Executive Summary
- Canada’s economy is stabilizing with modest GDP growth projected for 2026, while inflation has returned to its target range, allowing for lower interest rates.
- A significant slowdown in population growth and shifting demographics are reshaping long-term housing demand, with a greater future need for family- and senior-oriented housing.
- The housing market shows a split personality: resale transactions remain steady near pre-pandemic levels, while new-home sales have plummeted in major urban centers.
- Home renovation spending is rebounding after a three-year decline and now accounts for the majority of residential investment, signaling a key growth area for the construction sector.
Canada’s housing and construction markets are entering a period of recalibration, influenced by a stabilizing economy, cooling inflation, and easing interest rates. According to a recent analysis, a dramatic slowdown in population growth combined with shifting demographics is set to reshape long-term housing needs, while a rebound in home renovation spending is becoming a key driver of the residential construction sector heading into 2026.
Economic Headwinds Give Way to Stability
After a period of volatility, Canada’s economy is showing signs of stabilization, with forecasts projecting GDP growth around 1.4% in 2026. Inflation has largely returned to the Bank of Canada’s target 1-3% range, allowing for a partial reversal of the aggressive interest rate hikes of 2022-2023. This restored predictability is providing a more stable foundation for consumers and businesses, with retail sales volumes showing resilience and turning positive in mid-2025.
Demographics and Labour Market Reshape Housing Needs
The Canadian labour market is cooling, with unemployment rising above 7%, but it is not collapsing. A more significant factor is the sharp slowdown in population growth seen in 2025, a stark contrast to the record increases of the post-pandemic years. This demographic shift is expected to alter housing demand significantly over the next decade. Growth in the 20-35 age cohort, a key driver of the rental market, is projected to fade. In its place, the 35-50 age group will likely dominate new household formation, alongside a rapidly expanding 65+ population, fueling demand for ground-oriented housing, multi-generational homes, and aging-in-place modifications.
A Tale of Two Housing Markets
The current housing landscape presents a paradox. On one hand, the resale market has remained resilient, with national transaction volumes expected to be near 500,000 this year, a figure comparable to pre-pandemic norms. Price appreciation is moderate in the Prairies, Quebec, and Atlantic Canada, helping to offset softness in Ontario and British Columbia. In contrast, the new home market has seen sales plunge, down more than 60% from 2022 levels in Toronto and Vancouver. Developers face high financing costs and a product mix misaligned with shrinking demand for small, investor-focused units. Despite this, housing starts are projected to exceed 250,000 units in 2025, as projects launched during the boom continue to move through the construction pipeline.
Affordability Improves as Costs Moderate
Housing affordability, which deteriorated sharply after the pandemic, is beginning to show signs of improvement. This is aided by lower interest rates, price adjustments, and policy measures rolling back some development fees. Concurrently, the steep rise in construction costs has eased. While costs are still rising 5-8% annually in Western Canada, they have declined by approximately 20% in markets like Toronto, providing relief for builders and suppliers.
The Renovation Renaissance
Perhaps the most underappreciated trend is the growing dominance of renovation in Canada’s residential construction economy. In 2024, renovations accounted for 56% of all residential investment, totaling $103 billion compared to $86 billion for new housing. After a three-year decline, renovation spending has stabilized and shows signs of an upswing. As new construction activity is expected to cool, the report suggests renovations will re-establish themselves as a primary engine of the housing economy, driven by an aging housing stock and a maturing population.
