Canada's Construction Crossroads: Navigating the Decline to Find Opportunity

The Canadian residential construction sector is in turmoil. After years of boom, provinces like Ontario and British Columbia are now grappling with historic declines in housing starts and investment. Yet, amid this downturn, regional and sectoral disparities offer clues to where opportunity lies. For investors, the key is to look beyond the national narrative and dissect where demand is resilient—and where undervalued assets may emerge.

The National Decline: Where the Pain Is Felt

The numbers are stark. In Q1 2025, Ontario's residential construction investment fell by $410 million in multi-unit projects alone, dragging the province's housing starts down by 38% year-over-year. Toronto, once the engine of growth, saw a jaw-dropping 65% drop in housing starts in March 2025. British Columbia mirrors this: Vancouver's housing starts plummeted 59%, and its multi-family construction confidence (as measured by the Housing Market Index) hit a near-record low of 24.8.

The drivers? High mortgage rates, trade-related cost pressures, and a surge in pre-construction inventory—Toronto's condo supply now sits at an 58-month glut, far exceeding sustainable levels.

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Where the Resilience Lies: Regional Bright Spots

While Ontario and BC falter, other regions are quietly thriving. The Prairie provinces—Saskatchewan, Manitoba, and Alberta—are outperforming. Year-to-date housing starts in Saskatchewan jumped 206%, driven by demand for single-family homes and purpose-built rentals. Manitoba's starts rose 209%, fueled by a booming labor market and affordable housing costs. Even Alberta, despite a $121 million dip in single-family investment, saw a 39% rise in housing starts in early 2025, thanks to energy sector stability and population growth.

Atlantic Canada is also a standout. New Brunswick's multi-unit investment grew by $17.2 million, while Prince Edward Island's residential sector expanded 12.3%—the strongest provincial growth. These regions benefit from lower costs, stronger population growth, and less reliance on volatile condo markets.

Sectoral Shifts: Non-Residential Markets Offer Steady Ground

The residential slump hasn't erased all growth. Non-residential construction—particularly in industrial and institutional sectors—is powering ahead. In Q1 2025, institutional projects (e.g., hospitals, schools) grew 5.6%, while industrial construction rose 3.7%. British Columbia's industrial sector, despite broader declines, saw $164 million in permit growth in April alone.

Investors should focus on:
1. Industrial real estate: Logistics hubs and warehouses remain critical as e-commerce and supply-chain resilience demand infrastructure.
2. Healthcare and education: Aging populations and underfunded public infrastructure create long-term demand for institutional projects.
3. Purpose-built rentals: In cities like Saskatoon and Winnipeg, rental vacancy rates remain low, supporting steady returns.

The Contrarian Play: Undervalued Condos and Land Banks

In Ontario and BC, the collapse in condo construction presents a contrarian bet. While overbuilt today, these markets will eventually rebalance. Investors with a 3–5 year horizon could target:
- Pre-construction condos in core urban areas, now discounted due to oversupply.
- Land banks in transit-oriented developments (TODs), which will regain value as interest rates stabilize.

Risks and Policy Levers to Watch

• Interest rates: A Bank of Canada rate cut could reignite demand, but elevated bond yields may keep mortgages high.
• Trade policies: The U.S.-Canada softwood lumber dispute and tariff uncertainty continue to inflate material costs. Monitor policy shifts here.
• Urban density policies: Cities like Toronto may incentivize mid-rise development (e.g., laneway housing) to alleviate shortages without overbuilding condos.

Investment Strategy: Regional and Sectoral Diversification

1. Go west (and east): Prioritize exposure to Prairie provinces and Atlantic Canada via REITs or regional developers like Ledcor Group (active in industrial and institutional projects).
2. Buy the dip in condos: Target undervalued assets in Toronto and Vancouver with strong rental demand.
3. Hedge with non-residential: Allocate to industrial REITs (e.g., Killam Properties) or infrastructure funds tied to healthcare projects.

Final Take

Canada's residential construction downturn is a regional and sectoral story. While Ontario and BC face a reckoning, the Prairies and non-residential markets offer steady growth. For investors, this is a time to think small (single-family in resilient regions), think long (land banks and rentals), and think outside (non-residential). The construction sector's crossroads may just be the beginning of a new cycle—if you know where to look.