New homes were constructed in Ottawa on Monday, Aug. 14, 2023. THE CANADIAN PRESS/Sean Kilpatrick
The pace of housing construction picked up in February, driven by increased activity in the apartment and condo sector, although the industry continues to grapple with cost pressures. Canada Mortgage and Housing Corp. (CMHC) reported that housing starts rose by 14 percent to 253,468 units on a seasonally adjusted annual rate compared to January. Looking at year-over-year figures, February saw an 11 percent increase in housing starts, primarily fueled by a 16 percent rise in multi-unit starts, while single-detached starts fell by 14 percent.
CMHC's Chief Economist, Bob Dugan, noted that the ongoing shortage of housing in the country has led developers to focus more on multi-unit construction in major urban centers. However, month-to-month fluctuations in housing starts can be significant due to the launch of larger multi-unit projects. Adjusted starts in February surged by 79 percent in Vancouver but declined by 31 percent in Montreal. To provide a more stable view of the housing market, CMHC also reports a six-month moving average of the adjusted rate, which stood at 245,665 units in February, representing a 0.4 percent increase from January.
Despite the uptick in February, the pace of housing starts remains below the levels seen in late 2022, before rising interest rates and recession concerns impacted borrowing costs. CMHC and analysts anticipate slower housing starts this year due to challenging borrowing conditions and labor shortages affecting construction activity.
TD economist Rishi Sondhi expects housing starts in the first quarter to decline compared to the fourth quarter of last year, citing data from the first two months of Q1 showing starts below fourth-quarter levels. This suggests potential downward pressure on residential investment growth in the first quarter. Sondhi predicts further declines in housing starts as the year progresses, reflecting the impact of weakening home sales on construction activity.
CIBC analyst Katherine Judge attributes part of the February increase in housing starts to favorable weather conditions, noting that mild winter weather this year may have boosted construction activity. Expectations for interest rate cuts later in the year are also supporting the resale market, which could offset the slowdown in building activity. Judge anticipates a modest retreat in homebuilding in the first quarter but believes the drag on GDP growth from residential investment will be limited by increased resale activity.
Overall, while February saw a notable increase in housing starts, the industry continues to face challenges such as rising costs and labor shortages. However, policymakers and analysts are closely monitoring market dynamics and anticipate further adjustments in construction activity as economic conditions evolve throughout the year.
