Ottawa started 1,235 homes in August. The permit pool fell 18%

One month, 1,235 homes

CMHC's August housing starts release has an Ottawa line worth a second look. The Ontario side of the Ottawa-Gatineau area started 1,235 homes in August. A year earlier it was 380. That is 3.25 times as many, and about 29 percent above the 957 a month that CMHC's six month trend implies (11,486 a year divided by 12).

Before anyone reads that as supply finally arriving, look at what the same table says happened to the permits waiting behind those starts.

The permit pool paid for the spike

CMHC publishes three stock numbers for each metro area: units with approved building permits that have not started yet (conversions excluded), units under construction, and completions. For Ottawa, July to August:

Approved but not started went from 4,972 to 4,087. That is 885 fewer units, down 17.8 percent. Under construction went from 17,272 to 17,905. Completions were 843 in July and 591 in August.

First, check that the accounting works. Under construction should equal last month's count, plus August starts, minus August completions. 17,272 plus 1,235 minus 591 is 17,916. CMHC reports 17,905. Eleven units off, so the table hangs together.

Now run the same logic on the permit pool. The August pool equals the July pool, less the starts that came out of it, plus new permits that went in. 4,972 minus 1,235 plus new permits equals 4,087, so new permits work out to about 350. That is my inference, not a CMHC number. Some starts do not come out of this pool and cancellations are invisible. But the scale is the point. To keep the pool flat, Ottawa needed to approve roughly what it started, about 1,235. On this arithmetic it added roughly 350.

For comparison, the pool rose 9.2 percent in Toronto and 8.5 percent in Montréal, and fell 3.6 percent in Calgary and 6.4 percent in Vancouver. Ottawa's fell 17.8 percent. Gatineau, across the river, rose 14.3 percent, which is why the combined Ottawa-Gatineau line shows a smaller drop of 9.6 percent.

How many months of starts are left in it

At the trend pace of 957 a month, 4,087 permitted units is 4.3 months of starts (4,087 divided by 957). In July, 4,972 was 5.2 months. Four months is not a cliff. Some permitted projects are waiting on financing or presales and will not start on schedule, and I cannot see which ones. But a pool that drains faster than it refills shows up in starts first.

What I said in August, and what I cannot reconcile

On Aug 2 I wrote that Ottawa was finishing more homes than it was starting. I put starts down about 11 percent through June, 4,120 against 4,629, and said the city was drawing down a pipeline it was not refilling. Those were city figures from Councillor Leiper's CMHC tracker. His July update has January to July at 5,006 against 5,716, down 12.4 percent.

CMHC's own table for the Ontario side of the metro area has January to August at 7,254 against 6,694, up 8.4 percent. Single detached starts are up 40 percent, 1,176 against 838.

Those are not the same yardstick. I believe the metro row includes communities outside city limits, and I cannot reconcile the two from public pages. So I cannot tell you how much of August's 1,235 happened inside Ottawa proper. Leiper's office posts a city only update late in the month, and that one will say. Until then, treat "down 11 percent" and "up 8 percent" as answers to two different questions, not a contradiction I have solved.

What does hold up is the direction of the pipeline. The August data shows the draw in the permit pool itself, which is a harder number than a start count that bounces around.

What it means if you are buying or selling

A start is not a listing. Nothing in this table adds a home you can buy this winter. Homes started in August are not on the market, and the ones that finished, 591 in August, are fewer than July's 843. If you are selling this fall, your competition is the resale inventory I keep writing about, not these starts.

If you are weighing a new build, ask the builder how many permitted units are scheduled to start, not how many are sold. And keep the bigger picture in view. CMHC's own business as usual figure for Ottawa is 11,000 starts a year against a requirement of 33,000 to 38,000. The trend row in this release, 11,486 a year, is about a third of that requirement (11,486 divided by 33,000 is 35 percent, divided by 38,000 is 30 percent). One big month does not change that gap.

What would prove me wrong

CMHC releases September data on Oct 16 at 8:15 a.m. My read is that starts fall back toward the trend of roughly 960 a month and the permit pool stays under 4,500. If the pool bounces back above 4,500 with starts at 1,000 or more, I read a one month spike as a drain. If it falls below 3,500, the drain is real. I will check it against this post when the numbers are out.

I sell houses. I do not build them, finance them or give mortgage advice, so lender and builder questions belong with those professionals. If you are deciding between new construction and resale and want the numbers on a specific street or builder, call me at 613-262-6545 or email fil@613realtor.ca. Or see what is listed right now and we can compare.