Building permit activity rebounded in November as residential construction intentions rose to coincide with a rise in housing starts.
The total value of permits rose 17.4% from October to a seasonally adjusted $1.47 billion – the highest level since June. Residential permits drove the entirety of the gain with a 28% increase to reverse a 10% drop in October. Non-residential permits declined 2.4%.
While the permit trend has increased, construction intentions remained sharply lower through 11 months compared to same-period 2019. Total volume fell 12.5%, with residential permits down 9.5% and non-residential activity down 19%. This reflects a combination of factors. Fewer pre-sale condominium sales in prior years due to demand-side restrictions cut the number of projects in the pipeline. Meanwhile, the pandemic likely curtailed some residential activity in the front end of the crisis, but has largely factored into a sharp decline in private-sector construction as many businesses shuttered at least temporarily and cut costs to survive. Public-sector construction provided a partial offset with a 34% increase due to construction of schools and hospitals and other infrastructure.
In metro areas, year-to-date total permits were down 15% in Vancouver, 26% in Abbotsford-Mission and 35% in Kelowna. Victoria permits rose 14%.
Headline consumer price inflation in B.C. rose sharply in November owing largely to higher shelter costs and base-year factors. Growth in the consumer price index jumped to 1.1% year-over-year, compared to 0.5% in October. This exceeded national inflation of 1%.
The sharp increase reflected a number of factors. Ownership costs accelerated to 2.9% from 2.4% in October as a strong housing market lifted replacement costs despite lower mortgage interest rates. Costs of big-ticket furniture items and furnishings have also increased at a faster rate as strength in housing markets has generated high levels of ancillary demand. Gasoline prices were still down sharply from same-month 2019 by 12.3% but generated less downward pressure on inflation compared to October’s 18% drop. This is due to a temporary base effect in November 2019.
In contrast, consumers experienced less food price inflation, which fell from 2% to 1.6%, while rental costs slowed from 1.8% to 1.2%. Clothing costs declined 2.9% year-over-year, and recreation costs fell 0.7% owing in part to travel costs.
Despite the latest increase, inflation remains mild and some of the temporary drivers will likely reverse. This reflects an economy operating below normal capacity, although in some sectors higher costs for personal protective equipment is being passed on to consumers.
Bryan Yu is chief economist at Central 1 Credit Union.
