Demand fueling record housing starts in Vancouver and Toronto

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"If you demand it, they will build it," Diana Petramala quips.

The Toronto-Dominion Bank economist is referring to the jump in housing starts recorded in June as developers scramble to erect condos, townhouses and single-family dwellings in Canada's most scorching markets.

Canada Mortgage and Housing Corp. reported this week that Canadian housing starts rose to a seasonally adjusted annualized rate of 218,333 units in June from 186,709 in May.

As usual in the Canadian real estate landscape of recent years, Vancouver and Toronto drove the increase. Across much of the rest of the country, starts were down.

In British Columbia, starts climbed an eye-popping 38 per cent, while in Ontario the gain was 27 per cent.

All of the cranes in the Toronto skyline swinging above new condo projects explain the bulk of the increase in this province.

The housing dialogue in Canada has quickly shifted to the supply side, Ms. Petramala writes in a note to clients, as many in the industry argue that rules around building permits and land regulation are to blame for the tight inventory that pushes up prices in hot markets.

But Ms. Petramala points out that demand has also surged.

"Total spending on housing in Toronto and Vancouver alone has increased by almost 60 per cent since early 2014, which represents the largest two-year rise in housing demand ever on record."

Meanwhile this week, the Bank of Canada left its benchmark rate unchanged at 0.5 per cent.

In the bond market, where yields determine how much homeowners will be paying in mortgage rates, the Brexit vote in Britain is keeping interest rates low. The benchmark five-year bond yield is expected to remain relatively flat through the remainder of 2016.

At Bank of Nova Scotia, economist Derek Holt says the very strong rate of housing starts is tied to the advance in prices, but they are still ahead of where he would expect them to be given that building has been going strong for quite a number of years.

Mr. Holt also points out that condo building accounted for most of the increase, with single-family home construction just edging up.

In Atlantic Canada, where the economy is suffering, starts tumbled by 21.8 per cent in June compared with a month earlier.

Nathan Janzen, senior economist at Royal Bank of Canada, points out that since it was the volatile condo segment that pushed up the overall number in June, he doesn't expect the lofty level of activity to be sustained. Mr. Janzen looks to permits issued in May to make his forecast that the starts will be choppy in the near term.