Canada Mortgage and Housing Corp. (CMHC) says new home construction inched up by one per cent in the first half of this year, mostly because of a surge of new apartment builds in Toronto and Vancouver, while the building of just about every other type of home almost everywhere else contracted.

Of the six cities examined, CMHC says Vancouver and Toronto were the only ones that saw housing starts increase over the same period last year, recording 49 per cent and 32 per cent gains respectively, and surpassing levels seen over the past five years.

In Montreal, there were 58 per cent fewer housing starts compared with the first half of 2022, while Edmonton and Ottawa saw decreases of 29 per cent and 18 per cent respectively. Calgary's housing starts were flat.

The booming construction underway in Toronto and Vancouver is because of projects that got started a while ago, before interest rates rose, said Kevin Hughes, CMHC's deputy chief economist.

The current situation in Montreal is a better example of what's happening right now, he said.

"Given larger building sizes and resulting longer preparation time of the buildings started in Toronto and Vancouver, the numbers posted in these cities are the result of a process that began at a time when financing and building conditions were considerably more favourable," said Hughes.

"This contrasts with Montreal, which is more reflective of the current, more challenging context, such as higher financing and construction costs."

The federal government recently raised the cap on a mortgage bond program to encourage construction of new apartment builds by making financing for those complicated projects easier.

"This will signal to builders that they can rely on additional low-cost financing and allow more rental-supply projects to move forward," the CMHC said Thursday of that plan.

In Edmonton, construction of single-family homes was down by 34 per cent and apartments were down by 38 per cent. In Calgary, construction of single-family homes and apartments both shrank, but an increase of 37 per cent in row houses caused the total number of new home starts to be at least flat compared to last year's pace.

In Ottawa, construction of single-family homes, semis and row houses all fell by 45 per cent, but the city saw an uptick of 38 per cent in apartments.

The agency is forecasting strong rental demand in the second half of the year, reflecting higher barriers to home ownership caused by high prices and interest rates.

It says the overall level of new construction activity remains too low to address Canada's affordability and housing supply crisis over the longer term, and "significant increases" in the construction industry's productivity will be needed.

Last month, the agency reported that Canada will need about 3.5 million new homes to be built between now and 2030 to meet demand, noting that the current pace of construction is nowhere near that pace.