Photo: James Bombales
Canadian homebuilding continued to beat expectations through the early fall, but when you take a good, hard look at the economic fundamentals driving the pace of activity, it shouldn’t come as a surprise that builders are still having trouble satisfying buyer demand in some parts of the country.
Housing starts — defined as when a builder begins construction on a single unit of housing — took a small dip in September but remained at a “relentless level” according to a BMO Economics research note published today.
BMO economist Robert Kavcic says the data, which is released each month by the Canada Mortgage and Housing Corporation (CMHC), reflects “strong demographic demand, both from international inflows and new households created within Canada.”
That may sound a bit jargony, but what Kavcic is saying is Canadian homebuilders aren’t overdoing it. There’s genuine market demand for the homes being constructed and this historically elevated level of building is unlikely to lead to a glut in empty, unsold homes down the line.
TD economist Rishi Sondhi, who also published a note on the housing starts data today, agrees that market fundamentals are justifying the high pace of homebuilding. He goes on to rhyme off a few more noteworthy drivers of housing demand, including low mortgage rates, healthy job markets and programs to promote more rental unit construction. On the topic of population growth, he adds that Canada’s population growth rate rose at the fastest pace in almost 30 years in the third quarter of this year.
All that is to say, there are many powerful forces at play that continue to keep homebuilders moving at this relentless pace.
So homebuilding activity is strong from a historical perspective, but is it enough?
Not everyone thinks so. At least not when it comes to the often prohibitively expensive Toronto market.
Following the release of their own market data last week, Toronto Real Estate Board President Michael Collins and Chief Market Analyst Jason Mercer noted that the city’s homebuyers would undoubtedly benefit from more housing supply, with particular attention paid to the underserved low-rise segment of the market.
Further, RBC economist Robert Hogue flagged rental unit construction as a segment of the market that continues to come up short in cities like Toronto, Vancouver and Montreal. While there’s a demand gap in all of these markets, Toronto is the only city that is not going to come close to bridging the gap in the next five years unless the pace of rental building increases substantially.
There are few reasons to believe your fortunes as a financially strained Toronto renter will change over the next few years, but zooming out to the national level, it also isn’t totally set in stone that the current “relentless” rate of Canadian homebuilding will stay so high flying for long.
While it’s true that market fundamentals appear to be conspiring to keep housing humming along in Canada, the global economic backdrop is “deteriorating,” writes TD’s Sondhi.
Uncertainty over Brexit, political turbulence in the US, a Trump-led trade war with China and an ever-present threat of a global recession are all reasons to be wary of anyone who says the good times are sure to keep on rolling for the Canadian housing market.
