New home construction to contract, while non-residential to surge in 2018

by Ephraim Vecina09 Apr 2018

In a report released last week, The Conference Board of Canada predicted that housing starts will decline by 2.9% in 2018, a development that will be spurred by considerable drops of 4.3% in Toronto and 6.5% in Vancouver.

The report also forecast that as homeowners become more cautious under new mortgage rules and rate hikes, real expenditures on new housing will slow down to 3.4% this year, from 5.8% in 2017. This will further decrease by 3.0% in 2019.

“Spending on new housing and renovations will likely slow this year as Canadians become more cautious under new mortgage rules and interest rate increases. This will put downward pressure on new residential construction,” according to Michael Burt, Director of Industrial Economic Trends, The Conference Board of Canada.

Residential segment pre-tax profits are expected to drop to $4.2 billion in 2018, although it will recover some strength in subsequent years.

Read more: Rate of new home construction across Canada trending stable

On the other hand, non-residential construction will experience a modest turnaround in 2018 after 2 years of contractions. Growth in this segment is projected to be at 1.9% this year, amid an increase of 15% in the value of new non-residential building permits in 2017 (reaching $35 billion).

“However, business investment levels are expected to remain below their 2014 peaks, which will lower growth opportunities for non-residential construction going forward,” Burt warned.

“Growth in e-commerce continues to drive demand for more warehouse space. In combination with several new mining projects and planned plant expansions, this will support growth in the industrial segment,” the Board’s report explained.

“Meanwhile, the institutional segment will be supported by federal government infrastructure spending on new community centres and recreation facilities. Additionally, provincial infrastructure spending on schools and hospitals will continue to support the industry.”

Industry pre-tax profits are expected to grow by 8.0% to reach $2.3 billion this year, and then rise at an annual rate of around 6% over the next 4 years.

 

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