Condo boom causes housing starts to soar

A booming condominium market caused housing starts to skyrocket in April, beating what economists had been expecting by an annualized pace of more than 40,000 units.

The Canada Mortgage and Housing Corporation says there were just over 21,000 actual starts in April. That works out to a seasonally adjusted annual pace of 244,900, up from the rate of 214,800 units in March and the strongest month for housing starts since September 2007. Economists had been expecting an annual pace of 204,000 units.

'Wow … this report reflects unbelievable strength.  —Scotiabank economist Derek Holt

"The increase in this segment is partly a reflection of the high level of pre-sales in large multi-unit projects since 2011," CMHC economist Mathieu Laberge said.       

"Wow," Scotiabank economist Derek Holt noted in reaction to the data. "This report reflects unbelievable strength …and all of the gain was in multiples again which reflect the ongoing Canadian condo craze."

The seasonally adjusted annual rate of urban starts increased by 18 per cent to 226,200 in April, while urban single starts were essentially flat, increasing by 0.6 per cent to 67,700.   

Multiple urban starts, which include condos, increased by 27.4 per cent to 158,500 units.

Regionally, the growth was focused in central Canada.

A total of 95,400 of the 244,900 starts were in Ontario, while Quebec housing starts came in at 55,000, a 56.5 per cent gain from the previous month, Holt noted. The rest of Canada saw more moderate growth.

Indeed, there are signs that much of that home-building is coming in the form of condominiums in Canada's largest city.

Toronto condo craze

Research firm Urbanation tracks the Toronto condo market. A total of 29,059 new condo units have sold in Toronto over the past 12 months, with 6,070 in the first quarter of 2012 setting an all-time record for that time of year.

As many as 35,000 more condo units could come to market in Toronto in 2012, Urbanation says. But that influx of new supply isn't being absorbed into the system, Holt says.

"Canada currently has the highest stock of unsold condominiums since the early 1990s, but far more significant is the empty-condo phenomenon," Holt noted.

"This is the ghost city phenomenon we’ve discussed with clients over time," Holt noted.

Other analysts are not so convinced that the condo market is overheated. CMHC's senior market analyst, Sean Hildebrand, notes that condo demand remains strong. Indeed, those new units are simply filling the growing need for apartments.

The latest CMHC estimates are that about 22 per cent of condos aren't owner-occupied, but rather rented out as investment properties.

"Even though we see so much development taking place, I still think it's a bit premature to suggest we're creating a condo bubble," he told CBC's Metro Morning on Wednesday.

"I do agree that because of the level of construction we're seeing in condos, it leaves us vulnerable to a correction … but it's probably not going to lead to a situation where condo prices need to come down by any sort of considerable amount."