Canadian real estate development got a mild sentiment boost, but it’s not what it seems. Statistics Canada (Stat Can) data shows the value of building permits increased in February, which it called “robust.” When looked at as just a monthly plot, it’s easy to see how that call can be made. Zooming out for a medium term look tells a totally different story though, especially in real terms.
Building Intentions Are “Robust,” Says Canada’s Stats Agency
Canadian building permits showed a mild increase from the January lull. The seasonally adjusted value of permits rose 8.6% in February to $10.7 billion. Monthly growth was observed for both residential permits (+7.9% to $6.6 billion), and non-residential (+9.8% to $4.2 billion). Stat Can notes this demonstrates “robust building intentions,” but does it really?
Canadian Future Building Intentions
The seasonally adjusted aggregate value of Canadian residential and non-residential building permits, in current and constant (2012) dollars.
Source: Statistics Canada; Better Dwelling.
Canadian Real Estate Development Is Much Slower Than Last Year
When looking at annual growth, this past year demonstrates a significant slowdown. February is 15.2% lower than the same month last year. At least it’s elevated compared to the nominal value of permits prior to 2020.
Canada’s Building Intentions Don’t Look So “Robust” After Inflation
Nominal value is the key to understanding the problem that’s currently brewing. Real (inflation-adjusted) data shows this past February was 22% lower than last year. The agency’s own inflation math shows it was the weakest February in at least five years.
Canada’s building intentions might have climbed a bit in February, but “robust” is more hopeful than accurate. Monthly growth isn’t all that impressive when contrasted with the annual contraction. That’s still a major slowdown when it comes to intentions.
Real values show the opposite—indicating more money is being spent but at a lower value. Intentions in real terms for February were the lowest seen in at least a half-decade. If that’s considered “robust,” Zimbabwe’s currency collapse made it the most robust economy in the world. Unfortunately, that’s not how these problems are traditionally viewed.
I’m never clear as to why the value of building permits (in aggregate) are a measure anyone can rely on in terms of adequacy of housing supply. Monetary values, as well have seen, can go up/down based on sentiment, inflation or even the quality of the construction – so how does that reflect upon the adequacy of supply priced within the realm of median affordability?
Myself, I would like to see how many building permits have been issued for certain size categories of single family residential real estate; say the number issued for 600 – 1000 sq ft, 1000 – 1600 sq ft, 1600 – 2100 sq ft, 2100 sq ft +, etc., all sub-divided by postal codes (as well as whether these are stacked or individual structures). Let’s get
a sense if the types and locations of housing being built are appropriate relative to demographic trends, employment availability and median incomes.