December building investment data highlighted the drag of construction on B.C.’s real economy in 2020.
The combination of soft demand for pre-sale condominiums in recent years and fewer projects in the pipeline, coupled with pandemic effects on capital spending, contributed to the lowest annual building investment since 2015.
Consistent with a late-year increase in building permits, spending on building construction (which captures the workflow of projects under construction) ticked higher in December but remained well below year-ago levels.
Inflation-adjusted investment rose 3% from November but was off nearly 9% below same-month 2019. Year-over-year residential investment fell 6.5% while non-residential investment fell 13.5%.
On an annual basis, inflation-adjusted building investment declined 10.3%. Residential investment fell 12%. Fewer housing starts last year, reflecting fewer condominiums in the project pipeline and unit completions, contributed to declines in work underway. Meanwhile, real investment in non-residential building fell 5.9% but followed a gain of 22% in 2019. A strong base-year effect contributed to the drop, but the pandemic also triggered more businesses to shutter, delay openings or conserve cash, contributing to a drop in private-sector construction.
In contrast, government investment edged slightly higher, likely reflecting ongoing investments in schools and health facilities. Lower investment dovetails with the decline in construction employment of 11% in 2020.
Real building investment fell across metro areas, led by a 13% decline in Vancouver, a 19% drop in Kelowna and a 15% decline in Abbotsford-Mission.
On a current-dollar basis, B.C. building investment declined 8.7%, suggesting an increase in construction costs of about 1.7% despite the pandemic. That said, growth was slower than 2019’s pace of 4.8% and the more than 7% rise in 2018.
Investment is expected to climb this year as the pandemic wanes and a lift in business spending and stronger resale market demand triggers an uptick in new home construction.
New motor vehicle sales bounced back in December to end the year on a solid note, pointing to firm consumer demand for durable goods. Sales in B.C. and the northern territories reached 13,677 units in December, marking a year-over-year increase of 5%. •
Bryan Yu is chief economist at Central 1 Credit Union.
