Few things in this world have been as unpredictable as the confusion associated with Ontario’s real estate market. It fluctuates by the month; COVID-19 saw unprecedented price surges that defied economic logic, followed by interest rate hikes that promised cooling but delivered volatility instead. One month, headlines proclaimed a buyer’s paradise; the next, sellers commanded bidding wars that pushed modest homes into seven-figure territory. A constant state of flux has left both industry professionals and ordinary citizens scrambling to understand whether they’re witnessing a correction, a crash, or simply the new normal in a market that seems to rewrite its own rules with each quarterly report.
The most recent headline: ‘Sales have stopped.’
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Climbing construction costs are being blamed for a significant decline in home sales across Ontario. Some estimate the drop from last year to be as great as 65%. Here’s more on the what, why, and solutions proposed to address this chronic crisis:
A Snapshot of the Problem
Housing starts have been slow across Ontario for quite some time. Data itself is even hard to come by. The government’s official tracker went dark months ago and was already under question to begin with. According to a brief released in March, housing starts were down 17 per cent year over year in 2024.
That’s a bad sign for progress towards Doug Ford’s self-imposed goal of building 1.5 million homes by the year 2031. It’s also putting the development sector at risk, says the Building Industry and Land Development Association. Recent research suggests 40,000 construction jobs and 30,000 construction supply chain jobs could be on the line without some form of intervention.
What’s Driving the Construction Cost Crisis?
Several interconnected factors have created a perfect storm of rising construction costs across Ontario:
Material Price Volatility
Every house starts with raw materials. But prices and availability make acquiring them unnecessarily difficult. Lumber, for example, has experienced dramatic swings over recent months, alongside major fluctuations seen in steel, concrete, and other essentials. Ontario is being forced to reevaluate its supply chain as U.S. President Donald Trump imposes tariffs on Canadian products and prioritizes his own country’s domestic supply.
Labour Shortages and Wage Pressures
The construction industry faces an acute skilled labour shortage, with many workers leaving during the pandemic and immigration policies struggling to fill the gap. While benefiting workers by boosting wages, it adds significant cost pressure to projects already operating on thin margins.
Supply Chain Disruptions
Global supply chain issues continue to create delays and price premiums for everything from electrical components to fixtures. What once took weeks to source now requires months of lead time.
Regulatory Complexity
Municipal approval processes are notoriously complex and time-consuming. Multiplied by the number of houses that need to be built, there’s no realistic way of achieving efficiency on a consistent level. Adding to the challenge – not to mention tens of thousands of dollars to the cost of each unit – development charges have risen sharply across many Ontario municipalities.
Land Acquisition Costs
Land forms the literal and figurative basis of real estate development. The problem is that there’s less and less of it available across Ontario. Scarcity, particularly in the Greater Toronto Area, leads land costs to skyrocket for lofty foundational expenses rippling through entire project budgets.
Proposed Solutions
Layoffs are the last thing Ontario’s housing crisis – or entire economy, for that matter – needs right now. Yet builders warn they’re coming if something isn’t done quickly about rising building costs.
Regulatory Reform
Recent provincial legislation has made major changes to the fees homebuilders pay to towns and cities, also reducing some of the approvals they have to go through. The More Homes Built Faster Act eliminated or reduced certain development charges and streamlined approval processes. However, critics argue these measures don’t go far enough to address the fundamental delays and complexity plaguing the system.
Tax Incentives
The province has introduced tax cuts for new projects, including HST rebates for purpose-built rental housing and reduced development charges for affordable units. These measures aim to improve project economics, though their effectiveness remains to be proven at scale.
Supply Chain Stabilization
Government intervention will be necessary to stabilize material costs. This might look like several things, like through bulk purchasing agreements or strategic reserves of key materials, for instance. Establishing domestic manufacturing capacity is critical to reducing dependence on volatile international markets.
Workforce Development
Addressing the skilled labour shortage requires both immediate and long-term solutions. And there are plenty of avenues to explore. Promising proposals to date include fast-tracking immigration for construction workers, expanding apprenticeship programs, and investing in training facilities to rebuild the skilled workforce decimated during the pandemic.
While Other Ontario Developers Warn, We Wonder What’s Possible
With 40,000 construction jobs and 30,000 construction supply chain jobs potentially at risk, coordinated action between all levels of government may be necessary to prevent a broader economic downturn that would only worsen the housing crisis. But individual investors and builders have a role to play as well.
Pacd Homes is committed to being the partner Ontario needs during this pivotal time for housing and urban development. We specialize in the design and construction of Accessory Dwelling Units (ADUs), offering practical, cost-effective solutions to increase housing density without compromising quality. Our approach leverages efficient building methods and streamlined processes that operate within today’s regulatory landscape—without waiting for policy shifts to take action. Whether you’re a homeowner, investor, or municipality, we’re here to help turn underutilized space into livable, valuable property. Discover how our vision and services align with Ontario’s evolving needs by reaching out today.
