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The drop was driven largely by a decline in new construction of condos and apartments in Toronto, seen here on Jan. 2, 2020, Ottawa and Montreal.Fred Lum/The Globe and Mail

Canadian housing starts slowed at the end of last year, according to the Canada Mortgage and Housing Corp., but the federal agency expects them to rebound in 2020 due to population growth and a lack of housing in Toronto and Vancouver.

Housing starts fell 3 per cent in December, 2019, compared with the previous month, to a seasonally adjusted annual rate of 197,329, driven largely by a decline in new construction of condos and apartments in Toronto, Ottawa and Montreal.

In Ottawa, construction starts of multifamily properties, largely condos and apartments, dropped nearly 50 per cent in December to a seasonally adjusted annual rate of 4,188. Montreal eased 10 per cent to 16,520 and Toronto declined 16 per cent to 16,884.

The declines were offset by robust multifamily construction in Western Canada, with Calgary’s starts tripling to 21,336 seasonally adjusted units and Vancouver steady at 24,840 units.

Over all, CMHC’s preliminary results put starts for all home types last year at 196,729. That was virtually unchanged from 2018, with the growth in multifamily starts offsetting a decline in new detached housing construction. The housing agency cautioned that the annual numbers could be revised.

Economists said the overall slowdown was temporary given the strong population growth, particularly in Toronto, the country’s most populated city.

“There is a lot of activity waiting to happen,” said CMHC chief economist Bob Dugan. “Toronto is one part of the economy where job creation is growing and those people need a place to live when they get there.”

Home starts declined in Toronto last year after preconstruction condo sales fell in 2018. That year, fewer multifamily housing projects came to market after the boom of 2017 when home prices soared and developers raced to capitalize on the frenzy with new condo and rental apartment projects.

“Recognizing that the market was on fire in 2017, developers rushed to bring forward as many new launches as they could,” said Shaun Hildebrand, president with real estate consultancy Urbanation. “This left less product that was ready to be brought to the presale market in 2018.”

Mr. Hildebrand said preconstruction sales improved in 2019, which will lead to growth in construction starts this year.

CMHC forecasts a rebound in housing starts this year to as high as 204,300 across the country, owing to population growth, rising incomes and strong employment in B.C. and Ontario.

The majority of the growth is expected to occur in condos and rental apartments, as CMHC, local governments and developers push denser living arrangements in an effort to deal with the housing shortage and unaffordable real estate prices prevalent in Toronto and Vancouver.

CMHC often compares the average density of Vancouver to New York, which is more than three times denser with 1,700 people for each square kilometre.

The expected rebound in new construction this year comes as Toronto’s resale housing market recovers from a brief downturn in late 2017 and early 2018, when interest rates were rising and Ottawa made it harder for prospective home buyers to get a mortgage. The average sale price across all types of homes in the Toronto region was $819,319 last year. That was close to the record set in 2017.

“We do expect that condos will be a big part of construction,” CMHC’s Mr. Dugan said. "They will be a big part of the recovery in Toronto.”

CMHC is forecasting a rise in housing starts in Ontario, B.C., Alberta, Saskatchewan and Manitoba, but slower activity in Quebec and Atlantic Canada owing to fewer people forming households.

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