During Canada’s housing downturn, homebuilders are getting stuck with more and more unsold new homes on their hands, and that’s causing them to hold off on beginning work on new projects that are already approved.

That’s a takeaway from a recent National Bank report, which says the gap between building permits, paperwork that gives a homebuilders the greenlight to begin construction, and housing starts, which is when work actually begins, has widened to record levels in the multi-family segment (that’s largely comprised of condos).

Such a gap could indicate a future pickup in construction, but National Bank Senior Economist Krishen Rangasamy notes why this time a rebound is “not really” expected.

“[B]uilding permits for multis are not materializing into starts in part due to the large amount of unabsorbed inventories of newly completed units,” says writes Rangasamy in a Hot Charts brief.

“In urban areas, the gap is particularly large for multis, i.e. dwellings other than single-detached homes,” Rangasamy notes.

The senior economist says that the number of unsold-but-already-completed homes has risen sharply in the 15 months since federal policymakers tightened lending rules.

As of January 2018, uninsured mortgage borrowers were subject to stress testing during the application process.

Previously, homebuyers could sidestep the stress testing by putting forward a downpayment of at least 20 percent, the minimum requirement for an uninsured mortgage.

But after the rule change, uninsured mortgage borrowers need to qualify at a rate that is 20 percent higher than their contract.

With a higher hurdle to homeownership, sales activity has slowed on the resale market. Existing home sales were down 4.4 percent annually in February, according to the most recently available Canadian Real Estate Association data.

It appears the new-home market has been hit similarly, if mounting inventories and project delays are any indication.

“In other words, expect overall housing starts, which fell to 213K last year, to descend further towards levels that are more consistent with demographic needs (180-190K),” Rangasamy concludes.

Canadian Developers Could Be Building More New Homes Right Now. Here’s Why They’re Waiting by Josh Sherman | Livabl