Canadian Permits To Build New Homes Fell Further Into Correction Territory

Canada is planning a lot of new construction activity, but it’s not housing they’re looking to build. Statistics Canada (Stat Can) data shows the building permit values soared in October. The increase in permits, a leading indicator of future building activity, was due to non-residential building. Residential building actually weighed down the aggregate, falling further into its correction. A drop in permits for new homes in BC and Ontario is entirely behind the decline.

Canadian Building Permits Surged Higher To $10 Billion

Canadian building permits showed a sharp increase and generally remain elevated. The seasonally adjusted value of permits reached $10.3 billion in October, up 1.3% from the previous month. When adjusted for inflation, growth falls to 0.7% over the same period. A lot of inflation means a lot less growth, in case that wasn’t already clear.

Canadian Building Permit Value

The seasonally adjusted value of Canadian building permits.

Source: Statistics Canada; Better Dwelling.

Residential Permits Made A Small Drop, Still In A Correction

Building permits have two major components — residential and non-residential. The seasonally adjusted value fell to $6.9 billion, down 0.1% from the month before. New home permit values have dropped 16.5% since hitting a peak in March. This puts it firmly in correction territory, driven by a slowdown in major markets. 

The decline in new residential permits is due to a pullback in the big two real estate markets — BC and Ontario. BC saw values drop 4.9% in October and Ontario saw a drop of 2.2%. The provinces combined make up more than half of all residential real estate value in Canada. Predictably, the decline they made was enough to weigh down the whole national sector.

Canadian Residential and Non-Residential Building Permit

The seasonally adjusted monthly value of Canadian building permits by residential and non-residential use.

Source: Statistics Canada; Better Dwelling.

Non-Residential Permits Are Surging Higher

It wasn’t all bad news though, remember how we said new building permit values made a sharp increase? This is due to a rise in non-residential permits, such as commercial buildings. 

The seasonally adjusted value reached $3.4 billion in October, up 4.2% from the previous month. Stat Can emphasized the fact this number is now 16.7% higher than it was in February 2020. When looking at the chart above, we can see this segment is trending towards the higher-end of normal. 

Canadian building permit activity increased sharply, but it’s concentrated in non-residential activity. This isn’t as bad as it sounds, considering what the segment actually is. Non-residential building includes commercial and institutional buildings, as well as infrastructure. These are investments used to increase the country’s commercial capacity, which is generally a good thing.  

As for new permits for residential activity, it might be in a correction, but it isn’t all that bad. There’s a near-record amount of construction, and it’s much higher than it was pre-2020. Though a multi-billion dollar drop is sure to leave an impact felt by someone in the market.

5 Comments

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  • Liam 1 year ago

    It’s logical to see it pull back with the threats of looming rate hikes but man if it isn’t funny to watch people try and justify the current level of investment? Canada is building so many homes it literally doesn’t have the labor to build anymore new homes.

    • George 1 year ago

      Get out out of here with your “logic.”

      Canada is a place where the majority of people think home prices will rise 20% per year forever while wages rise 2%, so you’ll need to buy as many houses as possible or you’ll never be able to own.

      • Alex 1 year ago

        B-but home prices always go up! A housing crash could never happen in Canada because we have unlimited immigrants with unlimited money coming in and everyone has tons of money to spend! Supply is so limited even though properties are being developed hand over fist! We also only lend to the most suitable lenders possible, no subprime lending here! Real estate agents and mortgage brokers surely wouldn’t game the system to make a buck! Income doesn’t matter anymore as long as the monthly payment isn’t 100% of your paycheque, and even then you can just borrow more! THIS IS NATURAL!

  • David Leham 1 year ago

    Sell property when rates are low and buy land when they’re high. Basics of real estate development.

    The question always is figuring out if rates are low or high for the period. In this case we might have one of the very few examples in history where rates rising is a very clear communication to us schmucks.

  • Brian 1 year ago

    Do not follow this logic.

    Is this what I see: stop issuing permit before house price starts dropping? Is this a scheme to keep the price up? Am I wrong?

Comments are closed.