New home construction appears to be starting 2020 with strong momentum as housing starts surged in late 2019.
Urban B.C. starts rose in November to a seasonally adjusted annualized rate (SAAR) of 47,087 units during the month, up from about 33,000 in October. This marked a monthly gain of 38% and a year-over-year increase of 26%.
Higher starts owed entirely to an increase in multi-family starts (up from 25,441 SAAR to 40,533 units), specifically apartments, while detached starts declined. Vancouver, and to a lesser extent Victoria, accounted for nearly all the increase.
Monthly housing starts are notoriously volatile, reflecting the scale of multi-family projects, which can contain hundreds of units. That said, starts through the first 11 months of 2019 rose 15%. Detached starts declined 19% while multi-family product rose 27%.
2019 was a blockbuster year for new home starts.
Overall growth has been dominated by gains in condominium housing, specifically in Metro Vancouver.
A scan of the larger urban markets (populations above 50,000) points to a 39% increase in condominium starts, while rental starts were up nearly 4%. Freehold ownership, largely detached, fell 19%.
The pattern suggests that federal stress tests and provincial tax measures, which clearly impeded sales in the resale market, also affected the new home market. Detached homes are largely built to demand or as builder-owned speculative properties, which declined sharply. Growth in condominium starts reflects long development periods and construction of units pre-sold prior to the more recent slowdown. Higher rental starts are owing to a tight rental market, social housing investments and incentives to build.
While the trend in housing starts is elevated, a pullback of about 20% is forecast for 2020. Nevertheless, recent interest rate cuts, rental demand and the federal First-Time Home Buyer Incentive program will support activity.
Non-residential permit activity remains robust but experienced a setback in October. Permits halved to $355 million following a prior-month surge but year-to-date remained 29% higher, reflecting strength in office construction and spending on hospital and other public structures. Commercial permits rose 41% year-to-date; permits for government structures were up 10%. Vancouver-area permits rose 27%.
High-profile projects such as the Canada Post building office redevelopment, which will house Amazon, and mixed-use retail projects, including the Brentwood Town Centre and Oakridge redevelopments, likely contributed to the gain. •
Bryan Yu is deputy chief economist at Central 1 Credit Union.