Canada’s residential construction activity has slowed in recent months due to a tight labour market and higher borrowing costs, a factor that could thwart the government’s plans to reduce a housing shortfall and add to the recovery in home prices.

That would be bad news for the Bank of Canada as it seeks to lower inflation but also a problem for Prime Minister Justin Trudeau who has vowed to improve housing affordability.

While a federal election is not due until 2025, housing affordability is among the top concerns for Canadians who have grappled with supply shortages. The Liberal Party government’s ambitious plan to welcome 500,000 immigrants per year by 2025, or about 1.25 per cent of its population, is expected to fuel robust demand for housing.

A slowdown in residential construction “is absolutely at odds with plans for the supply of housing to increase to keep step with immigration,” said Randall Bartlett, senior director of Canadian economics at Desjardins.

In April 2022, the Liberal government announced plans to double housing construction over the next decade.

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