Ottawa housing starts rise 12% in May

House construction

Ottawa’s residential construction industry picked up more steam in May as homebuilders continued to accelerate the pace of new housing starts, the Canada Mortgage and Housing Corp. reported Thursday.

The federal agency said developers started construction on 616 new homes last month, up 12 per cent from May 2016.

During the first five months of this year, homebuilders have started work on 2,433 new units. That’s up 48 per cent from 1,644 homes at this time last year.

“The outlook is positive – more positive than it has been in recent years,” John Herbert, executive director of the Greater Ottawa Home Builders’ Association, told OBJ in a recent interview.

He said the industry experienced significant declines in recent years, starting around 2014 when the former Conservative government stepped up its budget cuts to reduce the federal deficit. That had a negative impact on consumer confidence and caused many Ottawa residents to delay major purchases such as homes.

With the Trudeau government increasing spending, local homebuilders are in “catch-up mode,” Mr. Herbert said.

“If all goes well, by the end of 2018, we should be back up to our 10-year average,” he said.

Nationally, the annual pace of Canadian housing construction slipped more than expected last month as builders in Ontario broke ground on fewer new homes following changes in the province's real estate rules.

CMHC said Thursday the seasonally adjusted annual rate of housing starts fell to 194,663 units in May, down from 213,498 in April.

Economists had expected the rate to come in at 205,000, according to Thomson Reuters.

Benjamin Reitzes, the Canadian rates and macro strategist at BMO Capital Markets, noted the pace of housing starts in Toronto fell 44.4 per cent compared with April.

“Don't be surprised if activity remains subdued for at least a few more months as the housing market digests the changes,” Mr. Reitzes wrote in a report.

In April, the Ontario government announced 16 measures as part of an effort to cool the Toronto real estate market, including a tax on foreign buyers and expanded rent controls.

In May, the first full month following the changes, Toronto home sales fell 20.3 per cent compared with a year ago as the number of new listings climbed.

“The surge in existing home supply we've seen over the past two months could also help restrain home building activity as buyers have more choices,” Mr. Reitzes wrote.

The overall drop in Canadian new home starts in May came as the pace of urban starts fell 10.2 per cent to 178,518. Multiple-unit urban starts dropped 10.8 per cent to 118,694, while single-detached urban starts fell 8.9 per cent to 59,824.

The seasonally adjusted annual rate of rural starts was estimated at 16,145 units.

The six-month moving average of the monthly seasonally adjusted annual rates rose to 214,621 in May compared with 213,435 in April.

TD Bank senior economist Michael Dolega said the apparent cooling-off in Ontario residential construction is likely to be somewhat offset by a stronger pace of homebuilding in recovering markets across Canada.

“Taken together, we expect housing starts in Canada to continue along their current trajectory and settle closer to 200,000 later this year and slightly below that level into 2018,” Mr. Dolega wrote.

“Toronto's market and its response to the new rules remains a key risk to this outlook, particularly in a rising interest rate environment which could also pressure prices and homebuilding activity in other parts of the country.”

In a separate report, Statistics Canada said prices for new homes rose 0.8 per cent in April, led by higher prices in Toronto and Vancouver.

The new housing price index for Toronto climbed 2.1 per cent for the month, while new house prices in Vancouver gained 1.2 per cent. Compared with a year ago, the new housing price index was up 3.9 per cent, led by Toronto.

With reporting by the Canadian Press