New construction starts in British Columbia fell 10 per cent in July, Canada Mortgage and Housing Corp said Tuesday.

Starts dropped from about 12,000 in June to 10,800 last month.

Carol Frketich, regional economist with CMHC, said the slowed growth can be mainly attributed to a decrease in multiple unit starts.

"Developers have been adjusting to fluctuations in the resale market. With resale housing up, there is less building," she told ctvbc.ca.

CMHC expects starts to increase towards the end of 2009, with starts in B.C. gradually predicted to become more aligned to demographic demand, currently sitting at about 175,000 units a year.

"It's back to supply and demand," Frketich said. "There was lots of supply in resale in 2008 -- so buyers would look there first. Now there is less on the market, so developers will start building again."

While multiple unit construction fell, CMHC marked a "good pickup" in single-detached home construction, rising from 4,700 to 5,300 starts in the same period.

New construction is down overall 68 per cent in British Columbia from last year, when both builders and homebuyers responded to low interest rates and a strong economy.

The impact of HST

Though CMHC has yet to formally analyze how the harmonized sales tax will affect the B.C. market, Frketich predicts many buyers may rush to buy before it comes into effect.

"There could be a pickup in new home sales before the HST is implemented so people can make their purchase exempt from the tax," she said.

"But a lot depends on how the housing market shakes out in the next year."

Frketich says builders are keeping a close eye on housing inventories - new homes that are finishing construction and are ready for occupancy.

"They'll keep an eye on those numbers, whether listings have come down in the resale market and whether the supply of new housing starts has come up."

By market

Vancouver's housing starts fell to 3,858, down from 12,000 in the same time period last year.

Across B.C., the main drops in new construction were primarily in Vancouver and Surrey, with Langley City still seeing an increase.

Part of the reason is that developers are hesitant to start big projects in a downward economy.

"So developers really aren't starting those big condo towers, and focusing on smaller phased projects, where each phase is introduced gradually, and it's less risky," Frketich said.

"Developers are watching resale market conditions and the financing available. Costs are another big consideration."

CHMC forecasts 21,700 housing starts for 2010, about a 10 per cent increase from 2009.

B.C. is on par for numbers across Canada.

Starts in Ontario dropped 15 per cent from June to July, while Quebec housing starts jumped 16.6 per cent in the same period.