A leading indicator of future building is flashing big growth, but there’s a catch. Statistics Canada (Stat Can) data shows a huge climb for building permit values in 2021. Values climbed by over a quarter, one of the largest increases in history. Unfortunately, the national statistics agency attributes two-thirds of the growth in value to inflation, which looks unhinged.
Two-Thirds of The Increase In Canadian Building Permits Was Inflation
Canadian building permits have been soaring in value, a sign of future demand. The value of total building investment reached $126.5 billion in 2021, up 25.6% from the previous year. Stat Can notes the increase is skewed due to inflation, which accounted for two-thirds of gains. Adjusting for inflation, annual growth trims to 9.3% for 2021. Still colossal growth, but you’re talking about 16.3 points trimmed from growth due to inflation. That’s just a teensy bit higher than the 2 point target the central bank hopes to maintain.
Canadian Future Building Intentions
The combined seasonally adjusted value of Canadian residential and non-residential building permits in current and inflation-adjusted dollars.
Source: Statistics Canada; Better Dwelling.
Most of Canada’s Building Permits Are For Residential Homes
Most of the building is residential, with single-family units in very high demand these days. Total residential building represented $87.2 billion of the funds in 2021, up 29.9% from a year before. Single-family homes boosted by the flight to the suburbs was $40.7 billion of those dollars, up 41.5% over the same period. The remaining $46.5 billion was multi-family building permits, showing an increase of 21.1% from last year. Once again, a considerable portion of that housing is lost to inflation.
Non-Residential Construction Intention Is Still Below 2019 Levels
Non-residential building permits have also seen a big boost, but haven’t recovered. The segment represented $39.6 billion worth of building permits in 2021, up 17.1% from the previous year. The segment is lagging behind its pre-pandemic numbers, with only institutional structures back to pre-pandemic levels. Low growth in this segment is problematic, since this is typically the basic infrastructure for commerce and government. It’s hard to plan more office and commercial space if you’re not sure if people will be working at home, though.
Inflation might be a big driver for future building intentions, but not the only driver. New housing starts are near a record high, and same with housing completions for last year. In fact, Canada’s new housing supply is expected to shatter records this year. Inflation problems just mean they’re going to be a lot more expensive.