Storm Clouds Form on Homebuilding Horizon

Manitoba’s new home construction numbers for May have mirrored the hot weather we’ve been enjoying.  A number of recent articles and news stories have highlighted the strong growth in housing starts here last month.  May 2017 was a tremendously strong month for Manitoba home builders.  While housing starts across Canada increase by an average of 2 per cent when compared to last May, Manitoba’s housing starts grew by a staggering 98 per cent. 

From January to May 2017, housing starts were up by 11 per cent nationally compared to the same period in 2016, indicating strong growth compared to last year.  During that period, Manitoba had 3,054 residential construction starts compared to 1,507 during the same time in 2016.  That is an increase of whopping 103 per cent.  

There are a number of reasons why Manitoba’s housing market has been red hot for the past 6 months.  But not all of them are positive and there are some storm clouds on the horizon that Manitobans should be aware of.

If it seems like there has been a rush on new housing construction in Winnipeg in the past 6 months, it is not an illusion.  With the introduction of Winnipeg’s new Impact Fees on new residential construction in certain parts of the city, many developers, home builders and home buyers have rushed to beat the May 1, 2017 implementation deadline.  After May 1st, the City of Winnipeg has added a $54.73 per m² or $5.09 per square foot fee that will be added to the development permit or building permit for each new housing start.  On an average new home, this increases the construction cost to a homeowner by about $10,000 to $15,000.  Obviously, the bigger the new home being built, the higher the impact fee being charged to the homebuyer.

This has led to a huge increase in building and development permit applications being filed in Winnipeg in the months leading up to the May 1st deadline.  As well, if construction has not started by November 1, 2017, Winnipeg will retroactively charge the fee on the permit.  So, builders and their customers are keen to start construction as soon as possible to avoid this second deadline.

As expected, this has put a strain on both resources at the City of Winnipeg and within the residential construction sector.  Due to the increase in volumes, permit applications and inspections are taking longer to process.   City staff are working diligently but the volume they are dealing with is double the normal number of permit applications. Builders are trying to find crews and trades people to cover off the increased volume of housing starts.

The potential storm clouds forming on the horizon are that as the new impact fee begins to be applied to new home construction, the temperature of the very hot Manitoba market will begin to cool.  The residential building permit numbers over the summer months will be a key indicator on how the rest of 2017 will look for the sector.  As well, indications are that interest rates may finally be on the way up which will make borrowing more expensive. 

When a high-pressure cell meets a low-pressure cell on the prairies in the summer and early fall, a pretty good thunderstorm is usually the result.  Our hope is that the low-pressure cell we can see coming this fall is weaker than forecasted and the storm misses us.