The pace of housing starts in Canada fell 11 per cent in March as high interest rates continued to make conditions difficult for developers, according to the latest data from the Canada Mortgage and Housing Corporation.

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The CMHC on April 19 said the seasonally adjusted annual rate of starts declined to 213,865 units in March from 240,927 units in February. The March numbers were well below the 237,000 consensus estimates and come as the country is already facing “historically” low inventory levels, the agency said.

CMHC chief economist Bob Dugan said the pace of housing starts and the trend appear to be returning to pre-pandemic levels.

“With interest rates remaining high, it continues to be challenging for developers and homebuilders to get projects started,” he said in a press release.

While a slight decrease in home prices in most markets following interest rate hikes in 2022 led some developers to be more cautious with starting new condominium projects, low vacancy rates and rising rents sparked interest in purpose-built rentals in all large cities except Toronto, the March report said.

However, the CMHC said the full impact of the increase in interest rates is not yet reflected in the latest reports.

“Some projects may become unviable at current financing rates, or construction financing will become harder to obtain,” said Eric Bond, a housing market analyst at CMHC.

The six-month average pace of housing starts was down six per cent in March to 240,669 units from 254,658 units in February for all areas in Canada, the lowest level since late 2020.

CIBC economist Andrew Grantham said the deceleration in starts across the country suggests “little reason to expect a big bounce back next month.”

“Just as population growth is accelerating and demand for housing is rising, homebuilding appears to be slowing under the weight of higher interest rates,” Grantham wrote in a note.

Even after home sales stabilize the weakening of homebuilding will ensure that residential investment remains a drag on Canada’s gross domestic product, he said.

Regionally, declines were broad-based, as urban starts were lower in eight of 10 provinces, TD economist Rishi Sondhi said.

Vancouver recorded a 98 per cent increase in the rate of total housing starts in March due to more than twice as many multi-unit starts compared to February.

Toronto starts declined 26 per cent while Montreal starts were down 12 per cent.

The drop in March was concentrated in the single-family sector, with urban starts down 16 per cent month-over-month, while multi-family starts increased by 11 per cent to over 151,000 units.

The March slowdown comes as the country is already grappling with historically low levels of new housing inventory.

“While housing starts remained strong in 2022, new supply was not enough to keep up with demand,” the agency said in a separate bi-annual report on housing supply, also released April 19.

Growth in residential construction was mixed across Canada’s six largest centres in 2022, the CMHC said. Housing starts increased in Toronto, Calgary, Edmonton and Ottawa, while Montréal starts decreased. Starts in Vancouver remained unchanged.

In the case of Toronto and Montreal, inventories of new homes that are ready to buy haven’t been this low since the 1990s, said Bond. He said inventory was especially low for semi-detached and row units, which are usually the more affordable housing options in those cities.

“Low inventories mean that households in our major cities may find it harder to access housing that meets their needs,” Bond said.

The agency said most construction in 2022 was in low-amenity neighbourhoods, except for apartment construction, which saw a major surge in Canada’s six. largest centres. Apartments made up over 70 per cent of total starts in Toronto, Vancouver and Montréal.

Bank of Montreal senior economist Robert Kavcic said volatile weather likely affected activity in recent months and a bigger look at Canadian residential construction shows that activity is slowing meaningfully from very elevated levels.

“Despite that, we continue to see a floor for residential construction not too far from recent more subdued levels given relentless population growth and millennial household formation,” he wrote.

If construction continues to slow, Kavcic said the market can expect tight supply relative to demographic growth and a housing mix with lots of condos but few singles, which would not matching demographic needs.

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