CMHC Cuts Housing Forecast as Tariffs Hit Demand and Toronto Loses 67,000 Residents

A 2-by-2 condo that cost $485,000 to build in 2023 now runs closer to $550,000, and the difference isn't labour. Softwood lumber from BC mills carries a 14.5% duty at the border. Structural steel that used to arrive from Pennsylvania now costs 25% more after crossing into Ontario. The Canada Mortgage and Housing Corporation looked at those numbers, ran the pro-forma math on projects across the country, and cut its 2026 housing start forecast by 18,000 units.

The revision marks a shift. For years, the CMHC played the optimist, publishing targets that assumed materials would stay cheap and municipalities would approve density fast. The new forecast acknowledges what developers already knew: when tariffs push input costs up $30,000 to $60,000 per unit, projects that penciled at 6% margins stop penciling entirely. Builders don't absorb the loss. They halt the project.

The missing middle gets crushed

High-rise luxury condos still move forward because wealthy buyers absorb price increases and institutional capital can wait out volatility. Single-family subdivisions in the exurbs proceed because land is cheap and stick-frame construction uses less steel. What dies in the middle are the townhome clusters, the triplex infills, the four-storey walk-ups, the housing types that policy documents celebrate and tariffs quietly kill. These projects run on margins thin enough that a $40,000 cost spike turns a feasible development into a stranded land assembly.

A developer in Mississauga shelved 220 townhomes last month. The financing still works, technically, but only if presales hit 75% within six months. With mortgage rates between 4.19% and 4.49% for five-year fixed terms, and variable rates near 6%, the pool of qualified buyers who want a $780,000 townhome has shrunk to the point where a 75% threshold is a bet, not a plan.

Toronto exports its affordability crisis

Toronto's urban core lost roughly 67,000 residents between mid-2024 and mid-2025, most of them to suburban sprawl in Simcoe County or outright departures to Alberta and the Maritimes. The exodus wasn't driven by remote work flexibility. It was driven by the math of a three-bedroom condo lease that costs what a mortgage on a detached house in Moncton used to cost.

International immigration keeps the city's total population count from collapsing, but the people leaving and the people arriving occupy different housing markets. A senior analyst making $140,000 who moves to Halifax because Toronto rents are untenable gets replaced in the census by a newcomer household that splits a basement apartment four ways. The housing that empties doesn't match the housing that fills.

Mortgage competition tightens as origination dries up

The Big Five banks still advertise 5-year fixed rates near 4.79%, but credit unions and second-tier lenders are undercutting them by 60 basis points to capture what little volume remains. A homeowner renewing in 2026 who doesn't rate-shop will pay roughly $4,200 more per year in interest on a $500,000 mortgage than one who does. Loyalty to your primary bank currently costs about one international vacation per year.

The rate spread between the highest and lowest offers in the market has widened because origination volume is down and smaller lenders need the business more. The strategy works until it doesn't, tight margins on mortgages eventually force either consolidation or withdrawal from the market entirely.

The CMHC's downward revision isn't a weather report. Forecasts like this move capital. Pension funds and REITs that allocate to residential development treat the CMHC outlook as a leading indicator, and a cut of 18,000 units signals reduced confidence in near-term returns. Less capital committed now compounds into fewer units delivered in 2028, which locks in today's affordability problem for the next half-decade. Tariffs don't just raise prices. They erase supply that won't get built back.