Demand for multi-unit builds in Ottawa-Gatineau fuels July housing starts surge

starts

Homebuilders in Ottawa-Gatineau had a busy July, launching nearly 900 new starts as a tight supply of resale homes and rental accommodations continued to drive up demand for multi-unit housing types such as townhomes, condos and apartments, the Canada Mortgage and Housing Corp. said.

Developers began 899 new builds last month, the agency said, up five per cent from a year earlier. Multi-unit projects accounted for a big chunk of that growth as builders started work on 323 new townhome, condo and apartment units on the Ottawa side of the river ​– a 21 per cent increase from July 2018. By contrast, single-detached starts in Ottawa dropped eight per cent to 276 compared with a year earlier.

Gatineau also continued to see strong activity in the multi-unit housing segment, with builders beginning construction on 256 new units in July, up four per cent from 2018. Single-detached starts also rose last month, jumping 16 per cent year-over-year to 44.

Total housing starts in Ottawa-Gatineau over the first seven months of 2019 are up 5.3 per cent from the same period a year ago, CMHC noted, with the strongest growth coming in condos and row starts.

“Low resale and rental market supply coupled with higher ownership costs for single-detached homes are encouraging construction of less expensive dwelling types,” the agency said.

Meanwhile, Ottawa-Gatineau’s seasonally adjusted rate of new housing starts dipped slightly in July, falling three per cent to 10,112. But several other major urban areas, including Toronto, Montreal, Vancouver and Calgary, saw greater slowdowns in the pace of housing starts.

Nationally, CMHC's seasonally adjusted annualized rate of housing starts fell by 9.6 per cent in July to 222,013, compared with 245,455 in June.

However, the decline was smaller than expected and CMHC's six-month trend rose to 208,970 units from 205,765 units in June.

Economists had estimated a seasonally adjusted annualized rate of 203,500, according to financial markets data firm Refinitiv.

CMHC said housing starts in urban areas fell by 10.4 per cent in July to 209,122 – led by a 12 per cent decline in multiple-unit dwellings to 162,722 units. Single-detached urban starts fell 4.6 per cent to 46,400 units.

Housing starts in rural areas rose 7.9 per cent to a seasonally adjusted annual rate of 12,891 units.

The “national trend” in housing starts increased in July, despite the reduced seasonally adjusted number, said Bob Dugan, CMHC's chief economist, in a statement.

“High levels of activity in apartment and row starts in urban centres in recent months continued to be reflected in the high level of the total starts trend in July,” he said.

While seasonally adjusted urban starts in Ontario increased 4.2 per cent, they fell elsewhere, led by a 43 per cent drop in Atlantic Canada. They fell 15 per cent in B.C., 9.6 per cent in Alberta and 8.2 per cent in Quebec.

July home starts fell five per cent in Toronto, 23 per cent in Vancouver and 37 per cent in Montreal.

After a 25-per-cent surge in June that was the highest level since 1990, housing starts returned to more sustainable levels in July, said Krishen Rangasamy, senior economist with the National Bank of Canada.

That's in line with the bank's view of Canadian economic growth after a blockbuster second quarter, he wrote in a report.

“That's not to say, however, residential construction is doomed for the rest of 2019,” Rangasamy added. “Note that in the last 12 months, there's been an unusually large gap developing between permit applications and housing starts, perhaps reflecting builder caution amid uncertainties with regards to the economic outlook.”

Despite July's drop, he continues to forecast that housing starts will average roughly 200,000 this year.

Sri Thanabalasingam, an economist for TD Economics, said declines across most provinces were more muted than anticipated last month, standing above their year-to-date averages.

“These data suggest that while residential investment is slowing, it will remain healthy in Q3,” he wrote.

Homebuilding also appears more robust, with solid fundamentals such as increasing population, low interest rates and rising wages suggesting that residential investment could see sustained healthy gains through the second half of this year, he added.

But Royce Mendes, senior economist at CIBC World Markets, said that after a decent start to the second half of the year, there are still headwinds for the Canadian housing markets.

“As a result, following healthy growth in the second quarter, residential construction could cool back down over the final six months of 2019.”

– With files from the Canadian Press