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Homes under construction in Richmond Hill, Ont., are seen in this file photo.Moe Doiron/The Globe and Mail

Building permits in Canada rose 8.6 per cent in March, beating expectations, but economists say the gains were driven mostly by demand for new institutional buildings.

"While that does support economic activity, it's not necessarily the area of growth that we would like to see, given how weak residential construction has been," said CIBC economist Emanuella Enenajor.

Statistics Canada said Monday municipalities issued $6.5-billion worth of building permits in March, up 8.6 per cent from February.

The federal agency said March was the third consecutive monthly advance, which came mostly from the non-residential sector in Ontario and Alberta.

The value of non-residential building permits rose 19 per cent to $2.8-billion, a second consecutive monthly gain.

In the residential sector, the value of permits increased 1.7 per cent to $3.6-billion after an 8.1-per-cent decline in February helped by permits for multi-family buildings.

Statistics Canada said despite the growth the residential sector remains on a downward trend started in the middle of last year.

"Putting it in the context of the last couple of months, residential construction is still quite weak," Enenajor said.

Enenajor blamed weak demand in the housing sector on mortgage lending rule tightening on the government's side as well as buyer fatigue.

"We're seeing some deceleration in demand because of some buyers being priced out of the market," says Enenajor.

In the institutional component, which included government buildings, medical buildings and educational facilities, the value of permits more than doubled to $980-million in March, following a 28.1 per cent increase in February.

The value of permits issued in the commercial sector totalled $1.4-billion, down 9.6 per cent from February.