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Building Permits Down, Again

In today’s Konfidis Insights we profile Statistics Canada’s recent October 20202 Building Permits release. This data outlines the number and value of building permits issued by Canadian municipalities in the residential and non-residential building construction sectors. Data is presented at national and provincial levels as well as for census metropolitan areas, large urban centres, and economic regions.

As a leading economic indicator, Building Permits data reflect current willingness for developments to take risk and estimates the future performance of the construction industry. It is designed to gauge the strength of the housing market and the state of the economy in general. However, building permits do not necessarily indicate that construction will start immediately. Most projects receive permission ahead of their planned beginning. New projects which enter the actual construction process are reported in the Housing Starts data (see a recent Konfidis Insights A Deep Dive into (the lack of) Housing Supply for a profile on Housing Starts data).

In October 2022, the value of residential permits declined 6.4% to $6.5 billion nationally on a month-over-month basis (seasonally adjusted). This represents the second consecutive monthly decrease with a cumulative decline of 21.9% since August. This decline was experienced in both single-family and multi-family dwellings. The value of building permits in the multi-family component decreased 6.9%, with Ontario posting its second consecutive decline after reaching its peak in August. The single-family homes component declined 5.8% in October as eight provinces posted a drop in construction intentions.

Source: Statistics Canada – Building permits, by type of structure and type of work, October 2022 (seasonally adjusted)

Looking further into the data, while the dollar value for single-family and multi-family dwelling permits are both down this year, the inversion of the allocation or proportion between these property types since 2011 is clear (see chart below).

In contrast to this shift from single-family and multi-family dwelling permit value, demographic trends and changes in social preferences (including the prevalence of work from home) translate into a dominant millennial cohort seeking larger format housing with, for example, extra bedrooms for family planning and at-home offices. This trend further bolsters single-family rental demand in Ontario’s secondary cities outside of core Toronto, for example. This subject is further detailed in Konfidis’ “Why SFR? Take another look” primer article.

in total permit data, the number of permits for new residential dwelling units (a subset of all residential permits which include other permit types such as renovations and conversions) decreased 4.6%, mainly due to single-family dwellings (-9.3%) which fell for the fifth consecutive month, as weak demand for pre-sales set in, coupled with elevated construction costs.

Konfidis Insights Conclusion

These leading indicators of a future reduction of new housing starts (and ultimately, completions) are in stark contrast to the accelerating demand for housing, especially when considering the market for single-family homes in Ontario’s secondary markets. Konfidis previously profiled trends in the demand for housing in recent articles: Can our Country Keep Up?, Ontario’s Secondary Markets Population Boom Boon, and Cities’ cores are hollowing out, but small towns tell a different story.

With this backdrop, Konfidis continues to see a very compelling landscape for single-family rental ownership in Ontario’s secondary markets as the long-term supply and demand fundamentals that support strong home price appreciation and inflation protection.

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