More housing supply is on the way, according to Canada’s national housing agency. New urban housing starts increased in May, shows Canada Mortgage and Housing Corporation (CMHC) data. The rise in activity is still below the peak seen earlier in the year. Similar to what’s happening in the US, starts have begun to fall from unsustainable levels. No need to worry about a lack of supply in the pipeline though. Despite falling from the peak, new housing starts in Canada are much higher than usual.
Canadian Housing Starts Increased 3.2%
Urban housing starts climbed last month, but remain below the peak seen earlier this year. Seasonally adjusted annual rate (SAAR) of urban home starts reached 275,916 in May. This is a 3.2% increase from the previous month, but down from the record 333,283 starts in March. The May numbers are still much higher than the country is used to, even amid the recent building boom.
SAAR Canadian New Home Starts
The seasonally adjusted annual rate of Canadian homes that have started construction.
Source: CMHC; Better Dwelling.
Canada is, at least currently, keeping up with supply — and then some. Over 1.84 homes have been started per person the population has grown in the past year. This is a lot of housing, even if this supply is ideally to offset future population growth. In a country where rising rental vacancies mean higher rents, it may not mean much for prices though.
The Majority of Housing Starts Are In Cities
Cities with over 10,000 people are where the vast majority of new starts are happening. The monthly SAAR of housing starts in these areas represented 254,647 of the May total, up 1.8% from the month before. Down from the 301,179 reported in May, but it’s around 25% higher than it has been over the past two years. It may be falling from the peak, but a significant amount is still coming to market.
One In Three Housing Starts Are In Ontario
Ontario represented a significant chunk of the housing starts. SAAR of starts in the province reached 92,157 in May, down 9.4% from the previous month. This is about 26,000 more starts than people the population grew by over the same period. It’s a lot of housing, to say the least. There is also some stuff worth unpacking over the past few months in Ontario.
Rising material costs have forced developers to delay projects, or circle back to existing buyers for more cash. A material cost squeeze has definitely contributed to the decline in homebuilding. However, this isn’t a low amount of housing starts — it’s still huge. Even by historic, non-pandemic standards.
Ontario SAAR housing starts are about 20% higher than the median of any month in the past two years. The level of building is also much higher than annual starts in many prior years. At the very least, it’s more than keeping up with population growth. It may also be clearing a significant amount of backlog as well.
BC Housing Starts Jumped 20% Last Month
British Columbia (BC) bucked the trend, with new housing starts making a sharp climb. SAAR of housing starts in the province reached 42,683 in May, up 20.1% from the month before. This is down from peak activity in March, but still 18.2% above the median reported over the past two years. This may climb in the not-so-distant future, with a boost in pre-sale activity in Vancouver.
Greater Vancouver’s new home sales have been weak over the past few years, but it is showing some signs of turning. Since homes are sold months in advance of building in most of Canada, weak pre-sales result in a drag on starts. Over the past few months, pre-sales of new homes have been on the rise. A significant amount of projects have also been projected to launch this month. This is likely to boost future homebuilding activity in the province.
New Housing Starts Have Fallen From Peak Across North America
There are a few factors to consider with elevated housing starts tapering from the peak. Homebuilding activity is still very strong, and higher than normal across the country. At 1.84 housing starts per person, a significant backlog of housing is being cleared. In a less exuberant country, new home prices would even fall a bit.
Housing starts are a leading indicator though, and the fall from peak does have meaning. Residential investment was unreasonably high, so a pullback is expected. Fewer homes under construction mean fewer materials purchased and fewer employees. That leads to less spin-off activity, and so on. In short, it’s a drag on GDP.
Canadian politicians and housing agencies attributed the fall in building to “red tape.” However, the US is also seeing a similar slowdown from peak activity, over the same period. Economists there have attributed this to rising prices and material costs.
The cost of a home in the US has increased so quickly, fewer people can qualify or want it. Home prices have grown at about half the rate of Canada, for context. US builders have separately said they’re pausing some projects until material costs fall. This is reducing new housing activity by choice, to manage risk.
Both of these factors impact Canadian homebuilders in the same way. There is even evidence they’re facing the same squeeze, by asking buyers for more cash to cover lumber. Somehow Canada views this as a problem the government should fix through lower regulatory burden and subsidies. I guess it depends on your view of the problem.
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