Housing starts in Canada averaged 201,000 per year during the past decade – mirroring the 10-year period from 2000-’09 and tied for the second-best on record after the 1970s – according to an Altus Group report analyzing six decades of data.
Starts ranged from a low of just under 188,000 in 2013 to a high of almost 220,000 in 2017. The decade was the least volatile in the past 60 years according to Patricia Arsenault, executive vice-president of research consulting services for Altus Group Data Solutions. That, she said, is attributable to the 2010s having just one short economic downturn midway through the decade.
“In the previous three decades we had more significant recessions or economic downturns — in the early ’80s, the early ’90s and the latter 2000s. Because you get more volatility associated with an economy downturning, I think that had something to do with it.
“The other factor would be low and relatively stable mortgage rates during the 2010s, which got people more comfortable — maybe too comfortable — in expectations for mortgage rates. They were more willing to get involved at a regular pace as opposed to reacting to economic ups and downs.”
British Columbia, Manitoba and Saskatchewan were the only provinces where housing starts in the 2010s were above the longer-term average and higher than during the 2000s. B.C. was the only province to experience its strongest decade for housing starts.
Housing starts composition evolves
The types of dwellings being constructed underwent a significant shift when comparing the first two decades of this century. About three-quarters of housing starts in the 2000s were single-family detached, semi-detached and row/townhouses, while that proportion dropped to just over half in the 2010s.
About 92,000 apartment units were started on average each year in the 2010s, higher than even in the 1970s, which had a large burst of activity. The 1970s were dominated by purpose-built rentals, however, while condominiums led the way during the past 10 years.
Tax breaks and other government incentives to build social housing led to the boom in purpose-built apartment construction in the 1970s and ’80s. While there are some programs in place now to spur that asset class, it’s not of the same magnitude.
However, Canada Mortgage and Housing Corporation data shows the ratio of purpose-built rentals to condo apartments has increased every year since 2012. In 2019, purpose-built rentals accounted for 48 per cent of apartment units.
Arsenault said Altus is doing many feasibility studies for investors interested in developing purpose-built rental buildings.
Since planning timelines are long and that increased interest has yet to significantly impact housing start numbers, she expects they’ll continue to account for a growing proportion of apartment units.
“Institutional investors are really interested in the space because they like steady streams of income and also like higher-quality properties. There’s not a lot of those to acquire within the existing housing stock.”
Higher-density housing trend will continue
Arsenault expects the shift to higher-density housing will continue at the expense of single-family dwellings.
“As urban centres are growing, land prices are becoming higher, so you’ll see an underlying shift to higher-density. Over the next decade, what we’re going to be seeing is that it’s not going to be as much in the central areas of the larger markets because a lot of that is already maxed out.
“There isn’t a lot of single-family going on in the City of Vancouver or the City of Toronto, but it’s spreading out more into the suburban areas.
“People had been going there to get single-family housing, but we’re going to start seeing within those areas that there will be some shift away from single-family to higher-density.”
This will include high-rise, mid-rise and townhouse developments, Arsenault said.
The report showed job growth was a better predictor of housing starts than population growth.
“Younger people and older people are not necessarily looking to get into new housing units,” said Arsenault. “Employment growth isn’t focused as much on those groups, but on those in the middle. That drives the housing side of things.
“It’s also the income aspect of it: if you’ve got employment growth, you’re likely having income growth.”
House price increases lower than in previous decades
Average house prices in Canada increased by an average of 6.3 per cent per year during the past six decades. The 2010s had the second-slowest average price growth, at 4.6 per cent annually.
The report didn’t compare price increases in different cities.
During the 2000s, there was a major average price increase after relatively stagnant prices during the 1990s.
The key factors in the affordability of home ownership are house prices, mortgage interest rates and income.
While five-year mortgage rates were lower on average in the last decade than in any of the previous five, higher home prices — both in absolute terms and in relation to average family income — resulted in annual mortgage payments in relation to income going up slightly over the decade.
New homes are generally pre-sold before construction starts.
Since Altus tracks new home sales across Canada, Arsenault expects housing starts to be down this year based on its data.
She also forecasts housing starts for the first half of the 2020s will be lower, by an average of 2.5 to five per cent per year, than during the 2010s.