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Construction projects set to slow

Construction projects set to slow

Posted on: 10/10/2018 | Author: ATB Financial's Economics + Research Team

The pace of building is expected to slow over the next couple of years due to building permits continuing to trend lower.

Although total building permits (an excellent forward-looking indicator of construction activity) grew slightly (+1.9 per cent) from July, August’s total construction intentions experienced a 10 per cent decrease from the same time last year.

At this point, there isn’t one sector that’s leading the decline. In fact, permits for both residential and non-residential construction projects are performing poorly. In terms of commercial activity, permits have been at lower levels than before and during the recession of 2015-16. This is because a significant amount of office real estate has come, or is coming online, in Alberta’s largest cities. Projects signed and permitted during the boom of 2010 to 2014 are ready and have increased office vacancies. This has slowed non-residential activity.

There are also signs of an oversupply of housing. House prices are stagnant and there is more inventory than in years past. Housing starts have begun to trend lower and that’s been highlighted with lower construction intentions for residential building projects. With rising interest rates and stricter mortgage lending rules, homebuilders will have to continue to scale building over the next while.

Given the higher inventory of both non-residential and residential projects, and with borrowing costs starting to tick higher, it’s unlikely we’ll see a big spike in construction projects in the near future.

Building Permits, graph

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