(Bloomberg) -- Canada’s housing minister says he believes lower interest rates will encourage builders to ramp up their activity, alleviating the country’s crunched supply of homes.

Sean Fraser, asked whether he’s concerned that Bank of Canada rate cuts will unleash pent-up demand and higher home prices, said lower borrowing costs should also lead to an increase in supply. 

“My expectation is if we see a dip in interest rates over the course of this year, a lot of the developers that I’ve spoken to will start those projects that are marginal today,” he said at a news conference on Tuesday. 

Whatever happens with rates, the government’s course of action will remain the same, Fraser said. “We need to do everything we can as quick as we can to build as many homes as we can. And that’s going to be true today and six months from now, regardless of what may happen in the interest rate environment that we’re dealing with.”

There’s already evidence that Canada’s housing market is starting to heat up again as the central bank has signaled it’s done raising its benchmark overnight rate and is now weighing when to cut. Canadians have become more optimistic about the direction of home prices, according to polling for Bloomberg by Nanos Research, and home resales were higher in December. 

But housing starts were soft during parts of 2023, and construction has not kept pace with surging immigration to Canada.

That’s sparking fears about affordability. Expectations about future rate cuts last year helped ignite a price rally that saw values rise nearly 6% between February and August. 

Read More: Homebuyers Are So Frenzied They Won’t Wait for Canada Rate Cuts

At a news conference last week, Bank of Canada Governor Tiff Macklem said that while he’s heard from developers who’ve indicated higher rates are delaying projects, lowering rates would have a larger impact on demand.

“It’s very clear in the data that the effects of interest rates on demand are much bigger than those on supply,” he told reporters.

Fraser said the government is trying to “make the math work for builders” through measures such as getting rid of the goods and services tax on new rental construction. He also touted a C$4 billion ($3 billion) fund that supplies cash to municipalities that pledge to build dense homes quickly.

Finance Minister Chrystia Freeland added that supply is at the “heart of the challenge.”

“That’s why you see us here every week, really every day, announcing new plans to increase the supply of homes in Canada.”

--With assistance from Erik Hertzberg.

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