Toronto home prices have fallen from their peak and rent growth has slowed, but Canada’s housing agency is warning that the recent improvement in affordability may not last.
According to the Canada Mortgage and Housing Corporation, Toronto still needs to increase its annual housing construction pace by at least 50% for the next decade to return housing affordability to 2019 levels.
The region is currently projected to build around 42,000 homes per year.
CMHC estimates Toronto actually needs approximately 62,000 to 68,000 housing starts annually.
Toronto Needs Up To 26,000 More Homes Every Year
The difference leaves Toronto with a housing supply gap of approximately 21,000 to 26,000 additional homes every year over the next decade.
That is despite recent improvements in affordability.
Toronto home prices have declined from their previous highs while rental market conditions have also become less competitive.
CMHC says those changes have marginally narrowed Toronto’s housing supply gap compared with its previous estimate.
But the agency says the improvement largely reflects softer market conditions rather than a permanent solution to Toronto’s housing affordability problem.
Toronto Housing Construction Is Already Slowing
The challenge is that Toronto needs significantly more housing at exactly the same time new construction is weakening.
Population-adjusted housing starts during the first half of 2026 were near their lowest level since 1996, excluding 2025.
The inventory of permitted housing units that have not yet begun construction is also 50% below its 2023 peak.
Condominium project launches have largely stalled.
In the City of Toronto, only 156 condominium units started construction during the first half of 2026, compared with an average of approximately 7,000 units per year over the previous decade.
Toronto’s Ownership Housing Supply Is The Biggest Concern
Rental construction is one of the few bright spots.
Purpose-built rental starts increased 82% in the first half of 2026, surpassing condo starts for the first time since 1994.
But CMHC says Toronto’s housing supply gap is increasingly concentrated in homes intended for ownership.
Freehold construction is at record lows after more than two decades of decline, while condo development has weakened dramatically.
That could eventually leave buyers competing for fewer new ownership options when housing demand strengthens again.
Falling Home Prices Do Not Solve The Supply Problem
For buyers currently looking at Toronto real estate, softer prices can make the market appear more affordable than it was during the pandemic housing boom.
But CMHC warns affordability improvements caused by weak demand can disappear if the underlying shortage of housing remains.
Housing projects can take years to move from approval to construction and completion.
A drop in construction now could therefore create a shortage of completed homes several years from today.
Toronto Needs 62,000 To 68,000 Starts A Year
Under current trends, CMHC expects the Toronto region to produce approximately 42,000 housing starts annually.
To restore affordability to 2019 levels by 2036, that number would need to rise to between 62,000 and 68,000 per year.
That represents an increase of at least 50%.
So while falling prices and slower rent growth are giving some Toronto residents relief today, CMHC says significantly more construction will be needed if that affordability improvement is going to last.
References
Canada Mortgage and Housing Corporation, Fall 2026 Housing Supply Report, September 10, 2026.
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