Housing starts in Canada miss forecast

Economists expect record population growth to boost activity later this year

A 47 per cent decline in condo, apartment and townhouse construction in Toronto contributed to a drop in Canadian housing starts in the final month of 2019, but economists expect activity to tick up later this year, supported in part by record rates of population growth.

Builders began work on an annualized 197,300 units in December, down 3.4 per cent from a revised 204,300 in the prior month, Canada Mortgage and Housing Corp. said in a statement Thursday. Analysts on average had expected an annual rate of 210,000 for December, according to financial markets data firm Refinitiv.

It’s the third straight month starts have missed forecasts, suggesting the robust pace of construction earlier this year may be slowing. Still, a strong showing in Alberta helped to counter declines in other areas.

Declines were “primarily led by lowertrending multi-family starts in Toronto, Montreal and Ottawa,” Bob Dugan, CMHC’s chief economist, said in the statement. “However, the stable starts at year-end in Vancouver and significant growth in Calgary helped to partially offset the declines in other major centres.”

Dugan told the Star that multi-family starts are volatile and can fluctuate widely from month to month. Multifamily starts fell to 1,407 in December 2019 from 2,654 the month previous. He said he expects to see the category strengthening in Toronto going forward due to several factors, including low vacancy rates, high prices for detached homes and continuing population expansion.

Ontario and Quebec led the declines, falling 12 per cent and 17 per cent, respectively, including double-digit declines in Toronto and Montreal. Alberta starts jumped 48 per cent on the month while British Columbia declined 11 per cent.

Starts in multi-unit dwellings in urban areas fell five per cent from November while urban starts of single-detached homes edged up one per cent.

The six-month moving average of the overall monthly seasonally adjusted rate was 212,160 units in December, down from 219,921 in November.

“Housing starts lost a bit of steam toward the end of last year,” said RBC senior economist Josh Nye in a note.

But Nye said starts should be in the middle of the range for the year ahead as the market rebounds, helped in part by Canada’s fastest population growth rate since the early 1990s and the highest annual growth rate among G7 countries, according to Statistics Canada.

“That would be consistent with a resurgent housing market — which we see extending into this year — and strong demographics.”

CIBC senior economist Andrew Grantham said the slowing starts in the fourth quarter contributed to a deceleration in overall economic growth, but that starts should clock in slightly above the 200,000 mark this year.

“We expect that the combination of lower mortgage rates (compared to the start of last year) and solid population growth will support demand for housing in 2020,” he said in a note.

TD economist Rishi Sondhi said the drop in multi-unit starts was likely from past declines in pre-construction condo sales. Sondhi said the effects of past preconstruction sales declines would continue to restrain homebuilding in key markets this year.