Canada’s real estate slowdown is still trickling into other data points, like future building. Statistics Canada (Stat Can) data shows the value of building permits fell in December. Weak home sales and higher rates are dragging builder intentions from record levels. However, the intentions remain historically high, especially compared to pre-pandemic volumes.
Canadian Building Permits Fell 7.3% In December
Canadian builder intentions are slowing right across the country, following a small bump. Seasonally adjusted building permits had a value of $10.3 billion in December, down 7.3% from the previous month. The agency estimates a similar drop (-7.4%) when measured in real (inflation-adjusted) terms.
It’s a sharp pullback, but overall intentions remain high. The value in December is still 15.5% higher than it was in 2019, even with interest rates more than double what they were back then. Most of this can be attributed to the slowdown in housing.
Canadian Builder Intentions Cool, But Remain Historically High
The seasonally adjusted value of Canadian residential and non-residential building permits.
Source: Statistics Canada; Better Dwelling.
Housing Slowdown Drove The Trend Lower As Apartments Slow
Residential building permits made a sharp decline, especially more “affordable” apartments. Housing permits fell 8.4% to $6.5 billion in December. Intentions for multi-family apartments (-11.6%) fell at a rate nearly 3x that of the single-family (-3.9%) segment. Most of the new construction inventory was being scooped by investors that typically depend on leverage. Higher interest rates have grounded expectations for returns and possibly even priced many out.
That isn’t to say that we’re developing a backlog. Significant building is occurring right now, and intentions are still 25% higher than pre-pandemic. Things are just cooling down since money isn’t being lent for practically free.
Non-Residential Permits Are Falling After A November Boom
Non-residential intentions are slowing, though that was expected after November’s boom. Commercial building permits fell 5.3% to $3.8 billion in December. Driving the move lower was the 23.4% decline in the Industrial sector, after printing a record just a month before. Despite being seasonally adjusted, commercial permit values still tend to be volatile with large project rollouts.
Building intentions are cooling for now, but remain lofty in historical terms. Developers are being hit with a triple whammy of inflation, higher rates, and exhausted demand. This wasn’t just predictable, but one of the intentional outcomes of rising rates. Still, even with interest rates at more than double 2019-levels, intentions remain much more lofty than they were back then.
