Star phoenix, July 11, 2016 - The rippling effects of weak commodity prices continue to exert downward pressure on Saskatoon’s residential construction industry and home builders are responding, according to the national housing agency.
“We have been seeing some weakness in the economy, so (builders) have been scaling back and trying to unload some of their inventory,” said Canada Mortgage and Housing Corporation (CMHC) senior market analyst Goodson Mwale.
Saskatoon home builders began work on 912 new units in the first six months of the year, down 21.6 per cent from the 1,164 projects started during the same period last year, the CMHC reported Monday.
Flatlining migration and negative job growth mean the CMHC expects builders to start between 1,690 and 2,010 new units this year, Mwale said. By comparison, there were 2,293 housing starts recorded in the city last year and 3,531 in 2014.
Mwale said the decline in apartment and condominium construction is the result of inflated inventories. With demand for existing units softening, builders have curtailed work on new projects and are using incentives to sell existing ones, he said.
“We’re seeing the new home market beginning to reflect some of that weakness we’ve seen in the resale market, and we know the resale market tends to lead the new home market by several months,” he said.
The slowing pace of residential construction in Saskatoon appears to be reflected in the latest labour force survey. The number of construction jobs in the province fell 13.5 per cent over the last year, to 52,500 from 60,700, Statistics Canada reported last week.
The decline in new housing starts has created challenges for builders, contractors, tradespeople and others working in the industry, as well as forced businesses to be more competitive, according to the sales manager at Montana Homes.
However, overbuilding in 2014 and early 2015 led to inflated inventory levels — especially among apartments and condominiums — meaning a correction to a “more normal” pace of construction is necessary, Kal Hourd said.
“I think we went through some very good times, and some times where we got a little over-optimistic. Then the market couldn’t handle what we built, and now we’ve got to deal with it.”
Chris Guérette, CEO of the Saskatoon and Region Home Builders’ Association, said that while the multi-unit segment is experiencing a correction, the broader residential construction industry has returned to “average” growth.
“It’s not like we’re seeing what’s happening in the multi-units happening all over the place,” Guérette said, noting that comparisons to recent years are complicated by the fact that 2013 and 2014 experienced “spikes” in the pace of construction.
“Our members are telling us that the hard part is behind them, and so they’re pretty much on par for the rest of the year and it will pretty much remain the way it is (now),” she added.