The Greater Toronto Area is a decade behind in home construction and the delay is only intensifying the region’s housing shortage, according the chief market analyst at the city’s real estate board.

Toronto home sales declined 7.1 per cent last month compared to September of last year, yet home prices remain elevated on a yearly basis, figures from Toronto Regional Real Estate Board (TRREB) released on Wednesday showed.

Jason Mercer, TRREB’S chief market analyst, said the demand driving home prices higher is only expected to continue as the region is tremendously behind in building housing supply, especially amid record immigration numbers.

“We need to see an increase in (home) construction just to offset the deficit that’s build up over the last 10 years, and then we’re also seeing record levels of population growth,” he said.

Mercer foresees this much-needed construction as the biggest challenge to Toronto’s housing market over the next several years.

While he doesn’t anticipate housing demand in Toronto to wane, he cautioned that the lack of supply may hinder the region’s economic growth if newcomers are unable to find a place to live.

“My concern is that if people start to say ‘Look, I’d love to move to the Toronto area but I’m afraid I’m not going to be able to find a home that’s affordable, I might start to look elsewhere,’ and that could be a detriment, not only to the greater Toronto area (GTA),  but Canada more broadly,” he said.

Mercer said home sellers need to adjust their expectations to reflect the elevated interest rate environment and uncertain economic outlook that Canadians are living with.

“I think sellers will have to come to terms with that,” he said.

While home prices in the GTA may fluctuate, an economist with RBC said he doesn’t think affordability will improve by much in Ontario.
“This pushing many folks to look for new places to live,” Robert Hogue, assistant chief economist at RBC Economics, told BNN Bloomberg in a television interview on Wednesday. 
He pointed to Atlantic Canada as one region where many locals from Ontario are choosing to move to, and noted that Calgary is experiencing high interprovincial migration, leading to record-high home sales.

As for the heightened interest rate environment that is pushing home costs higher, Hogue expects elevated rates will last. 
“We think the (Bank of Canada) will maintain this level over the next few quarters but we do expect in the middle of next year the bank to cut its overnight rate,” he said. 
A possible rate cut could spur renewed housing market activity, Hogue said, which would in turn put further pressure on prices.
“The bottom line is, (housing affordability) is unlikely to improve that much,” he said.