The ratio of homes under construction to population growth is at a record high, reflecting both the strength of housing starts and the weakness of immigration. While the boom in construction might seem like a much needed response to the increase in demand for more spacious homes since the pandemic, 90% of the rise in the past year has been due to higher condo construction rather than the single-family homes that have rocketed in price. Given that condos take longer to complete than single-family homes, our assumption is that immigration will have rebounded by the time that most of this new supply reaches the market. That will reduce the chance of a slump in construction in the future but, given how elevated construction activity now is, even a modest correction could weigh on economic growth further ahead, particularly given the sensitivity of the sector to changes in interest rates.
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