Land constraints impacting pre-construction detached home sales

The Canada Mortgage and Housing Corporation released its national housing starts figures for August 2018, reporting a drop in the monthly trend.

Canadian housing starts trended at 214,598 units in August 2018, down slightly compared to the 219,656 in July. The trend is a six month moving average of seasonally adjusted annual rates (SAAR).    

“The national trend in housing starts continued to decline in August from the historical peak that was recorded in March 2018,” says Bob Dugan, CMHC’s chief economist. “This moderation brings total starts closer to historical averages, largely reflecting recent declines in the trend of multi-unit starts from historically elevated levels earlier in the year.”

The standalone monthly SAAR of housing starts was 200,986 units, down from 205,751 in July. The SAAR of urban starts dropped 2.5% to 184,925 units, with multi-unit starts falling 2.4% to 132,700 and detached starts decreasing 2.6% to 52,225. Rural starts are estimated at 16,061 units.

Toronto housing starts trended lower with fewer multi-unit and single detached starts. Over the years, rising prices and land constraints have resulted in fewer detached home sales, so it’s not surprising to see construction slowing. While multi-unit starts eased in August, condo construction in Toronto is still strong year-to-date thanks to a high number of sales in 2017.

In Oshawa, housing starts trended up, mostly due to an increase in multi-unit dwellings, specifically row units. For the month, Oshawa recorded the most row unit starts in the last 30 years. CMHC believes the increase in row units is a result of Greater Toronto Area buyers seeking more affordable housing options.

CMHC reported an increase in housing starts in Windsor, as well. New home construction was off to a slow start at the beginning of this year, but the trend has increased for three months in a row. While construction is picking up speed, specifically of multi-unit projects, housing starts year-to-date in Windsor are still 27% lower than last year.

On the flip side, Kingston was showing some strong housing starts figures in the first half of the year, but there was a slight decrease in August. The demand remains strong in Kingston, again due to relative affordability compared to the GTA.

We’re not surprised by these numbers. A year ago, the housing market was still reeling from the introduction of Ontario’s Fair Housing Plan. This results in fewer homes being built. This year, summer was also slow, but there are signs people are coming off the sidelines for the fall market. This time next year, housing starts may be trending higher.