B.C. market chill cools home construction

AThe 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% from February to a seasonally adjusted annualized rate (SAAR) of 32,493 units, and 30% from same-month 2018.

Starts in the Vancouver CMA declined by a SAAR of 16% to 20,960 units in March, while Victoria starts declined more than 50% 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 9% compared with same-period 2018. Detached-housing starts fell 28%, with multi-family units down a moderate 4%. Rental starts fell 31% from same-quarter 2019, while combined homeowner and condominium starts were down 1.7%. Lower rental construction may reflect more stringent rental policies and fewer secondary suites being built. Vancouver starts declined 16% through the first quarter. Starts were up 63% in Abbotsford-Mission, 34% in Kelowna and 5% in Victoria.

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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% 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% or $63 million from January to $475.6 million (seasonally adjusted). In January, permits fell more than 50% 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.