Divergent outlooks for residential and non-residential construction in Canada
April 12, 2018 By The Conference Board of Canada
April 12, 2018 – After posting its strongest growth since 2013 last year, Canada’s residential construction industry is forecast to see a small contraction in 2018. Meanwhile, non-residential construction is expecting a modest turnaround this year, according to The Conference Board of Canada’s latest outlooks for the two industries.
“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,” said Michael Burt, Director, Industrial Economic Trends, The Conference Board of Canada.
“Meanwhile, non-residential construction is expected to bounce back this year, following a contraction in 2017. However, business investment levels are expected to remain below their 2014 peaks, which will lower growth opportunities for non-residential construction going forward.”
- Housing starts are forecast to drop by 2.9 per cent in 2018, led in large part by a 4.3 per cent drop in Toronto and a 6.5 per cent drop in Vancouver in 2018. Spending on new homes is expected to fall next year.
- Following two years of contractions, Canada’s non-residential construction industry will rebound in 2018. However, weak business investment intentions are limiting industry prospects.
- Pre-tax profits in Canada’s non-residential construction industry are expected to rise by 8.0 per cent to reach $2.3 billion this year.
Following growth of 4.9 per cent last year, GDP growth in Canada’s residential construction industry is forecast to fall by 0.3 per cent in 2018. As homeowners become more cautious under new mortgage rules and rate hikes, real expenditures on new housing are expected to slow from 5.8 per cent in 2017 to 3.4 per cent in 2018 and then drop by 3.0 per cent in 2019. On a national basis, housing starts are forecast to drop by 2.9 per cent in 2018. The decline in starts will be led in large part by a 4.3 per cent drop in Toronto and a 6.5 per cent drop in Vancouver in 2018. Renovation activity will perform better, but will also see a deceleration to 1.8 per cent growth in 2018 from 4.5 per cent last year.
On a brighter note, Canada’s backlog of unsold new homes is falling. The diminishing supply of new homes on the market will encourage building activity in the long run, propelled further by strong population growth in some regions and strengthening labour markets around the country.
In all, industry pre-tax profits will drop to $4.2 billion in 2018 but will recover some strength in subsequent years.
Following two years of contractions, Canada’s non-residential construction industry is forecast to grow by 1.9 per cent in 2018. The value of new non-residential building permits increased by an estimated 15 per cent last year to reach $35 billion, indicating a healthy number of non-residential projects in the pipeline.
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. 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.
Overall, industry pre-tax profits are expected to rise by 8.0 per cent to reach $2.3 billion this year and then grow at an annual rate of around 6 per cent over the next four years.
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