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Canada Housing Starts Are Down — But What Does That Actually Mean?

Canada Housing Starts Are Down — But What Does That Actually Mean?

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Canada Housing Starts Are Down — But What Does That Actually Mean? Housing starts are down. Sounds important. But does that mean Canada is building fewer homes? Does it mean housing prices are about to rise? Does it mean fewer rental properties are coming? Not necessarily. On today's Canadian Real Estate Investing Morning Show, Wayne and Gabby dig underneath the housing-start headlines and explain why the number most people quote does not tell investors nearly enough on its own. The problem is simple: When Canada reports "housing starts," that number combines very different types of housing. A detached family home is not the same thing as a townhouse. A townhouse is not the same thing as a 200-unit apartment building. And a condominium tower is definitely not the same thing as a purpose-built rental building. Yet much of that gets bundled together. What Is a Housing Start? A housing start is not a permit. It means construction has actually begun. In practical terms, that generally means work has reached the point where the building's foundation or equivalent construction stage has begun. That distinction matters. A building permit represents an intention to build. A housing start means construction has actually moved forward. But even knowing that still doesn't answer the most important question: What kind of housing is being built? The Headline Number Can Be Misleading Wayne uses recent CMHC data to demonstrate the problem. The national housing-start number includes: Single-detached housesSemi-detached homesDuplexesTownhousesCondominiumsApartment buildingsOther multi-unit housing The broad "all other" category can therefore represent completely different markets. Some units may eventually be purchased by homeowners. Others may become rental properties. Some could be high-rise condominiums. Others could be row houses or large apartment buildings. Without knowing the mix, investors should be very careful about making conclusions from the headline number. A Rental Unit Is Not the Same as a Home for Sale This is where Wayne believes the housing conversation becomes especially important. Canada has spent several years encouraging density and rental construction. Programs such as the Housing Accelerator Fund and favourable financing programs have helped make larger multi-unit developments attractive to investors and developers. The result has been a major increase in purpose-built rental development in many cities. But building more rental units does not necessarily solve the same problem as building more homes people can actually purchase. Those are two different markets. Are We Building the Wrong Type of Housing? Wayne raises a question that he believes deserves much more attention. What happens when a perfectly usable single-family house is demolished and replaced with eight or twelve small rental units? You created more rental units. But you also removed one house from the ownership market. If this happens repeatedly across a city, it is possible to simultaneously create: Too much rental supply while creating: Too little traditional ownership housing. Wayne believes this may already be happening in some Canadian markets. He is clear that the available national data does not provide enough detail to prove that conclusion definitively. But based on the information available, it is something investors should be watching closely. Why Local Data Matters More This is why Wayne does not rely heavily on national housing-start headlines when making investment decisions. Canada is not one real estate market. Edmonton is different from Toronto. Calgary is different from Vancouver. A neighbourhood can behave differently from another neighbourhood in the same city. And a single-family rental can behave very differently from a one-bedroom apartment. Investors need to go deeper. Look at what is actually being permitted and built in the municipality where you invest. Are developers building: Apartments?Condos?Townhouses?Duplexes?Single-family houses?Basement suites?Garage suites? That information is far more useful than knowing the national housing-start number. Permits Aren't Starts Either Gabby also points out another distinction. Building permits can help investors understand what developers are planning. But a permit does not guarantee construction. Projects can be: Delayed. Redesigned. Refinanced. Cancelled. A housing start tells you that construction has progressed further. Even then, the investor still needs to understand exactly what is being built. Why Multi-Unit Starts May Be Slowing Wayne believes much of the slowdown is likely coming from multi-unit development rather than detached housing. That would make sense based on what he is hearing within the investor and development community. Developers are dealing with: Softer rentsHigher vacanciesHigher construction costsFinancing challengesLarge amounts of competing supplyProjects that no longer produce the expected returns Wayne is also seeing and hearing ...
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