Residential construction activity to cool off this year, while non-residential construction rebounds

OTTAWA, March 30, 2017 /CNW/ - Following a relatively weak 2016, residential construction activity in Canada is poised to see a modest decrease in 2017 as the number of housing starts is expected to decline to this year, according to The Conference of Canada's latest outlook for the industry. On the other hand, non-residential construction is expected to return to growth in 2017, thanks to government infrastructure spending.

"Not only is the residential construction industry seeing a downturn in housing starts, spending on home renovations is now showing signs of weakness too. In all, we expect price-adjusted spending growth in the residential construction industry to average less than one per cent per year through 2020," said Michael Burt, Director, Industrial Trends, The Conference Board of Canada. "Meanwhile, non-residential construction is positioned for a turnaround this year, led by growth in the institutional segment and increased investment in warehouses and hotels."

Highlights

• A slowdown in apartment and row house construction is expected to lead to a 0.2 per cent decline in residential construction output in 2017.
• Despite weaker residential construction activity, pre-tax profits are forecast to grow by 4.7 per cent this year to reach $4.2 billion.
• Non-residential construction output is forecast to expand by 3.7 per cent this year, led by growth in the institutional segment.

Residential Construction

This year will be a tough year for Canada's residential construction industry. A slowdown in multi-unit construction, particularly in the apartment and row house segment, is expected to drag down industry output by 0.2 per cent in 2017. Signs of this downturn have already shown up in recent housing starts data, with multi-unit housing starts down 2.3 per cent in 2016. Multi-unit housing starts will take another step back in 2017, and will struggle through 2021.    

Affordability worries in Toronto and Vancouver have led to policy makers implementing several measures to cool housing markets, and considering additional options. Given that in 2016 these two markets accounted for more than 30 per cent of housing starts in Canada, these measures will be a major contributor to a general slowdown in residential construction activity across Canada. Overall, housing starts in Quebec and British Columbia will struggle throughout the forecast, while other provinces, particularly Alberta and Saskatchewan, will experience stronger growth.

With only limited gains in revenues expected, the industry's finances are expected to remain relatively unchanged through the forecast. However, costs are expected to be a risk factor going forward, as a construction boom in the United States could push up material costs and hurt the bottom line. Overall, industry margins are expected to remain slim, averaging 3 per cent over the next five year, and industry pre-tax profits are forecast to reach $4.2 billion this year.

Non-Residential Construction

Following a decline of 2.0 per cent in 2016, non-residential construction output is expected to rebound this year, expanding by 3.7 per cent. The institutional segment was the only area of growth for the industry in 2016, and government stimulus spending will help the institutional segment grow by 6.8 per cent this year. Beyond 2017, however, the institutional segment will provide a smaller boost to the industry, as government stimulus spending is projected to unwind.

Providing support to the industry's commercial segment is the rise of online shopping, which is beginning to see a faster rate of adoption in Canada. This will help support a U.S.-style buildup in warehouses across the country, although Southwestern Ontario will be a key beneficiary. Ontario has seen an average annual rise in investment in transportation and warehousing of around 11 per cent in 2015 and 2016, and investment intentions point to another strong year in 2017, with growth of 20 per cent expected.

Industry profitability is expected to improve slightly over the next five years. Pre-tax profits are expected to reach $2.2 billion this year and grow by an average of more than 4 per cent between 2018 and 2021.  

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SOURCE Conference Board of Canada

For further information: Yvonne Squires, Media Relations, The Conference Board of Canada, Tel.: [phone] ext. 221, E-mail: [e-mail]; Juline Ranger, Director of Communications, The Conference Board of Canada, Tel.: [phone] ext. 431, E-mail: [e-mail]

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