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The banging hammers and swinging cranes at construction sites across Canada are telling indicators of economic and social trends in this country. The most obvious recent example is the enormous demand for residential and commercial construction in Alberta’s booming economy, which has created jobs and attracted thousands of migrants from across the country and from around the world.

But construction is hot all over Canada. Lower interest rates have encouraged more Canadians to buy new houses or to renovate older homes. And increased wholesale and retail sales have businesses scrambling to build more offices, retail stores and warehouses, boosting non-residential construction.

All told, contractors took out a record $66.3 billion in residential building permits in 2006, up 9% from $60.8 billion the previous year. Municipalities across Canada authorized building 233,200 new homes that year, down slightly from 2005, but still the third highest figure since 1988. Moreover, the value of residential permits increased in 20 of 28 census metropolitan areas in 2006.


Meanwhile, Canadians undertook $32.0 billion worth of renovations in 2006, accounting for 40% of all residential construction investment, a 9% increase from 2005.

The value of non-residential building permits also increased. Investment in the construction of non-residential buildings reached

$35.5 billion in 2006, up 12% from 2005. This was the largest gain on record, and a sign of a strong economy and thriving industry.

In 2006, the entire construction industry added $67.7 billion to Canada’s gross domestic product (GDP): this industry first crossed the $60-billion threshold in 2005. However, employment in the industry stabilized in 2006 after several years of growth.

Investment in new homes

The healthy economy and low interest rates kept the housing market hot in 2006. Despite the ongoing availability of new homes, investment continued to rise. The strongest growth in new home investment was in single-family homes, which rose 9% to $25.5 billion, and in apartments and condominiums, which rose 13% to $9.3 billion. Higher prices played a big role in the increase; while the number of housing starts remained almost unchanged, each new home cost more.

The main drivers of growth in new home investment—particularly in Western Canada—were the dynamic economy, interprovincial migration, rising employment, international immigration and relatively low mortgage rates.

The Canada Mortgage and Housing Corporation (CMHC) tracks the average price of new single- and semi-detached homes. In the summer of 2006, the average price nationally was $381,000, up from $342,000 a year earlier, an increase of 11%. In Toronto, the average price was $631,585. In Calgary and Edmonton, prices rose to averages of $359,286 and $284,521, while the average price in Vancouver hit $763,076. The lowest average price of a new single- and semi-detached home in a metropolitan area was in Trois-Rivières, at $159,250.

At the end of 2006, Statistics Canada’s New Housing Price Index (NHPI)—which measures changes over time in contractors’ selling prices of new houses—was 147.5. This means that the price of new homes has risen 47.5% since 1997, the base year of the index. Unsurprisingly, the NHPI shows that the cost of new homes in Calgary shot up an incredible 42.4% since December 2005. Edmonton followed closely with a 41.5% increase in the same period, and Saskatoon was third at 16.1%. The national average increase was 10.7%.

Non-residential construction

Construction activity on non-residential properties was high for a sixth consecutive year in 2006, due in large part to the booming economy of Western Canada. Among the nine provinces seeing growth in non-residential construction, Alberta showed the largest gain, at 40%, followed by British Columbia at 27%. Together, Alberta and British Columbia accounted for about 80% of the total increase in Canada’s non-residential investment.

Much of the increase in non-residential construction was due to higher investment in commercial buildings, which rose 14% to $20.4 billion. The main factor behind this was the strong increase in office building construction, up 23% to $7.6 billion.

Warehouse construction also jumped—almost 29% to $2.7 billion. The increase likely stemmed from declining vacancy rates for office buildings in large urban centres, and the strong performance by retailers and wholesalers, which was supported by growth in consumer spending and international trade. Investment in hospitals and health clinics rose 16%, the sixth consecutive annual increase in this category.

Mortgage approvals

Low interest rates have been motivating many Canadians to seek mortgages to finance the purchase of a home. Indeed, the value of mortgage loans approved by CMHC and approved lenders rose to $182.1 billion in 2005, up 11% from the previous year. Loan approvals rose 2%, and the average loan amount in 2005 was 11% higher than in 2004.

In 2005, lenders approved loans on 135,500 new dwelling units, down slightly from 135,700 in 2004. The most dramatic increase occurred from 2001 to 2002, when the number of approved units jumped from 111,700 to 139,900.

The number of approvals on existing residential properties in 2005 remained relatively stable from 2004, at 1.1 million dwelling units. In 2001, 812,300 units were approved. New and existing single-detached dwellings received the bulk of approvals in 2005.

The jump in the value of mortgages approved also led to an increase in mortgage credit—the total mortgage debt that Canadians hold—which grew to $687 billion by 2006, up from $628 billion in 2005.