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Construction equipment is parked at the bottom of a pit on the site of a new condominium complex off Redpath Avenue in Toronto, Ontario, Canada April 1, 2017.

CHRIS HELGREN/Reuters

New home construction in Canada has jumped to its highest level in almost a decade as builders scramble to keep up with furious demand and as the Ontario government plans new measures to cool Toronto's overheated housing market.

Real estate construction showed strength on virtually every measure, with starts growing by 25 per cent compared to March last year and by 18 per cent over February this year, according to Canada Mortgage and Housing Corp.

However, in the closely watched Toronto market, where home prices have soared since last summer, the message was more mixed. Single-family-home starts fell 4 per cent in March over February on a seasonally adjusted basis, while starts of other types of housing – including townhouses and condominiums – rose 82 per cent, for an overall growth rate of 46 per cent in March.

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Read more: What can governments do to cool Toronto's housing market?

Read more: Why Toronto's price shock is Canada's problem

The uneven trend will continue to fuel the debate about whether governments should step in to cool the overheated Toronto market, with some analysts pointing to a growing new housing supply as evidence that market forces are working to address demand, while others argue there is still too much speculation in the market. Ontario Premier Kathleen Wynne said Monday she intends to introduce a package of measures "very soon" to address home affordability in Toronto, but would not detail what measures will be included.

Data released Monday show housing starts nationally climbed to 253,720 units in March on a seasonally adjusted annualized basis.

It is the highest number since September, 2007, when Canada recorded 288,600 starts. Bank of Montreal economist Robert Kavcic said the latest housing-start data suggest Ms. Wynne should address Toronto's overheated demand by introducing a foreign-buyers tax or a tax on speculation.

He said the strong rate of housing starts in Toronto demonstrates that the supply of new housing is keeping pace with core demographic growth in the Toronto region. That means soaring resale-home prices in the Greater Toronto Area – which climbed 33 per cent in March compared to a year earlier – are not being driven by a fundamental supply shortage, but by unusual demand factors such as speculation in the market.

"When you look at the overall numbers, Ontario does not have a supply problem … It's not a lack of numbers," he said. "I think it's pretty obvious they have to be looking at the demand side."

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But Bank of Nova Scotia economist Derek Holt said the growth in housing starts makes "a solid case" that the supply of new homes is responding to market demands. He says the message to policy makers is "that the market left to its own is finding solutions."

The result is that proposed solutions to dampen demand – such as a tax on foreign buyers – may not be necessary if enough new homes are coming into the market.

"At this point in the cycle, policy should be careful about adding downside risks to demand if the supply side is accelerating," Mr. Holt said.

Housing starts are notoriously uneven on a monthly basis because the launch of new home developments or condominium projects can cause the numbers to leap.

CMHC also tracks a six-month moving average to even out trends, showing housing starts in Vancouver trending lower for the fourth consecutive month but remaining above the five-year average, while Toronto housing starts moved higher in March and construction of detached homes has continued to trend higher since the end of last summer.

CMHC chief economist Bob Dugan said housing starts nationally have been trending higher for the three consecutive months, and there is clearly a rising trend of growth in single detached homes and multiunit homes in Ontario.

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The booming national growth rate contains wide variation on a regional basis. Housing starts in urban centres in British Columbia, for example, climbed 60 per cent in March compared with February on an annualized basis, while Quebec's urban regions saw a 31-per-cent increase in starts and Ontario over all saw housing starts rise by just 6 per cent.

Total housing starts have far exceeded most economists' expectations this year, with several now suggesting residential-housing construction could be a driver of Canada's total economic growth in 2017.

Mr. Kavcic said residential construction "could add more support to Canadian economic growth" than many have been anticipating.

Royal Bank of Canada senior economist Nathan Janzen said the March jump in the volatile multiunit sector likely won't be repeated going forward, but a strong growth in issuance of building permits over the past three months should mean new building activity will continue in coming months.

Cherise Burda, executive director of Ryerson City Building Institute, and John Pasalis, president of Realosophy Realty Inc., discuss the merits of a foreign-buyers tax in Ontario

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