The activity of home builders and developers are a good indicator as to how healthy a housing market is and will be in the near-term and, by all accounts, Canada’s housing market actually looks very strong.
While multi-family residential builders don’t ignore current market pressures, these long-term for-profit businesses also aren’t swayed by the headlines or the apparent dips and valleys that occur within the real estate market cycle. Instead, they employ very smart people who spend a great deal of time analyzing a variety of factors to determine what the outlook will be for specific types of housing in specific geographic regions. It’s also why “housing starts” — the measure of how many new homes were begun in a particular time period — is used as a leading (or forward-looking) indicator of economic conditions.
And, by all accounts, things look good for Canada. According to the July 10, 2018 report released by the Canada Mortgage and Housing Corp. (CMHC), the annual pace of home building increased in June, boosted by a jump in multi-unit projects.
Housing starts up in June, compared to May 2018
The federal housing agency says the seasonally adjusted annual rate of housing starts increased to 222,041 units in June 2018, compared to 216,701 units in May 2018. This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.
CMHC uses the trend measure as a complement to the monthly SAAR of housing starts to account for considerable swings in monthly estimates and obtain a more complete picture of Canada’s housing market. In some situations analyzing only SAAR data can be misleading — as this measure is largely driven by the multi-unit segment of the market which can vary significantly from one month to the next.
The standalone monthly SAAR of housing starts for all areas in Canada was 248,138 units in June, up from 193,902 units in May. The SAAR of urban starts increased by 29.9% in June to 228,844 units. Multiple urban starts increased by 46.4% to 172,845 units in June while single-detached urban starts decreased by 3.5% to 55,999 units.
“The national trend in housing starts increased in June, reflecting a jump in the SAAR of multi-unit dwellings in urban centres in June to a historical high,” said Bob Dugan, CMHC’s chief economist. “Notably, the national inventory of newly completed and unabsorbed multi-unit dwellings has remained below its 10-year historical average so far in 2018, indicating that demand for this type of unit has absorbed increased supply.”
Housing starts trended lower in June 2018 as fewer multi-family projects got underway during the month. For the first half of 2018, total housing starts matched the level of activity in the same period in 2017. Particularly high home prices and strong demand from a growing population so far in 2018 have incentivized some new supply, maintaining an elevated pace of new home construction in the Vancouver Census Metropolitan Area (CMA).
Metro Victoria housing starts reached mid-year 45% ahead of 2017 levels, driven by substantially higher multi starts. Rental starts were double the rate seen in the first half of 2017 in response to low vacancy rates. Elsewhere, relatively more affordable housing types dominated construction. Condo construction was nearly 60% higher due to the relative affordability of condos over single detached units, which were down 15%. The generally lower average prices in Langford coincided with 44% of all construction in the metro area. Ground-oriented, freehold multi-unit construction was also up 41%, pointing to densification.
June housing starts were down in Calgary year-over-year, but year-to-date (YTD) there was an 8% growth over 2017. Single-detached units were on par with the previous year, while there were roughly half as many rental units initiated. The growth in total housing starts has been driven by the condo market. Condo starts grew 36% YTD over 2017.
The trend measure of housing starts declined further in June after the pace of both single-detached and multi-family starts slowed from the previous month. Following a strong performance in 2017, total housing starts in the Winnipeg CMA continued to moderate during the first half of 2018, down 32% from a year earlier. The decline was most pronounced in the multiples sector where production through June 2018 declined by 38% from the same period of 2017.
Housing starts in Kingston trended higher in June as more multi-unit housing starts, including starts of rental apartments, got underway. Builders have started rental projects in four out of the last six months reflecting a very low vacancy rate, which stood at 0.7% in fall 2017, the lowest among 16 Ontario CMAs.
Primarily led by apartment starts, the total number of housing starts in the Toronto CMA trended up to reach a near two year high in June. Driven by condominium apartment starts which recorded a 30 year high for the month. The majority of these apartment starts were spread evenly across the City of Toronto, Mississauga, and Vaughan, highlighting the broad spread of high rise construction in the Toronto CMA.
Apartment starts increased in June, causing overall housing starts to trend up. Apartment starts have reached a very high level in Hamilton due to strong demand from first-time buyers, downsizers, and rental property investors. Faced with fewer options in the resale market at their price point, more first-time buyers and downsizers have purchased new condominium apartments. Rental property investors are looking to take advantage of the extremely low vacancy rates in the region.
Total housing starts in the St. Catharines CMA trended slightly lower in June. Nevertheless, they were nearly 50% above the 10-year average. The mild slowdown was generated by the single-detached sector, while all multi-family housing types saw increases this month. Stronger migration flows from other parts of Ontario continue to fuel demand for new homes in the area.
Total housing starts trended upwards in the Kitchener-Cambridge-Waterloo CMA for the first time in the past five months. While row starts continued trending downwards, there was a marginal increase in single-detached starts was able to pull total starts higher. The slight pickup in full-time employment and tightening resale market conditions during late 2017 supported spillover demand for single-detached units from the resale market to the new construction market.
After a slow start to 2018, multiples construction in Halifax picked up the pace in June, the strongest month so far this year. While levels of construction remain strong on the Halifax Peninsula, the majority of new apartments starts this year have been located in the suburban market. Construction on the single-detached market remains elevated, recording a year-to-date growth of 10% compared to the same period last year.
For the first six months of the year, the relatively strong rate of residential construction in Quebec is attributable to the apartment market segment, including rental and condominium. Favourable economic conditions, decreasing supply in the resale market and population ageing have all contributed to increased housing starts.