B.C.'s new-home construction sector posted another blowout month in June as housing starts jumped to a record high going back to at least 1990.
Monthly seasonally adjusted housing starts rose to an annualized pace of 60,023 units, up from 53,600 in May and 76% above a year ago. While Metro Vancouver’s record pace was maintained, starts in other metro markets were mixed. Kelowna starts more than doubled to 2,900 units, while Abbotsford-Mission starts declined by half. Provincial gains in June were driven predominantly by smaller urban areas. For the quarter, non-annualized urban starts reached nearly 14,000 units – the most of any quarter stretching back to 1990, and 43% above year-ago levels. Strength has come from the apartment sector and is driven by Metro Vancouver building activity.
There is a severe disconnect between housing starts – which are up 18% through 2019’s first six months – and the resale housing market, where sales are sluggish and prices are declining, particularly in Metro Vancouver. Long development cycles are likely a driver. While home-ownership demand has slowed with policy measures, current project starts reflect projects pre-sold in previous years when the market was significantly stronger. Recent hikes to development cost charges in Vancouver drove higher building permits in April and likely pulled construction dates forward on some projects.
With the strong first half, housing starts could outpace 2018’s performance of more than 40,000 units. That said, this will only delay a more substantial decline in housing starts. Demand-constraining policies and elevated home inventory have curtailed pre-sale activity, which will lead to a drop-off in multi-family developments.
Non-residential construction momentum remained solid in May but declined for a second straight month. The dollar volume of non-residential building permits fell 5.2% from April to $627 million, which was the lowest level since February. Industrial permits fell 44% from April to $55.7 million, while commercial permits declined 18% to $397.7 million. Private-sector declines were largely offset by government permit values doubling to $174.1 million.
Despite the drop, permit volumes rose 67% through the first five months, compared with the same period in 2018. Public-sector permits have doubled, with commercial activity up 69% and industrial permits up 23%. Gains have been led by the Metro Vancouver area, which has seen a 68% increase in non-residential permits over the first five months of the year, and a 68% increase in Kelowna. Victoria permits rose 24%, while construction intentions fell 60% in Abbotsford-Mission. •
Bryan Yu is deputy chief economist at Central 1 Credit Union.
