Canada: Housing Starts Decelerated Slightly in March

Despite pulling back in March, multi-unit construction has seen a year-to-date increase of 15.5% as compared to the same months last year. Given the recent federal announcement External link. of a $15B top-up in the Apartment Construction Loan Program, we should continue to see strength in multi-unit residential construction for the foreseeable future, though tempered by the lagged effect of high interest rates and ongoing shortages in labour. The slight decline in multi-unit housing starts in March likely just reflects the volatile nature from one month to the next of these large projects (graph 1).

Single-unit residential construction, on the other hand, has experienced a year-to-date decline of 6.6% as compared to the same months last year.

The regional variations across provinces underscore the diverse dynamics at play within Canada’s housing market. The pace of construction continued to advance in BC, while Quebec remained steady. Ontario and Alberta starts pulled back in March as compared to the prior month.

The Government of Canada announced several new measures External link. last week with the hopes of improving housing affordability. First-time homebuyers of newly-built homes will be permitted to have 30-year amortizations on insured mortgages, effectively reducing their monthly payments. Additional affordability measures include increasing the amounts first-time homebuyers can withdraw from RRSPs under the Homebuyers’ Plan as well as extending the grace period to five years before they need to start repayments. Other measures recently announced External link. meant to accelerate home construction include $6B for a Canada Housing Infrastructure Fund to accelerate construction of water, wastewater, stormwater and solid waste infrastructure to support new home construction.

Looking forward, the gradual unwinding of interest rate hikes expected to begin this June will bring cautious optimism to housing starts. However, this optimism is tempered by challenges such as construction labour shortages, inflation in building materials costs and weaker homebuilder sentiment. These factors could potentially slow the momentum seen in early 2024, despite a favourable shift in monetary policy.