EconoFACTS

August 16, 2024 | 10:20

Cdn. Housing Starts (July) — Still Breaking Ground

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Canadian housing starts rose to a stronger-than-expected 279.5k annualized in July, the highest level since June 2023. This is an impressive show of resilience given the subdued resale market, and shows that builders continue to crank out just about as much new supply as they can given capacity constraints and market conditions.

Urban single-family starts were little changed at 43.8k in the month, while multis jumped to 217k. That reading on multis is just shy of the highest since at least 1990—there were three higher single-month readings since 2021. Alberta had a very strong month, and starts in the province have pushed above 50k annualized for the first time since 2015—that was the tail end of the last real oil boom. That province’s population is growing by more than 4% y/y with torrid inflows of both international immigrants and interprovincial migrants.

Interestingly, much of this strength was in Ontario as well, where there is already a clear overhang of resale inventory on the market, and little investor demand at current price/interest rate levels. A few things help explain this seeming disconnect between the resale market slowdown and still-firm building activity.

-Construction activity has already ebbed in Ontario, with the 12-month average for multi-unit starts running at 67k, or down 13% from the 2023 high. So, some cyclical weakness has already been reflected in lower trend starts activity (keep in mind that multi-unit starts do swing wildly).

-Purpose-built rentals/affordable housing have been pushed hard through various policy channels, and this accounts for a growing portion of new construction. The number of units under construction (in Toronto) for homeownership has fallen by almost 20% since early-2023, while that for rental purposes has risen to record highs. This dynamic is probably taking some cyclicality out of residential constriction (which is usually a highly cyclical sector).

-We have, and always have had through this period, excess demand for housing (that’s different than a lack of supply). We’ve told that story at length in other venues, and won’t get into it all again here.

The Bottom Line: Residential construction activity remains sturdy in Canada despite the clear slowdown in the resale market. The fact that such a cyclical component of the economy hasn’t buckled under sharply higher borrowing costs suggests that the more structural forces still at play are outweighing some pockets of weakness.

Table 1 - Canada — Housing Starts

(thousands of units : a.r.)

Source: BMO Economics, Haver Analytics