The Great Canadian Real Estate Slowdown is set to continue into the future. Statistics Canada (Stat Can) data shows the value of building permits fell in October. The drop in permits shows less building activity is planned, especially for residential building. It sounds like bad news, but it might not be. Falling land and building costs mean projects are viable at much lower prices. This can help restore more affordable housing, as long as rates normalize at these levels.
Canadian Building Permit Values Fell 1.4%
Canadian building permits continued to fall, making its second consecutive decline. Total permit values fell to $10.0 billion in October, down 1.4% from the previous month. In real terms, this worked out to a 0.9% decline, according to Stat Can. Permit values remain elevated compared to pre-2020, so this isn’t an alarming throttle. However, it’s worth noting that the drop in permit value is entirely due to housing.
Canada’s Planned Residential Units Fell By 4.6%
Residential building permits fell sharply for a fifth consecutive month. Total permit value dropped to $6.5 billion in October, down 6.4% from the previous month. If that seems like developers are pulling back on new housing, that’s because they are.
New residential units planned also fell sharply, as weak demand for pre-sales sets in. Total units fell 4.6% in October, primarily due to a drop in single-family units. Suddenly no one wants to build as prices are becoming more affordable. Strange, but moving on…
Canadian Future Building Intentions
The seasonally adjusted value of Canadian residential and non-residential building permits.
Source: Statistics Canada; Better Dwelling.
Non-Residential Permit Values Rise, Bucking The Trend
Non-residential construction bucked the trend, climbing as infrastructure spending takes off. Total permit values hit $3.5 billion in October, up 9.5% from the previous month. Planned infrastructure projects and commercial development in Ontario helped to grow this segment. It’s still relatively small in contrast to residential, but an encouraging sign of future economic activity.
Billions in reduced permit applications reinforce an economic slowdown in the coming months. There’s a lot of supply in the pipeline, but this would still result in some future throttling. It’s difficult to get private industry to keep planning as unit prices fall sharply.
There is some good news. Falling land and building costs mean lower priced projects may be viable once again. However, that would depend on interest rates normalizing and maintaining these levels. Cut interest rates before building normalizes, and the incentive is to hold out for bigger budgets.