Canada Has A Record Amount of New Housing Under Construction: BMO

Canada has a lot of new housing supply coming in the next few months, and it should provide market relief. The CMHC reported new housing starts remain historically elevated in September. BMO Capital Markets wrote to investors, explaining the units under construction have hit a record. Significant supply will hit the market in coming months, completions just take time.

Canada Is Starting Construction On A Lot of New Homes

Canadian housing starts fell from the record high, but still remain at one of the highest levels ever. The seasonally adjusted annual rate (SAAR) of new home starts came in at 300k units for September. It’s lower than the peak, but still one of the highest levels ever. “… a reminder that there is plenty of homebuilding going on in Canada,” said Robert Kavcic, a senior economist at BMO. 

Canada Has A Record Number of Units Under Construction

Nearly 500k units are now under construction, emphasized the bank — a new record for units. Even adjusting for population, this is one of the biggest building booms ever. Canada hasn’t seen this type of building boom since the 70s.

A key difference between now and the 70s, is back then they built mostly single-family homes. Now these are largely multi-family units, which take much longer to finish. The supply relief boom that began is still in the pipeline, and is likely to hit all at once. 

“… there are now roughly 5x as many multis under construction, versus the 1990s when the two segments were very even. Indeed, the widening lag in completions seen in the chart since the early-2000s coincides with the start of the multi-unit building boom,” said Kavcic.   

Adding, “we continue to build pretty much all that we can—and those units take more time to complete than in the past.” 

Canada’s Housing Supply Boom Will Reach After Home Prices Fall

High interest rates are throttling buying, as it increases costs and reduces leverage. This is a big deterrent for investors, who have become a significant share of the market. In cities like Toronto, they represent nearly half of new condo buyers. A slight dip in new purchasing is expected to materialize as a result. 

One important takeaway— there’s a lot of supply in the pipeline ready to provide relief. It’ll just land after monetary policy brings down home prices. Banks like BMO and RBC have both previously stated the market will be repriced as interest rates rise. After that repricing, a flood of supply may help to keep prices down for some time.

13 Comments

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  • Kate 1 month ago

    Tomorrow, these units will surprisingly disappear from the market.

    • george 1 month ago

      I think they were sold already….adding them to the 1.3 million empty dwellings as discussed here.

  • Mark Bayly 1 month ago

    Can people afford them now ? With the extra 1500$ a month mortgage??

    • george 1 month ago

      to quote from a an old BD article, These are not meant for people and “are owned by trusts, which can be used to skip foreign buyer taxes. Corporations are also often homeowners, with the idea being a foreign-controlled corporation is still foreign owned.

      However, Canada doesn’t track the beneficial ownership of companies for the most part. This means they really don’t know who ultimately owns the company. In BC, they have started to track beneficial ownership, but it’s proving problematic. An anti-corruption organization found none of the data is validated, and no ID is required. “

  • Jimmy 1 month ago

    Canada has 39 million people. 500,000 units under construction.

    That is a unit under construction for 1 in 78 Canadians.

    Or assume two people live in a unit that is a new unit for 1 in 39 Canadian households.

  • Jimmy 1 month ago

    Labor force of 21 million.

    A unit under construction for 1 and 42 workers.

  • Freddy 1 month ago

    I wish you guys would supply links to the data and articles that you cite. I would like to know if the the data that you discussed is relevant to my region.

    The information that you presented here today is basically hearsay.

  • Ron Bruce 1 month ago

    Canada, with no capital gains paid on a principal residence, attracts investors from every Country. There is a lineup to wash money. Realtors, Banks, Trust funds, nominee owners and those making an uninterruptible income are all in the game (i.e. The Liberal MP in the riding of Vancouver-Granville has flipped more than 20 properties after less than a year of ownership since 2005, which has critics pointing to contradictions between his actions and the Liberal platform on housing). The taxpayers or paying for a Liberal constituency office which is nothing more than a real estate office. The first stop on his taxpayer-paid travels to parliament is the Immigration Department in Ottawa.

  • Paul 1 month ago

    People are already trying to walk away from the preconstruction purchase as they did in 1989/90. When all these units hit the market there will be decline in price. HOWEVER it may discourage further construction in the following period as developers face rising costs and lower prices.

  • Riley 1 month ago

    Let’s see who will get a mortgage because the lady who works at TD said they’re stress testing everyone now at 7.5%.

  • Rick 1 month ago

    Banks are now sending out appraisers and they’re reporting back that house is less than what it sold for. So now home owner had to come up with difference to close the house. Second a lot of people aren’t even qualified for new rates with stress test on top.

  • M Haroon Rawalia 1 month ago

    If the buyers are in a position to put 30% or more in down payment, it may work for them.

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