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Housing starts slow in Canada amid record shortage of homes for sale

The December pullback could add to concerns about soaring home prices

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The pace of new home construction slowed in December after soaring in November, as the country deals with a frothy real-estate market that pushed housing prices to record highs last year.

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Housing starts clocked in at 236,106 on an annualized basis, a 22 per cent drop from November, the Canada Mortgage and Housing Corporation reported Tuesday. The agency also revised November’s data up from 301,279 to 303,813 units annualized.

The data comes on the heels of a report published on Jan. 17 that showed the country had the lowest supply of existing homes for sale on record. About 86,000 homes were left for sale at the end of December, according to the Canadian Real Estate Association (CREA).

“Some easing in December’s starts data was expected, given the outsized November surge. On a trend basis, the pace of starts remains robust, stimulated by strong demand, low levels of unsold new inventories, and elevated prices,” Toronto-Dominion Bank economist Rishi Sondhi wrote in a client note.

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December marked the slowest pace of new construction since the same month in 2020, but single-family home and multi-family home construction increased 28 per cent and 19 per cent respectively last year after depressed levels in 2020 due to COVID-19 shutdowns.

Construction of new homes in urban areas decreased by 24 per cent to 212,918. Housing starts for multi-unit dwellings in urban areas fell by 29 per cent to 157,687 units while single detached homes dropped by four per cent to 55,231.

The December pullback could add to concerns over the housing market’s ability to sustain price increases at its current pace. Economists at the Bank of Montreal this week described supply as the tightest they had “ever seen” in a note . Home prices have skyrocketed as the existing supply of homes on the market has shrunk while demand has grown. CREA reported that, nationally, the price of a home was $811,700 in December after adjusting for price volatility, a 26.6 per cent jump from the year before.

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Policy-makers are already gearing up to tackle what some deem a housing crisis. In the last federal budget, Prime Minister Justin Trudeau’s government outlined $2.5 billion and a reallocation of $1.3 billion to speed up and support 35,000 affordable housing units.

The Bank of Canada will begin raising interest rates this year, which should cool demand.

“When the central bank turns its eye to inflation again, I do think that will trigger a flattening in the market,” Phil Soper, chief executive officer at Royal LePage, told Financial Post’s Larysa Harapyn last week. “We’ve got a shortage of housing in this country so there’s constant upward pressure on home prices.”

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Lack of housing supply is acute, especially in Ontario, Alberta and Manitoba, according to a report by Bank of Nova Scotia chief economist Jean-François Perrault. Those three provinces fall below the national average of houses per capita, which is 426 units per 1,000 people. To meet the national average, Ontario would need to build more than 650,000 homes, Alberta 138,000 and Manitoba 23,000.

“While these efforts are all welcome, what will matter most at the end of the day is actual progress in increasing supply in a responsible manner,” Perrault wrote of government measures. “History suggests that we have not been very good as a country in achieving this. Let’s hope current initiatives mark a solid break from past performance.”

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