Canada’s real estate developers are pushing forward despite less-than-ideal conditions. CMHC data reveals June housing starts made the biggest jump in a decade. Even with the jump, the general trend has been fewer housing starts, despite the booming population growth. At least one of Canada’s largest banks has stated the country’s goal to double output of new homes is unrealistic.
Canadian Housing Starts Saw The Biggest Jump In A Decade
Canadian housing starts are ripping higher once again, despite rising interest rates. Monthly seasonally adjusted annual rate (SAAR) of housing starts climbed 41% to 281k units in June. It was the largest monthly increase in the past 10 years, according to the agency.
Source: BMO.
“Keep in mind that this follows a sluggish first five months of the year, when starts fell notably to average 226k,” explained Robert Kavcic, an economist at BMO.
Adding, “Even that is still historically a strong run rate for building activity, but less so when set against population growth of more than 1 million people.”
New Home Construction Slowed And Government Targets Are Unrealistic
Canada has generally seen new housing starts slow from the overstimulated-market peak. According to Kavcic’s analysis, starts averaged 235k units in the first half of 2023. Starts remain elevated compared to pre-2020 volumes, but they’re also down from 263k in 2022, and 274k in 2021.
“Yes, this slowing trend flies in the face of government targets to double the rate of construction, but let’s just say we’ve never deemed those targets to be realistic, for a number of reasons (think capacity constraints and market conditions),” explained Kavcic.
BMO previously balked at the government’s targets to double the amount of building. A lack of skilled labor is certainly a challenge, and the one policymakers are focused on—but far from the only issue. By scaling demand for homebuilding, input costs rise, making affordability even more challenging.
Canada’s new construction market saw a massive investor-driven boom with low rates. The demand from investors was so high, they even began to replace first-time buyers for market share. As interest rates normalize and home price growth moderates, qualified demand is shrinking despite the population boom.
