Residential Construction Sees Rental Housing Lead Growth While Market Starts Slow

Source: Western Investor

Residential construction across Western Canada continues to be driven by purpose-built rental housing, though signs point to a slower pace ahead as federal policy shifts begin to reshape financing and development conditions. Purpose-built rental construction is carrying residential activity across Western Canada, but the pace is expected to ease as early as 2026.

Housing starts in Manitoba and Saskatchewan have been exceptionally strong this year, with Saskatchewan setting new records through the first three quarters. Alberta has also posted robust activity as strong in migration boosted demand for housing, allowing the province to move ahead of British Columbia as the most active residential market in the country.

British Columbia, meanwhile, has followed the national pattern. Overall starts cooled in the third quarter, even as rental construction remained strong. That contrast is emerging as an early warning sign for the broader market.

Cooling activity in B.C. has arrived at the same time rental starts have reached record highs. A recent report from Rennie & Associates Realty Ltd. describes the current cycle as a renaissance for purpose-built rental housing. According to the report, the supply of purpose built rental homes fell by roughly 40 percent on a per capita basis compared with 1990 levels.

“We were not building rental in this market in Metro Vancouver for almost 30 years. We built almost nothing, so we are doing a lot of catching up,” said Ryan Berlin, senior economist with Rennie.

Lower-cost financing and insurance through Canada Mortgage and Housing Corporation programs such as the Apartment Construction Loan and MLI Select have played a major role in driving rental construction. Many industry participants now expect change as the federal government reshapes its housing strategy, potentially altering lending criteria and how CMHC supports builders.

“It is an interesting time because CMHC has been responsible for approximately 90 percent of all multi family new construction in the country,” said Nadeem Keshavjee, founder and president of GreenBirch Capital Inc., which has financed roughly 300 MLI Select approvals over the past four years.

CMHC, however, is becoming more selective in how it assesses deals.

“In the new year we expect more financing to shift to the non CMHC market,” Keshavjee said. “That means financing may be more expensive, leverage may be lower, and projects will rely more on partnerships, joint ventures, and creative structures. Equity will matter more than ever.”

Berlin cautions that without programs like MLI Select, many thousands fewer rental homes would have been built in Metro Vancouver and other Canadian markets over the past decade. Any changes that make these programs less accessible are likely to constrain future supply, although the full impact is still being assessed.

Recent policy shifts build on adjustments made over the past two years that moved programs away from pandemic era incentives toward tighter risk management. Social outcomes remain a priority, with developers rewarded for affordability, accessibility, and environmental performance.

Updates introduced in July added premium discounts for projects that meet affordability, accessibility, and energy efficiency targets. Premium schedules were also revised to encourage certain building types, including seniors housing.

“CMHC’s 2025 updates to multi unit mortgage loan insurance are influencing how rental projects are structured and financed,” noted a briefing from CMLS, pointing to the standardized risk based premium model and updated MLI Select discount framework.

A larger structural shift may come from a refocusing of CMHC on homebuyer support as the new Build Canada Homes agency takes on a bigger role working directly with housing developers.

“Build Canada Homes is still in its early stages, and the industry is waiting for more clarity on how it will operate alongside existing CMHC tools,” said Jessica Toppazzini, vice president and managing director for Western Canada at CMLS. “The objectives are ambitious, and there is hope the design will help unlock more affordable rental supply through private sector participation.”

Backed by up to $13 billion in federal funding, Build Canada Homes is tasked with delivering non-market housing and providing financing support. Its initial focus includes six Canada Lands Company sites. One project in Edmonton’s Griesbach neighbourhood is planned for 2,400 row and multi-family units, starting with an initial phase of 355 homes. A Winnipeg site, developed in partnership with Treaty One First Nations, is projected to deliver 2,100 homes.

These initiatives align with the federal goal of doubling the pace of housing construction through non-market supply.

In markets like Vancouver, court-ordered sales of residential land have reached record levels. At the same time, rental starts have surged, supported by CMHC programs and the need for steady cash flow. Withholding costs rising and many development sites returning to the market, some owners are opting to build rental rather than sell land at a discount.

“Developers who bought sites intending to build condos are pivoting to rental because the condo market is so soft,” Keshavjee said. “Building rental is often the only way to move forward without taking a significant loss.”

Construction costs have eased across Western Canada, improving project feasibility. This has supported activity in Prairie markets, while Vancouver developers continue to navigate lengthy entitlement processes and higher development charges.

Land market data reflects this pressure. Altus Group reported a 61 percent decline in residential land sales in Metro Vancouver during the first half of 2025.

Consumer behaviour has also influenced decisions. Developers delayed new projects amid softer demand in both condo and rental segments and elevated construction costs, Altus noted in its mid year investment market review.

Sentiment improved in the third quarter. The annual Emerging Trends in Real Estate report from PricewaterhouseCoopers and the Urban Land Institute highlighted opportunities for well-capitalized developers and contrarian investors.

Across the market, deal-making has become more flexible, putting downward pressure on values. While condo presales remain limited in Vancouver, resale activity has held up.

“There is still strong housing demand, and the resale market shows that clearly,” said Peter Norman, vice president and economic strategist at Altus Group, speaking during the firm’s October 22 market update.

He expects resale volumes to match 2019 levels, the pre-pandemic benchmark, even in British Columbia. Data from Greater Vancouver Realtors supports that outlook, with 20,417 sales recorded in the first 10 months of 2025, compared with 20,837 over the same period in 2019.

Looking ahead, multiple policy shifts are reshaping the development landscape. Changes to immigration policy, combined with slower construction, point to a need for new housing models that align with slower population growth and address the ongoing shortage of family-sized homes.

“It is fundamentally changing how we deliver housing and how projects are financed,” Norman said. “With dramatically lower population growth expected over the next decade and beyond, the industry will need to adapt to a very different demand environment.”

Key takeaways

• Purpose-built rental remains the primary driver of residential construction across Western Canada.
• Federal financing programs have been critical, but upcoming policy changes may tighten access.
• Developers are increasingly pivoting from condos to rentals to manage risk and generate cash flow.
• Slower population growth and shifting federal priorities are likely to reshape housing supply over the next decade.
• The outlook for residential construction will depend on how quickly developers adapt to tighter financing, slower population growth, and a shifting federal housing framework.

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