Photo: James Bombales

Homebuilders aren’t keeping up the pace with Toronto’s roaring population growth, and that could put further pressure on home prices unless housing construction ramps up.

BMO Senior Economist Sal Guatieri notes that Toronto’s population surged 2.6 percent annually in August, flagging that the rate of growth is the highest since the beginning of the 21st century.

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Yet housing starts have dipped to an annualized rate of 35,000 units, the lowest homebuilding pace since around 2015, creating a potential shortfall.

“Given strong demographic demand and the current tiny level of standing inventory of new homes, the imbalance between demand and supply can only point to higher prices unless we get a burst of new construction soon,” Guatieri writes in a note sent to clients this morning.

It’s not just the overall level of construction that could inflate prices, it’s the type of dwellings that are being built as well, Guatieri suggests.

“The fact that the vast majority of new units are not single-family homes (which can house more people than a condo) only adds to the upward pressure on prices,” Guatieri continues.

There are already some signs that pressure is mounting on prices, even for the beleaguered detached-home segment, which was hit hardest following the introduction of a foreign-homebuyer tax for the region and tougher federal mortgage rules.

Last month, detached home sales in the GTA surged 21.3 percent annually, while prices increased a nominal 0.3 percent to an average of $978,920.

The population growth is part of a broader trend creating demand for housing in the country, a separate note from Guatieri’s colleague Robert Kavcic, another BMO senior economist, suggests.

Countrywide housing starts reached an annualized rate of 226,600 units in August, which was higher than expected, diverging from the shortfall observed in Toronto.

“This reflects strong demographic demand, both from international inflows and new households created within Canada. It also just reinforces that the correction we saw in the resale market has remained contained,” Kavcic writes.

“The construction side of the Canadian housing market still looks rock solid.”

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