Industry Analysis

The Current Projections for Single-Family, Multi-Family, and Non-Residential Construction in Canada

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According to Research and Markets, Canada’s building and construction industry is projected to reach CAD 261 billion by 2024 at a CAGR of 9.0. The volume of multi-family dwellings is projected to reach 5.21 million in 2021, while single-family is expected to reach 7.8 million in 2021. Construction spending for non-residential projects is expected to reach about 111.9 billion U.S. dollars in 2023.

Projections for Single-Family, Multi-Family and Non-Residential Construction

Single-Family Construction

  • Moody’s Analytics has projected that the pricing index for detached single-family houses in Canada would rise by 4.64%, 7.49%, 6.73%, and 5.78% in 2022, 2023, 2024, and 2025.
  • According to Statista, the number of detached single-family houses in Canada is expected to reach 7.8 million, 7.85 million, and 7.89 million in 2021, 2022, and 2023, respectively.

Multi-Family Construction

  • According to Statista, the volume of multi-family dwellings in Canada is projected to reach 5.21 million, 5.3 million, and 5.39 million in 2021, 2022, and 2023, respectively.
  • According to Central 1 Credit Union’s Ontario Regional Economist Edgard Navarrete, multi-residential starts are expected to rise by 10.1% in 2021.
  • According to Moody’s Analytics, the price index for condo apartments across Canada is expected to decline by 6.52% in 2021.
  • The price index for condo apartments is also expected to recover, rising by 3.67%, 6.25%, 5.65%, and 4.82% in 2022, 2023, 2024, and 2025, respectively.
  • The construction of 2,481 purpose-built rental apartments is expected to be complete by 2022 in Ottawa, lessening supply pressures that existed before the COVID-19 pandemic began.

Non-Residential Construction

  • BuildForce Canada has projected a 6% rise in employment in non-residential construction sector over the 2020-2029 forecast period. However, employment is expected to fall by 3,200 workers through to 2022 as major construction projects are completed. These projects include “the Manitoba Hydro’s Keeyask hydroelectric dam, the Enbridge Line 3 pipeline expansion, Winnipeg’s Southwest Rapid Transitway, J.R. Simplot Co.’s potato processing plant, the ARTIS 40-storey development, and several road and highway projects.”
  • The demand for employment in the non-residential construction sector is also expected to increase by 10,300 skilled workers in 2021 as a result of the ongoing construction projects.
  • According to BuildForce, investment in Ontario’s non-residential building sector is expected to decline by 2.9% by the end of 2020 compared to 2019. It is, however, expected to recover, rising by 5.9% in 2021.
  • According to Statista, “construction spending for non-residential building projects is expected to reach about 86.6 billion Canadian dollars in 2023.”
  • “Construction spending for non-building structure projects to reach about 111.9 billion U.S. dollars in 2023,” according to Statista.
  • Construction spending for healthcare, education, commercial, transportation, and manufacturing facility projects are expected to reach about $5.5 billion, $7.8 billion, $16 billion, $9.7 billion, and $16 billion in 2023, respectively.
  • Construction spending for office, amusement and recreation, lodging, public safety, and religious facility projects are also expected to reach about $11.7 billion, $4.7 billion, $3.2 billion, $0.97 billion, and $0.29 billion in 2023, respectively.
  • According to GlobeNewswire, the commercial building construction industry is forecasted to grow at a CAGR of 8.4% during the 2015-2024 forecast period.

Current Statistics that Address the Present State of Single-Family, Multi-Family, and Non-Residential Construction Sectors in Canada

Single-Family Construction

  • According to the Canadian Mortgage and Housing Corporation, there were 17,144 single-detached starts in Q3 2020 compared to 17,521 units in Q3 2019. Units under construction grew to 239,667 from 226,318 units in 2019, and completed units were 42,725.
  • According to Moody’s Analytics, urban single-family starts are growing, but are still down by 12% compared to 2019.
  • In September 2020, the single-family construction sector recorded a significant gain of 168% YoY. Sales of new construction single-family houses also reached the highest level since 2003 in the GTA. The benchmark price for new single-family homes rose by 9.1% to $1,179,249 YoY.
  • Permits issued for single family homes rose 9.9% to $2.5 billion in August, continuing the upward trend observed since May. Eight provinces reported increases in this component, with Ontario accounting for more than half of the national gain, mostly due to permits issued in the census metropolitan areas of Toronto (+12.7%), Oshawa (+94.2%) and Brantford (+257.4%).” However, in October, single-family housing permits declined by 2.2% to CAD 2.7 billion compared to the prior month.
  • According to Statistics Canada, the single-family construction sector recorded a 3.7% rise in investment to $5.5 billion across all provinces except Prince Edward Island in October 2020. Investment in this sector in October was “7.7% higher than February’s pre-pandemic levels.” The rise in investment is attributed to “a shift in behavior among homebuyers, especially amid the pandemic.”

Multi-Family Construction

  • The Canadian Mortgage and Housing Corporation Report shows that multi-family housing starts rose to 45,787 units in Q3 2020, from 41,661 units in Q3 2019. Units under construction grew to 239,667 from 226,318 units in 2019 YoY, and completed units were 42,725.
  • Data from Canada Mortgage and Housing Corp also shows that multi-family dwelling starts in urban areas, excluding Quebec rose by 35.7% from March to April 2020. Apart from Quebec, there were 166,415 units in April compared to 150,224 units in March.
  • In August 2020, the total value of permits issued for multi-family houses rose by 5% at the national level. The growth is as a result of permits issued in Quebec and Ontario. However, seven provinces showed a “decline in the value of permits issued for multi-family dwellings, with British Columbia (-28.7%) falling for a second month to $440 million. Excluding March 2020, this was the lowest value reported for multi-family dwellings in British Columbia since March 2017.” The value of permits issued in October fell by 9% to $3 billion.
  • Statistics Canada report shows that multi-construction investment dropped by 2.1% in October 2020 in seven provinces, with Manitoba and Alberta posting declines of 24.6% and 9.2%, respectively.
  • In British Columbia, the apartment industry is strong, with records of low vacancies. Vancouver is leading with the lowest vacancy rate, being a market that promotes rental living, with an average rent of about $50 per month. The vacancy rate in Quebec is 4.4%, with Montreal having the largest apartment universe countrywide.
  • Alberta has had significant demand for short-term, multi-family dwellings due to the influx of jobs and migration, especially in the oil industry. At least 7,500 new units were added in the past decade. The apartment market in Winnipeg, Manitoba, is also very strong. Average rents have risen, and vacancy rates in the region are still low.
  • The vacancy rate of apartments in Atlantic Canada is at 4.6%. The region is showing progress in the construction of new apartments, with Halifax leading with significant growth. Halifax’s apartment market has increased land prices, “giving developers a strong incentive to build concrete buildings, maximizing height and density.”

Non-Residential Construction

  • Investment in building construction in April 2020 plummeted by 45.9% to $8.4 billion nationwide, with non-residential sector declining by 38.8% to $3.0 billion. “During this time, non-residential construction was largely shut down in Ontario and Quebec, while other provinces and territories allowed work to continue with strict public health measures in place. As a result, five provinces—including Manitoba (+1.6%), Saskatchewan (+1.3%), and British Columbia (+0.9%) posted modest gains for the sector. British Columbia’s increase in April followed five consecutive monthly declines.”
  • However, in June, investment recovered by an increase of 11.6% to $5.5 billion, with strong gains in Ontario and Quebec.
  • Investment continued to drop in July by 3.7% to $5.3 billion, August 1.2% to $5.2 billion, September 8.5% to $4.5 billion, and October by 3.2% to $4.4 billion.
  • According to Statistics Canada’s Q3 2020 GDP report, activities in the non-residential construction sector declined by 0.3% compared to the second quarter.
  • In Q2 2020, the change in the Non-Residential Construction Price Index (NRCPI) for the Toronto Census Metropolitan Area (CMA) was 2.6 %. For 2020, the NRCPI is expected to increase by approximately 2.8%.”

Trends in the Single-Family, Multi-Family and Non-Residential Construction in Canada

Discussed below are future trends in the single-family, multi-family, and non-residential construction segments in Canada. The trends have been discussed in several industry reports, including PWC Canada, the Canadian Real Estate Association, Centurion Asset Management Inc, and Build Force Canada.

Single-Family Construction

1. Short Falls In Terms of Supply Meeting Demand in Ontario

  • For several years, Ontario has been recording a higher demand for single-family units than supply. According to the Canadian Real Estate Association, supply shortage will result in reduced sales in 2021. Besides, the strong demand, “particularly for larger single-family properties, will drive the average price higher as potential buyers compete for the most desirable properties.”

2. Detached Homes will be the Most Preferred Home type by Most Home Buyers

  • As a result of the COVID-19 pandemic, homebuyers across the country are demanding increased space. This has made detached homes the most popular home type in cities such as Moncton, Charlottetown, and Saint John. According to RE/MAX Canada, this trend is expected to continue through 2021.

Multi-Family Construction

1. More Capital on Apartments

  • Investing in apartments has always been considered low risk than other real estate investments because they are a core needs business. Apartments are also the least impacted businesses by the COVID-19 pandemic and are expected to attract more conservative investors. As such, according to Greg Romundt, the founder and president of Centurion Asset Management Inc, multi-family apartment investment will be increasing post-COVID-19.

2. Construction Constraints

  • New housing will continue facing construction constraints, reducing the supply, leading to reduced vacancy rates and better rental growth. Construction delays will also restrict long term supply. Since fewer condos are being built, shadow rental stock will go down in the future.
  • Developers may shift their focus from condos due to their reduced selling ability and start constructing purpose-built rentals. For Centurion and other investors, this shift in focus will provide opportunities such as equity investment, financing, and ownership for the long term.

3. Opportunities from Distressed Sellers

  • Centurion Asset Management Inc projects that long-term buyers will get opportunities from distressed sellers. The distress is expected to surface from two areas. Firstly, the distress will come from leveraged short-term traders who used high leverage (including taking short-term bridge loans) to buy, renovate, and reposition apartments to resell to long-term holders. Some of these traders paid aggressive prices and used aggressive leverage and are likely to become distressed buyers.
  • Secondly, the construction of apartments has spurred during the last few years. A lot of developers employ too much leverage and short-term bridge loans to sustain a land development pipeline. Some of the factors that inhibit progress are time delays, high ratio, cost overruns, and/or expensive leverage. This means that those having strong balance sheets, the willingness and capital to invest will get deals available to them.

4. Change in Consumer Demand

  • In 2021, multi-family residential properties, especially those earning a moderate income, are projected to do well. According to the Emerging Trends in Real Estate report by PWC, consumer demand will change as townhouses, and mid-rise buildings are expected to be more attractive to renters and home buyers, a departure from the larger towers trend has been seen in urban centers in recent years. However, townhouses have higher rents, and this may keep the moderate-income earners in place.

Non-Residential Construction

1. Moderate Employment

  • According to Build Force Canada, employment in the non-residential construction sector will be moderate over the next two years following the completion of several major construction projects, including the “Manitoba Hydro’s Keeyask hydroelectric dam, the Enbridge Line 3 pipeline expansion, Winnipeg’s Southwest Rapid Transitway, J.R. Simplot Co.’s potato processing plant, the ARTIS 40-storey development, and several road and highway projects.”

2. Non-Residential Pressures to Continue Through 2026

  • There are massive investments in public infrastructure currently going on, which are forecast to drive market pressure for the non-residential sector to the 2026 peak. There are two notable nuclear refurbishment projects in the Greater Toronto Area (GTA) and Southwestern Ontario pushing the 2020 peak. According to Build Force Canada, the demand for crucial trades from 2024 to 2025 will be fueled by huge hospital projects, regional rail electrification projects, and coinciding subway expansions.
GLENN TREVOR
Glenn is the Lead Operations Research Analyst at Simple Manifestation with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.

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1 Comment

  1. Hi, I think the $50 / month is a typo in the above story…

    In British Columbia, the apartment industry is strong, with records of low vacancies. Vancouver is leading with the lowest vacancy rate, being a market that promotes rental living, with an average rent of about $50 per month.

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