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B.C. real estate market chill cools home construction

Policy-induced downturn has eroded home values and led to fewer housing starts, reports economist
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The policy-driven chill in the resale market, which has triggered declining home values and slowing pre-sale purchases, may finally be translating into curtailed new home construction.

The latest Teranet-National Bank House Price Index for March showed further price erosion in both Vancouver and Victoria, as well as declines in Kelowna and Abbotsford-Mission.

Housing starts slumped for a second straight month in March as fewer apartment units broke ground in the census metropolitan areas (CMAs) of Vancouver and Victoria. Total urban-area B.C. starts declined 10 per cent from February to a seasonally adjusted annualized rate (SAAR) of 32,493 units, and 30 per cent from same-month 2018.

Starts in the Vancouver CMA declined by a SAAR of 16 per cent to 20,960 units in March, while Victoria starts declined more than 50 per cent to 2,084 units after surging in February. Both Kelowna and Abbotsford-Mission posted higher starts.

Through the first three months of 2019, total starts declined nine per cent compared with same-period 2018. Detached-housing starts fell 28 per cent, with multi-family units down a moderate four per cent. Rental starts fell 31 per cent from same-quarter 2019, while combined homeowner and condominium starts were down 1.7 per cent. Lower rental construction may reflect more stringent rental policies and fewer secondary suites being built. Vancouver starts declined 16 per cent through the first quarter. Starts were up 63 per cent in Abbotsford-Mission, 34 per cent in Kelowna and five per cent in Victoria.

Forecast trend

Housing starts are expected to trend lower this year as weak housing demand curtails building activity. Anecdotally, development is slowing or delayed on lower uptake of pre-sale units. Units under construction remained near a record high at 58,322 units in the first quarter of 2019, while standing inventory of new units is on the rise and the highest since 2015. This does not include rising numbers of recently completed units listed for sale by investors or owners. We forecast annual total housing starts (inclusive of rural areas) to decline by 20 per cent this year to 32,600 units. Lower residential investment growth will be the main drag on B.C. economic growth.

While residential permits stumbled, a rebound in industrial and government building intentions provided a partial offset for the construction sector. Non-residential permits rose 15 per cent or $63 million from January to $475.6 million (seasonally adjusted). In January, permits fell more than 50 per cent owing mostly to a one-off surge in December. The latest two months of activity closely aligns with the 2018 trend.

Bryan Yu is deputy chief economist at Central 1 Credit Union