New home construction gains strength in B.C.

B.C. housing starts picked up traction in August with levels climbing to an annualized rate of 42,564 units.

This was the first time starts exceeded 40,000 units in back-to-back months since late 2019. Starts rose 6.3% (2,508 units) from July and 21.7% year-over-year. While often volatile given the impact of apartment structures on unit counts, gains were observed in the construction of detached homes and a doubling of townhome starts from July. Apartments starts held steady. The Vancouver census metropolitan area, which posted a gain in annualized starts of 5,350 units to 29,754 units, was the main contributor to the increase. Abbotsford-Mission starts nearly tripled to 1,431 units. These were offset by declines in Kelowna, Victoria and other markets.

Nevertheless, housing starts held sharply below last year’s record pace, with year-to-date starts down 23%. Detached starts declined 12%, while multi-family activity fell 25%. Vancouver Metro starts declined 29%, with Abbotsford-Mission down 16%. Victoria and Kelowna starts rose by 5% and 8%.

Provincial housing starts are forecast to come in at 34,700 units this year compared with 44,900 units in 2019. While recent housing demand has been lifted by lower interest rates, less pre-sale condominium activity in recent years has constricted the number of projects in the pipeline. Stronger current demand could provide lift, but this will be offset by a period of slower population growth and weaker rental market demand. Starts are forecast to rise to 36,300 units in 2021.

The B.C. government’s latest fiscal forecast points to a massive deficit for fiscal 2020-21 following a small deficit for 2019-20.

The pandemic and severe government policies to bend the COVID-19 curve have crushed economic activity, while governments turned on the taps to provide substantial fiscal support for households. A deficit of $12.792 billion for fiscal year 2020/21 is forecast, which compares with a pre-pandemic plan of a $227 million surplus in Budget 2020. Public accounts show a $321 million deficit for 2019/20

Revenue is forecast at $56 billion, marking a difference of 7.5% ($4.57 billion) from the Budget 2020 forecast and a drop of 4.5% from fiscal year 2019/20. The effects of lower employment, smaller profits and reduced consumer spending have cut into income taxes and sales taxes. •

Bryan Yu is deputy chief economist at Central 1 Credit Union.