Canada’s construction sector showed cautious signs of improvement in Q3 2024, with the industry recording its first Gross Value Added (GVA) growth period since Q2 2023. GVA rose by 0.1 percent quarter-over-quarter after four consecutive quarters of contraction. While modest, this increase suggests the sector may be stabilizing after a prolonged period of underperformance. Additionally, Q2’s GVA contraction was revised upward to -0.2 percent from an initial -2.2 percent, reflecting a less severe decline than previously reported. Despite these adjustments, lingering uncertainty and weaker housing starts could temper the optimism around this progress.

Investment in construction increased by 0.9 percent quarter-over-quarter, continuing its steady recovery. Multi-dwelling residential construction led this growth, rising 3.6 percent as developers turned to multi-family units to address supply constraints, while improved credit availability supported this shift from the consumer side. Institutional and governmental construction investment also grew by 0.6 percent, underpinned by public sector spending ahead of the federal election. Conversely, industrial construction investment declined by 1.4 percent as the sector continues to recalibrate after record highs in 2023 fueled by electric vehicle (EV) projects and logistics hubs. While notable, this contraction is more reflective of normalization rather than weakening demand.

Building permits, a leading indicator of construction intentions, posted a 5.6 percent quarterly increase - the strongest growth since Q4 2021. This was driven primarily by a 13.5 percent surge in non-residential permits, tied to institutional and industrial developments. However, residential permits edged up just 0.3 percent, and when combined with a 5.1 percent quarterly decline in national housing starts (the lowest level since Q1 2023), it is evident that the residential sector remains under some pressure. Developers remain cautious, slowing new housing starts as elevated financing costs continue to weigh on project feasibility. The growth in multi-dwelling residential construction is a positive signal but it will take time to translate into a broader recovery, especially with single-family housing activity still subdued.

Non-residential construction is beginning to show renewed intentions in the institutional and governmental segment, which saw building permits rise by 19.9 percent in Q3 2024. Contractors are pushing to secure projects ahead of potential delays from a political transition in these sectors. This pre-election activity has supported near-term gains, even as challenges remain in the commercial office segment, which continues to grapple with high vacancy rates and shifting work patterns. Investor confidence in non-residential construction is slowly recovering, offering hope for a stronger, sustained performance in the coming quarters.

The near-term outlook for Canada’s construction sector is cautiously optimistic. Improvements in GVA, construction investment, and building permits point to stabilization. Lower borrowing costs and easing inflation could gradually improve affordability, supporting stronger housing activity by mid-2025. Public sector spending will continue to act as a stabilizing force, but a more robust recovery will require greater private sector investment.