Canada: Housing Starts Skyrocketed Beyond Expectations in July

Multi-unit construction forged ahead in July, while the single-unit residential construction market continued to hold steady (graph 1). The 12-month moving average of total housing starts has been little changed over the past two years, despite the somewhat volatile nature of multi-unit housing construction on a month-to-month basis. Single-unit residential construction held steady in July from the previous month. Overall, it has experienced a small year-to-date decline of 1.5% as compared to the same period last year.

Today’s release is predominantly an Ontario story, where housing starts exploded from about 68k in June to over 106k in July—a 57% increase. Despite this strong showing, Ontario’s housing starts are still down about 12% so far in 2024 over the same period a year ago. Regionally, there were also more shovels breaking ground in Alberta and BC, offset by weakening in Quebec. Locally, starts were up in Vancouver and Toronto in July, cities that desperately need more housing. While Montreal didn’t do as well in July as the month prior, it has been having an exceptional year, with construction up 47% year-to-date as compared to the same period a year ago.

As we detailed in our recent report External link., high interest rates have weighed on economic growth, job creation and affordability across the country, limiting homebuying activity in both preconstruction and resale residential homes. However, many of the projects breaking ground last month were financed prior to the recent monetary tightening cycle, which has helped to keep housing starts aloft. This has helped to boost our Q3 real GDP growth tracking, although it remains well below the 2.8% annualized pace projected by the Bank of Canada in its July MPR.

Looking forward, the gradual unwinding of interest rate hikes that started in June should provide a tailwind to housing starts. Recent government programs, particularly supporting purpose-built rental apartments, should also keep housing starts higher. However, this optimism is tempered by challenges such as construction labour shortages, inflation in building materials costs and weaker homebuilder sentiment. These factors, combined with falling presale activity in the condo market, are expected to slow the momentum seen in early 2024, despite a favourable shift in monetary policy.