and Vancouver, even as housing starts remain elevated at more than 250,000 units, driven by projects already underway.

Construction costs have eased from pandemic peaks. Western Canada still sees 5–8% annual increases, while Toronto markets have seen costs drop by about 20%. These adjustments have helped restore margins and stabilize supply chains.

Renovation has become the dominant driver of housing investment, accounting for 56% or $103 billion of total residential spending in 2024. With affordability gradually improving and rates falling, renovation activity is expected to sustain demand for materials and labour through 2026.

CMP

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