Despite moderating but still strong readings in building approval data, Canada’s housing construction industry can expect two years of modest activity in 2012 and 2013, a leading research organisation says.
And non-residential construction activity will decline for a second year running as government spending on building related infrastructure drops back.
But slower growth in costs will see residential construction industry profits surge, at least in the short term, following three years of decline.
In its Winter 2012 outlook, the Conference Board of Canada says that the country’s residential construction industry can expect two modest years in 2012 and 2013. In each of those years, the Board expects the number of housing starts across Canada to come in at around 190,000, before rising to 200,000 in 2014. By way of contrast, housing starts in 2011 numbered around 193,500.
The Board says a range of factors are behind the anticipated moderation in activity. For one thing, a combination of slow job growth, subdued consumer expectations and onerous household debt levels is likely to flow through into a slowing of demand. Moreover, existing levels of unsold stock will deter further building activity in condominiums and other multi-residential units.
But Conference Board’s Senior Economist Maxim Armstrong stresses that a cooling market should not be mistaken for a housing bubble collapse.
“The industry is coming in for a soft landing” he says.
Armstrong also stresses that housing markets are local in nature, and that individual markets in different parts of the country are affected by conditions specific to those markets. Because of this, he says that whilst there may be concerns about overheating in some segments of a few cities, ‘the overall outlook for the housing market in Canada remains solid’.
The Board says that whilst demand for stand-alone housing will surpass that of multi-residential units in the short term, multi-family units such as rowhouses and semi-detached properties will assume a bigger share of construction than in the past over time as older homeowners downsize and suburban living becomes more costly in terms of commuting time and gas prices.
Outside of housing, the Board anticipates a decline in non-residential construction for a second consecutive year in 2012 as austerity measures constrain government spending on building upgrades and business conditions remain insufficiently strong for private sector construction growth to pick up the slack.
On a more positive note, however, the Board says that whilst the residential construction industry’s profitability has declined for three straight years, and cost increases (particularly labour) in 2013 and beyond will put pressure on earnings in the long term, moderate cost growth in 2012 should see overall profits climb by more than 21% this year to $CAD3.4 billion.
The moderating outlook comes in spite of persistent strength in Canada’s approval numbers. As reported recently in DesignBuild Source, residential building approvals throughout Canada dropped by 6.6% in seasonally adjusted terms in January but remained near four and a half year highs, meaning that the pace at which new residential building work is coming in remains high when compared with recent historic levels.