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Expect a construction slowdown in 2018

Expect a construction slowdown in 2018

Posted on: 3/8/2018 | Author: ATB Financial's Economics + Research Team

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The province was given another sign that activity in Alberta’s construction sector will slow this year. Total building permits—an excellent forward-looking indicator for future construction activity—were down 13 per cent in January when compared to 2017.

Much of the construction slowdown is taking place in the non-residential sector. Although January’s permit totals for commercial, industrial and governmental buildings experienced slight gains from last December, total permits are down 32 per cent from where they were last year. This isn’t all that surprising considering the number of commercial projects that have started or are nearing completion in Edmonton and Calgary’s downtown cores.

Construction could slow significantly in the residential sector, too. After impressing for much of 2017 and actually growing year-over-year in January (+5.3 per cent), residential housing intentions fell 10.7 per cent ($82-million) from last December.

The reason for a slowing construction sector in 2018 is twofold. There’s been an oversupply of office space (commercial projects) in the province and there are signs of an oversupply of housing, too. The cost of borrowing has also gone up. Rising interest rates have and will continue to affect demand for residential construction. More expensive rates are leaving many new houses without a purchaser, slowing home construction altogether.

Building permits, graph​ ​

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