The CMHC released housing starts for December yesterday, with actual starts falling 11% versus last December to 16.5K, driven by slowing activity in multi-unit starts (down 14% y/y). On a full-year basis, actual starts were up 2% y/y at 227.7K, missing estimates of ~245K.

Who has exposure?

Results out of Alberta (up 32% y/y) and Quebec (up 26% y/y) were strong in both single-dwelling and multi-unit, but were held back by weakness in Ontario (down 16% y/y) and B.C. (down 9% y/y), where a soft demand backdrop in multi-unit residential continues due to affordability issues.

Interprovincial migration trends support the housing numbers, as more and more Ontario and B.C. residents leave in search of more affordable options. Alberta has been a major beneficiary from this trend, clocking an average ~10K net gain each quarter since 2023.

So fundamentally, which REIT names look favourably or unfavourably positioned, based on this data?

The clear beneficiary among residential REITs is Boardwalk (BEI-UN.TO), with almost 65% of its Net Operating Income (NOI) coming from Alberta, 17% from Quebec, and just 8% from Ontario and British Columbia combined.

Canadian Apartment Properties (CAR-UN.TO) is a name with heavy exposure in the other direction, with roughly 65% of its portfolio tied to Ontario and British Columbia and under 20% linked to Quebec and Alberta combined.

Who moves first? Builders or buyers

We know for demand to return to the market, affordability needs to improve via more supply - but absorption of new units (% of bought new builds) continues to trend downwards.

This is driving new dwelling inventory up, making the backdrop less attractive for developers, resulting in downward pressure on under construction dwellings.

A nice chicken and egg problem that we’ll be monitoring closely, because something has to give in this dynamic.