The Canadian residential construction market has experienced significant shifts in the third quarter of 2024. Despite interest rate hikes and affordability pressures, certain cities have shown remarkable growth in building permits. This report highlights the top five cities driving residential construction growth, explores the underlying trends and factors, and provides actionable insights for real estate investors and policymakers.

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Top 5 Cities for Residential Construction Growth

The following cities have demonstrated substantial growth in residential construction, with Toronto, Calgary, and Barrie leading the charge.

1. Toronto, Ontario: With a 26.8% increase in building permits from August to September, Toronto saw a significant surge in permit issuance, particularly for multi-unit residential buildings. The city's total building permit value hit $2.84 billion, driven by high demand in urban housing and supported by Ontario's proactive stance on multi-unit developments.
2. Calgary, Alberta: Calgary demonstrated a strong 31.9% year-over-year growth in building permits, reaching $798.4 million. This growth is primarily linked to Alberta's diversified economy, which has seen a boost from energy sector stability and a demographic shift as more people relocate to the province seeking affordable housing.
3. Barrie, Ontario: As a secondary city near Toronto, Barrie saw an impressive 482.4% surge in building permits, reflecting broader trends in suburbanization. The total permit value reached $343.2 million, driven by significant multi-unit residential projects responding to demand for affordable alternatives to Toronto's housing market.
4. Winnipeg, Manitoba: In Winnipeg, building permits grew by 66.4% in Q3 to reach $321.5 million. This growth reflects Manitoba's strategic investment in multi-unit residential spaces, catering to the local demand surge due to migration trends and affordability challenges elsewhere.
5. Saskatoon, Saskatchewan: Saskatoon recorded a 32.4% quarterly growth, hitting $129.6 million. This increase, especially in multi-family permits, aligns with Saskatchewan's growing population and the province's efforts to attract new residents through affordable housing.

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Market Analysis and Implications

Several factors have contributed to the growth in residential construction, including:

• Interest Rates and Affordability Pressures: Despite high interest rates, cities like Calgary, Winnipeg, and Barrie are seeing growth in part due to the Bank of Canada's recent interest rate cuts, which have somewhat improved affordability and sparked investor interest. However, cities like Toronto and Vancouver continue to struggle with affordability, pushing demand towards suburban and secondary markets.
• Demographic Shifts: Population growth in Alberta, Manitoba, and Saskatchewan, due in part to interprovincial migration and immigration, has increased demand for housing in cities like Calgary, Winnipeg, and Saskatoon. These areas are increasingly attractive due to their relative affordability, available land, and local government support for housing projects.
• Supply Chain and Construction Costs: Lowering material and construction costs in 2024, due to moderating inflation and improved supply chain conditions, have aided growth in residential projects across Canada. However, labor shortages and policy delays continue to impact project timelines, especially in Ontario.

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Projections and Future Outlook

Given the current trends and macroeconomic conditions, the following projections are noteworthy:

• Continued Growth in Rental Construction: With nearly half of new apartment units intended as rentals, major cities like Toronto and Vancouver are adapting to high rental demand, partially due to limited affordable ownership options. This trend is likely to persist as cities prioritize rental construction to mitigate affordability issues.
• Shift to Suburban Markets: Secondary cities, especially those near Toronto and Calgary, are expected to grow as high urban prices push demand outward. Barrie's dramatic growth highlights this suburban trend, where areas within commuting distance become increasingly attractive to investors and residents alike.
• Policy and Regulatory Changes: Evolving zoning laws and housing policies, especially in Ontario, are anticipated to support increased density and affordable housing construction. For investors, tracking these policy changes will be key, as cities like Toronto adopt measures that streamline approvals and incentivize multi-unit projects to address the housing supply.

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Conclusion

The third quarter of 2024 has marked a pivotal period for residential construction growth in Canada's key urban centers, with cities like Toronto, Calgary, and Barrie showing particularly strong growth. This growth reflects ongoing trends in migration, affordability challenges, and policy shifts. Investors should consider expanding multi-family housing portfolios in these regions, while policymakers can reinforce growth with supportive policies and incentives aimed at sustaining the demand. As Q4 unfolds, monitoring economic factors and housing demand in these regions will be essential for strategic real estate investments.