After four years of near double-digit growth, the Canadian construction industry is expected to take a step back in 2008 as the value of new building permits falls 7%, to $66 billion Canadian dollars, according to a forecast by McGraw-Hill Construction Research and Analytics, Bedford, Mass. However, unlike the U.S. markets, the slowdown in Canadian construction will be led by a 16% decline in commercial work and a 7% decline in industrial construction. Residential permits are expected to only slip 4% in 2008, after increasing 5% this year.
Rising mortgage rates will put the brakes on nine years of growth in the housing market. Within the residential construction sector, multifamily housing will see the larger decline. After a 7% increase in 2007, multifamily housing will decline by a comparable 7% in 2008, to $14 billion. Single-family housing, by contrast, will decline by a more modest 2% in 2008, after a 3% gain in 2007.
Canada’s stricter lending practices have kept sub-prime mortgages to a very small share of the mortgage market. As a result, the 2008 decline in housing simply represents the cooling of a hot market, rather than a mortgage market crisis as has occurred in the U.S.
Nonresidential construction permits are on track to post double-digit growth in 2007 for the third consecutive year as permits grow 11%, to $28 billion. Beyond this year, however, sagging business spending and the inevitable slowdown in housing will impede nonresidential building. The sharpest nonresidential declines in 2008 will come from the commercial sector, including retail, offices, warehouses, recreation buildings and hotels. Commercial construction in Canada will decline 16% in 2008 following three years of double-digit gains.
Industrial construction will also decline in 2008, but by a more moderate 7%. Driving down factory construction will be the strong value of the Canadian dollar. Because three-quarters of all Canadian exports go to the U.S., the strength of the Canadian “Looney” could quickly have an impact on export growth. However, the healthy economic growth in the western half of the country and the continued reinvestment in mainstream industries in the East will mitigate the effects of the exchange rates.
Institutional building, by contrast, will hold its own in 2008, falling only by a modest 3%. Gains in government tax receipts and crumbling infrastructure will ensure more stability in this important construction sector. The healthcare sector will increase 6% in 2008 due to the aging of the baby boom generation.