Canadian developers are pushing up the pace of homebuilding despite the weight of higher interest rates, but not at the speed needed to achieve Ottawa’s steep housing goals, according to some economists.
Canada Mortgage and Housing Corp. said Thursday that the annual pace of housing starts for October ticked up from September.
The national housing agency says the seasonally adjusted annual rate of housing starts in October came in at 274,681, up one per cent from 270,669 in September.
The increase came as the pace of urban housing starts rose two per cent to 257,357 units, with multi-unit urban starts up one per cent at 209,887 and single-detached urban starts up nine per cent at 47,470.
Canada’s housing market has cooled significantly in recent months under the weight of higher interest rates, which limit demand for new builds and drives up the cost of construction.
Rishi Sondhi, senior economist at TD Bank, said in a note to clients on Thursday morning that “past declines in home sales should lead starts lower through 2024.”
BMO senior economist Robert Kavcic also said in a note Thursday that while builders are showing some “resilience” in the face of slowing demand in the housing market, starts for 2023 are expected to come in below levels seen in the past two years.
Record high immigration levels are helping to put a “floor” under construction activity, he said, and government incentives such as removing GST on new purpose-built rentals “seem to be helping at the margins.”
Sondhi, meanwhile, said he expects policy moves from the Liberals “should keep starts at lofty levels.” A stronger pace of building will also help to offset recent declines in sales and elevate Canada’s stumbling economy, he said.
But even moderate growth in housing starts won’t be enough to hit the Liberal government’s goals to rapidly ramp up the pace of homebuilding in the country, Kavcic said.
The Liberals set a goal in the 2022 budget to double the annual pace of homebuilding; CMHC has said Canada will have to build an additional 3.5 million homes by 2030 to restore affordability in the national housing market.
“We continue to believe that those goals are simply not achievable given capacity constraints in the industry, where builders are already doing just about all they can,” Kavcic wrote.
CMHC says the annual pace of housing starts in Montreal fell 43 cent and Toronto saw a 24 per cent decline, while the pace of starts in Vancouver rose 35 per cent, boosted by a 40 per cent increase in multi-unit starts.
The annual pace of rural starts for October was estimated at 17,324.
The six-month moving average of the monthly seasonally adjusted annual rate of housing starts in October was 256,280, up one per cent from 253,957 in September.
— with files from The Canadian Press