Property developers step up residential construction as housing market emerges from deep freeze
Canada’s housing industry is booming with construction permits surging as developers respond to strong demand, according to new data out Tuesday.
Building permits rose 6.1 per cent in August to $9 billion, compared to a one per cent increase estimated by analysts, largely because of increases in multi-family and industrial permits, Statistics Canada reported. Quebec led the gains with more than a third of the value, while six other provinces reported increases, the agency said.
“On the residential side, the number of units came in at 247,000 annualized in the month, flagging continued strength in housing starts down the road,” wrote Robert Kavcic, senior economist, at BMO Capital Markets. “Indeed, the year-to-date average for permits is a lofty 237k, so it looks like there’s plenty in the pipeline to keep residential construction activity humming.”
Housing permits were solid but on fell 2.5 per cent in September on an annualized basis to 221,202 from 226,871 in the previous month, according to Canada Mortgage and Housing Corp.
Single-detached starts fell by 8 per cent to 58,600 units during the month, but remain above the trough posted earlier in the year. Meanwhile, multi-unit starts were flat at 162,000 units.
“September’s outturn caps a strong third quarter for new housing construction which, alongside a probable increase in home sales, points to a healthy gain in residential investment,” noted TD Canada economist Rishi Sondhi.
CIBC Capital Markets’ Avery Shenfeld was less impressed.
“Overall, while we could get some growth from real estate agents fees and renovations, the pop in GDP growth we got from housing in Q2 is likely to be be less vigorous in the next couple of quarters,” the economist said.
Combined, the two sets of data reflect strong demographic demand, both from international inflows and new households created within Canada, Kavcic said.
“That was somewhat stronger than expected and continues the relentless level of building activity.”
Ontario, which needs “every last unit at this point,” according to Kavcic, and B.C. lead the boom fuelled by population inflows and resilient economies.
Construction activity in B.C. has mostly maintained its drive despite a correction in the number of resold houses and a fall in prices after the government imposed tighter mortgage and foreign ownership rules, analysts noted.
The CMHC and StatsCan reports “provide further evidence of strength returning to the housing market after it went into a deep freeze following the introduction of a mortgage stress test and other measures,” Nikita Perevalov, senior economist at Scotibank Economics in Toronto, said in a note.
B.C. led the gains in the value of permits for multi-family dwellings, mostly because of high property values in Vancouver, StatsCan said. Ontario led single-family dwelling permit increases. Overall, the value of residential permits grew 19 per cent to $3.3 billion in August from July.
Housing starts in Vancouver grew 23 per cent year-to-date compared with last year, CMHC said, because of the “continuous strengthening of economic fundamentals.” More than 85 per cent of construction was in multi-unit buildings, it said.
Edmonton’s housing starts trended upwards for the fourth consecutive month in September, driven by the multi-family market and despite elevated inventories, CMHC said.
September housing starts were higher in Saskatoon because of condominium construction, but the year-to-date numbers were still down 10 per cent compared with last year, the agency said.
There’s a lot of homebuilding activity going on across the vast majority of Canada
Robert Kavcic, senior economist at BMO Capital Markets
In Toronto, the starts trends for semi-detached and townhomes were particularly strong, CMHC said, indicating how these relatively affordable housing types remain popular among buyers.
Ottawa’s housing starts are up 11 per cent year-to-date compared with last year as strong growth in apartment and row houses reflected how higher prices for single-family dwellings are pushing buyers to less expensive housing types, CMHC said.
Although housing starts in Quebec fell last month, the 12-month average is still at a nine-year high because of a strong economy, job market and increasing foreign investment, Kavcic said.
“There’s a lot of homebuilding activity going on across the vast majority of Canada,” Kavcic said. “If firm rent growth and low vacancies are any guide (in most markets not tied to oil), the demographic backdrop warrants such activity.”