Canada housing starts surge as rising prices spur building

Theglobeandmail.com
July 11, 2016
By Theophilos Argitis

A surge in prices for existing homes in Vancouver and Toronto is fueling new construction in Canada’s two most expensive cities.

Housing starts jumped to an annualized pace of 218,333 units in June, the Canada Mortgage & Housing Corp. said Monday, the highest since September and a 17 percent increase from a month earlier.

The data suggest builders are responding to a pick-up in prices in Vancouver and Toronto, while scaling back in markets that are less robust like Montreal, which saw a drop in starts. Toronto and Vancouver accounted for 37 percent of new construction in June.

“Residential construction activity remains a highly regional story in Canada, as it should given how widely economic conditions differ below the surface right now,” Robert Kavcic, senior economist at BMO Capital Markets, said in a note to investors.

Economists had forecast a reading of 189,500 units according to the median of 16 responses to a Bloomberg survey.

There has been increased scrutiny of housing markets in Toronto and Vancouver amid worries price gains there may not be sustainable, with most of the focus by policy makers on whether demand is overinflated. Realtors, however, have been blaming supply constraints for the price gains.

‘Good Sign’

“The supply response has been delayed, but today’s housing starts report is a good sign that it may be coming,” Diana Petramala, an economist at Toronto-Dominion Bank, said in a research note

The Toronto Real Estate Board, which reported a 17 percent rise in June home prices earlier this month, said at the time that lack of supply in the city was “of paramount importance.”

Monday’s numbers should give the industry some relief. Housing starts in Toronto totaled an annualized 45,848 in June, the highest since March. Vancouver recorded a pace of 35,445 units in June, the second highest pace in the past 16 years.

That more than offset declines in the Atlantic provinces and Quebec.

“Overall, June saw housing starts pick up pace in Canada, bolstered by apartment construction in Ontario - especially new condo construction in Toronto’s downtown core,” Bob Dugan, CMHC’s chief economist, said in a statement. “However, elsewhere in the country, construction activity slowed as apartment construction eased in Quebec.”