New housing construction rose last month on Vancouver Island and across the country.

Ground was broken on 391 new homes on the Island in January, an increase of 131 per cent from January 2009.

"It's in response to the resale market, definitely," Travis Archibald, senior market analyst for Canada Mortgage and Housing Corp., said yesterday. "We've seen less supply and more demand in the resale market. It's finally trickled down to the new construction market, where builders are responding to that need for housing."

The rebound in new construction started last year, Archibald said.

Greater Victoria accounted for the largest chunk of new housing construction, with 248 new homes getting underway. "This marks the highest level of monthly residential construction activity since May 2008, and is well above the 10-year January average," Archibald said.

Within the capital region, Langford led the way with 91 housing starts. Of those, 49 were apartments, 37 were single-family homes and five were semi-attached or row housing.

Saanich followed with 56 new housing units. Apartments accounted for 46 starts and there were 10 single-family houses underway.

Nationally, housing starts beat estimates in January, rising to the highest level since October 2008. That prompted some industry experts to warn that the new supply, coupled with future higher lending rates, could trip price gains in the second half of the year.

Canada Mortgage and Housing said national housing starts advanced 5.8 per cent in January to a seasonally adjusted annual rate of 186,300 units, up from 176,100 units in December.

Analysts polled by Bloomberg News had called for an annualized rate of 180,000 units.

It is the highest pace of construction since October 2008, when starts came in at 197,300 units, Scotia Capital economists Derek Holt and Karen Cordes wrote in a note to investors.

"Supply is rapidly coming back into Canada's housing market compared to the extreme shortfalls of last spring through summer, and that should have one increasingly concerned about house prices later this year," the note cautioned. "More supply, compared to the extreme tightness over last summer and into the fall, combined with higher future variable and fixed rates will combine to cool housing demand and pose downside risks to house prices over the second half of 2010 and into 2011."

TD Securities economics strategist Millan Mulraine said the numbers were skewed by building related to the Vancouver Winter Olympics.

"Overall, with the fourth monthly gain in residential construction activity in Canada, it appears that the new homes market is slowly coming back to life and may finally be benefiting from the resurgence in overall Canadian housing market activity," Mulraine said.

"However, with part of the uptick in starts likely to be coming as a result of temporary factors, namely the surge in Olympic-related housing in B.C., we believe that this report overstates the true strength of the recovery in residential construction and expect to see a modest pullback next month."

Canada Mortgage and Housing reported the seasonally adjusted annual rate of urban starts rose 4.4 per cent to 165,200 units in January from 158,300 in December. According to preliminary data, urban starts rose to 10,218 units on a monthly basis in January, from 7,309 in January 2009.

The numbers soared in B.C., where the seasonally adjusted annual rate of urban starts rose 19.8 per cent, while in Quebec rates rose 7.3 per cent.