Canadian Permits Post Tepid Growth in 2016


Canadian building permits grew 1% in 2016 to $85.7 billion Canadian dollars (CAD), according to Statistics Canada. When converted to U.S. dollars (USD), the value of permits fell 3% to $65.0 billion, as the value of the Canadian dollar continued to tumble through the course of the year.

The gain in 2016 comes after virtually no permit growth the previous year, with Canada's economy continuing to struggle with weak oil and commodity prices and slow demand growth from the U.S. Belying the weak permit growth, GDP growth in Canada in 2016 was actually pretty healthy — except for the second quarter. The economy took a step back in the second quarter, contracting 1.3% on an annualized basis, as a massive wildfire near Fort McMurray Alberta shut down the country's oil production for about a month. For the full year, GDP growth in Canada is expected to be 1.6%.

Nonresidential building permits fell 3% in 2016 to $30.7 billion CAD, as weakness in factories (down 17%) and institutional permits (-10%) outweighed a 2% gain in commercial permitting. Within the institutional sector, education permits grew 1% to $4.1 billion while healthcare permits plummeted 43% to $1.4 billion. The gain in commercial building permits was due to a 19% jump in recreation permits and a 17% increase in hotel permits. Retail and office permitting fell 2% each, as both building types continue to struggle with rising vacancy rates. From a regional perspective, the only large province to post a gain in nonresidential building permits in 2016 was Quebec, where permits rose 2% from 2015.

Residential permits moved higher in 2016, increasing 3% $55.0 billion CAD. Single family permits rose 5%, while multifamily permits were flat. In terms of the number of units, total residential permits were flat, with single family permits rising 4% and multifamily permits falling 2%. Residential permits posted strong gains in Ontario and Quebec, with increases in both the multifamily and single family markets. British Columbia's overheated housing market showed signs of weakening in 2016, with multifamily units falling 5% to 27,352 units while single family gained 15% to 9,092 units.

Canada's economy will continue to face challenges in 2017. Oil prices are expected to remain relatively low, which may continue to restrain investment and output in Canada's oil patch (although the Keystone pipeline moving forward may help somewhat). In addition, President Trump's promise to renegotiate NAFTA may prove to be detrimental to Canada's economy — particularly the industrial heartland of Ontario and Quebec. These factors may combine to produce another year of subdued growth in Canadian building permits.

 

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Allison Heard | 104 West Partners | allison.heard@104west.com