Lower rates won’t fix the housing crisis. New construction methods might

Potential homebuyers are holding back despite falling home prices as tariff fears, job insecurity and economic anxiety take over. While demand appears soft today, the urgency to build stems from a long-term structural shortfall, not current sales volume. Demand is being deferred but not erased.

Actual housing prices are down 3.7% in Canada year over year, according to the Canadian Real Estate Association’s March data, and down 3.9% in the United States per the National Association of Realtors and Freddie Mac. 

Canada needs to double housing production to meet its 2030 target. The Canada Mortgage and Housing Corporation estimates a 3.5 million unit shortfall, requiring 500,000 homes annually. The country is producing half that. In the U.S., the gap is even larger at 4.5 million units.

Lower rates aren’t the fix. In both countries, structural shocks are overpowering policy. U.S. housing starts have slowed from a peak in mid-2022 to 1.36 million in April 2025. About 30% of all lumber used in the building of a house in the U.S. is imported. According to Bloomberg Intelligence, U.S. building suppliers will need to raise prices between 10% and 20% as a result of tariffs.

In the U.S. and Canada, builders are canceling permits, margins are thinning and construction layoffs could be next. Canada, shielded from the harshest U.S. tariffs on lumber, is better positioned to stabilize supply, but only if it modernizes delivery.

The solution is to build smarter and faster

The housing crisis in Canada and the U.S. isn’t driven by rising costs alone; it’s also a result of outdated systems and stagnant construction practices. While other industries have embraced innovation to boost productivity, construction has lagged behind. It’s time for housing to catch up.

The U.S. needs 439,000 additional construction workers this year, and the demand is expected to increase. In Canada, 22% of workers in residential trades are set to retire by 2033. Immigration alone won’t solve it. Productivity is the missing piece.

Prefabrication and modular construction offer a path forward. Globally, prefabricated wood building systems are expected to hit $35 billion by 2029, growing at a 5.5% annual rate, according to Mordor Intelligence.

Mass timber, which is cheaper than concrete for mid-rise buildings, gives Canada a natural edge. Prefabricated mass timber cuts labour needs and speeds up construction, shortening loan periods. But it also introduces financing challenges, as lenders typically won’t fund off-site work and only recognize costs once materials arrive on-site. This can create cash flow gaps that require bridge loans or internal funds to cover upfront prefab costs until construction loan draws become available.

The bottleneck isn’t just capital; it’s outdated delivery models. Expect construction to shift toward a manufacturing model, with vertically integrated developers leading the way. Strategic partnerships and supply chain alliances will define the next wave of housing delivery.

Leveraging ‘meanwhile space’ to bridge the gap while building smarter

With new supply slowed by tariffs and soft demand, it’s time for developers to think about meanwhile space, which refers to the interim use of empty buildings during construction lulls. Vacant land, stalled projects and underused space can support local economic development and cater to community needs, all while helping to cover the carrying costs of the site. Pickleball courts, community markets and pop-up retail are examples of interim-use frontline tools for site activation, community engagement and economic resilience.

At last year’s Canadian National Exhibition in Toronto, 37,000 people applied for just 5,000 summer jobs. Demand for local, low-barrier employment is intensifying. Pop-up uses and flex space can help close the gap. Smart developers will embrace adaptive reuse as an interim solution to generate income while preserving long-term flexibility.

Canada’s job market is flashing warning signs with unemployment at 7% as of June. In the U.S., joblessness is forecast to hit 5.5% later this year. Although the April jobs data in the U.S. was strong, there is speculation this may change as the effects of tariffs begin to filter through the economy. Against this backdrop, maintaining economic activity in idle real estate will be key. 

The outlook

The housing crisis in both Canada and the U.S. is no longer just about financing or affordability; it’s about how and where we build. Treating housing as infrastructure, embracing engineered supply models and activating meanwhile space are potential strategies to help solve the crisis. But the clock is ticking, and the players who move first will shape the future of urban growth on both sides of the border.