Pandemic disruptions won’t cause new home supply shortage: BMO

After a good showing in April, the team at BMO Economics is confident that home construction across Canada won’t see a major disruption due to the COVID-19 pandemic.

A report from the Canada Mortgage and Housing Corporation (CMHC) published late last week saw housing starts in April rise 11 percent over the same period last year despite the significant economic turbulence caused by the pandemic.

While starts still declined from March’s activity levels before the pandemic’s impact was fully felt, BMO Senior Economist Robert Kavcic called the home construction activity level “solid” amid shutdowns across many other sectors. Housing starts measure how many homes began construction during a given period and are generally viewed as a key factor in determining market health.

“Indeed, construction is one sector that appears to have skated through April with less damage than most, given softer restrictions and the ability to social distance on site,” wrote Kavcic in a research note.

With his relatively upbeat commentary, Kavcic joins fellow industry experts at TD and real estate consultancy Altus Group in predicting that home construction across the country would likely be less vulnerable to the disruptive effects of the pandemic than other sectors of the economy and even segments of the real estate industry.

Altus Group had published a projection last month that Canadian homebuilding would bounce back by July, but this was before the encouraging and prediction-defying April construction figures were published.

“One takeaway from this is that we’re not likely to see any material [housing] supply shortage coming out the other side, and the bigger risk for housing is that demand is more permanently depressed if the job market isn’t able to come back strongly,” wrote Kavcic.

The recession’s duration and the ultimate scale of the job loss caused by the virus are key questions economists have been grappling with when making predictions about the ability of the Canadian housing market to regain momentum after the worst effects of the pandemic have subsided.

Many in the industry, both in resale and new construction, are pinning their hopes on homebuyers sidelined during the crisis returning to the market in the late summer and fall, resulting in a late-year home sales rebound.

Those in the homebuilding industry have had plenty of reasons to celebrate so far this month with the better than expected housing starts data and the Ontario provincial government continuing to loosen restrictions on home construction activities.

But, as Kavcic pointed out, this is only one side of the supply and demand equation.