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Sharp Uptick in Canada’s New Housing Starts

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Sharp Uptick in Canada’s New Housing Starts
3 min. read
Sharp Uptick in Canadian New Housing Starts

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Canada’s new housing starts climbed in August in Ontario and Quebec but fell in Western Canada.

New data from Canada Mortgage and Housing Corporation (CMHC) suggests an upward trend in housing starts. The seasonally adjusted, annualized rate of housing starts (SAAR) for all areas in Canada was 226,639 in August. This is up 1.9% from 222,467 units in July and exceeded experts’ prediction of 212,500. Compared to August 2018, new housing starts rose 12% as construction started on 17,611 new homes last month.

New Construction Activity Differs Among Regions

The sharp increase in housing starts was prompted by heavy construction in Ontario and Quebec, whereas activity slowed west of Manitoba. The disparate landscape in new construction between the various regions mimics the resale home market; there, as well, sales rose in Ontario and Quebec, but decreased across the Prairies and British Columbia.

Compared to August 2018, housing starts rose 32% in Ontario and 62% in Quebec. This contrasts to declining construction activity elsewhere; it was down 35% in Manitoba, fell 19% in British Columbia, decreased 8% in Alberta, and dropped 6% in Saskatchewan.

Driven by economic growth and population increases, Ontario’s real estate markets bloomed in the past year; they’ve been growing for the past two years in Quebec’s major centres. Conversely, Alberta and Saskatchewan commodity prices weakened. In BC, a series of regulatory changes cooled buyer demand in 2018 and 2019. Housing starts also grew by 28% in Atlantic Canada in August, mainly caused by the launch of multi-unit buildings in New Brunswick.

Condo Construction Trending in Large Cities

CMHC Chief Economist, Bob Dugan, said in an interview with The Globe and Mail that detached house starts trended higher in July and August after a year of declines. However, the main reason behind increased housing starts has been the growing number of condominium construction projects in urban areas.

The Greater Toronto real estate market is proof. Detached home starts increased 7% in August compared to last year; other types of housing – including condos – went up 31%.

Housing starts in the Montreal market skyrocketed 120%; in Quebec City, they were up 134% in August compared to the same month in 2018. According to CMHC data, the seasonally adjusted, annualized rate of urban starts increased by 2% in August compared to July.

Housing Starts Decline in Vancouver

New housing starts dropped by 20% in August compared to last year as real estate in Vancouver faces a downturn. The resale market is also declining, causing developers to be wary of launching new projects until demand strengthens.

According to Toronto-Dominion Bank Economist Rishi Sondhi, housing starts declined in BC in August after being inflated earlier in the year as builders rushed to start projects ahead of new development fees.

Construction launches skyrocketed in April in anticipation of the new fees that took effect on May 1. In comparison to 2018, the volume of construction permits issued in April more than doubled in 2019. In July, Vancouver’s city council chose to cancel a planned 5.2% inflationary increase in various development and new residential projects fees, to support the residential building sector.

What’s Next?

Sondhi believes that a healthy third quarter is in store for residential activity in Canada due to the combination of increased rates and a rise in home sales. He said:

“Moving forward, homebuilding is likely to remain strong through the remainder of this year, as solid demand fundamentals – namely, low mortgage rates, healthy population growth and solid labour markets – underpin construction. This is consistent with the trend in building permits, which remain elevated and were reported this morning to have increased month-on-month in July.”

Considering the regional discrepancies and over-performing predictions, we can only wait and observe the evolution of housing starts across the country.

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