OPINION: Housing starts are particularly strong in Metro Vancouver, but one analyst wonders if it's developers trying to beat increases in development charges.
“As of April,” she advised the committee, the province appeared to be on track for “51,093 housing starts, which is a very strong number.”
A very strong number was putting it mildly. James’s provincial budget, tabled in February, forecast that housing starts would decline from 41,000 last year to 34,000 this year, a 17 per cent drop.
She’d stood by that forecast in the legislature (“I am comfortable with the numbers”) as recently as May 7, during debate on the spending estimates for her own Ministry of Finance.
In addressing the all-party committee on June 10, James suggested that, far from a decline in housing starts, B.C. could be headed for a 24 per cent increase over last year and a 50 per cent better result than the forecast in her own budget.
I was out of town when James made her presentation to the finance committee in advance of the committee’s own public consultations on next year’s provincial budget. But her change on housing starts was reported elsewhere and relayed to me by several readers.
When I returned from holiday this week, I asked the Finance Ministry about the basis for the revision and the extent to which it had been incorporated into the budget.
“The minister was referring to B.C.’s housing starts for the month of April 2019, which at the time, were reported by Canada Mortgage and Housing Corporation (CMHC) as approximately 51,000 annualized units,” said the response from the ministry.
Annualized units being the forecast that results from extrapolating the starts for one month over a full 12-month period.
The ministry went on to note that the CHMC projection has continued to quicken since April, with annualized units at 53,000 units to the end of May and 62,000 by the end of June.
Numbers to conjure with if they hold throughout the year. But the ministry isn’t going that far, not yet anyway.
“Housing starts in B.C. remain above the historical average and the current year-to-date average is above Budget 2019’s forecast,” concluded the statement. “The ministry continues to monitor evolving economic trends and will incorporate the latest data into its economic forecast update, which will be published in the first quarterly report in September 2019.”
Such caution is characteristic of the Finance Ministry, which routinely builds several “levels of prudence” into its budgets, a practice James has continued.
For now, the word out of the ministry is as follows: “The ministry forecasts housing starts during the yearly budget process using historical trends, current data available and market conditions. The forecast in budget 2019 for housing starts in B.C. was 34,015 for 2019 and 31,846 for 2020. The long term historical average is close to 30,000.”
Seeking additional context, I contacted Central 1 Credit Union, umbrella organization for credit unions here in B.C. and elsewhere.
The agency’s most recent outlook, released at the end of May, forecast housing starts would decline to 35,000 units this year, or about the same level as predicted by James.
On Tuesday, deputy chief economist Bryan Yu acknowledged the improvement in the data from CMHC. He said the increase was largely confined to Metro Vancouver and mostly to apartment construction, both favourable trends for a government tackling affordability.
But he cautioned that it could still be a spike, brought on by factors like builders trying to get ahead of pending increases in development charges and latter day efforts in the faltering market for presales.
Yu expanded on those observations in a piece published Tuesday in Business in Vancouver.
“There is a severe disconnect between housing starts — which are up 18 per cent through 2019’s first six months — and the resale housing market, where sales are sluggish and prices are declining, particularly in Metro Vancouver.
“While home-ownership demand has slowed with policy measures, current starts reflect projects pre-sold in previous years when the market was significantly stronger,” he continued. “Recent hikes to development cost charges in Vancouver drove higher building permits in April and likely pulled construction dates forward on some projects.”
Even if the recent pace slackens in the remainder of the year, Yu acknowledged that on the basis of the strong first half, “housing starts could outpace 2018’s performance of more than 40,000 units.”
In the longer term, he forecast, “this will only delay a more substantial decline in housing starts. Demand-constraining policies and elevated home inventory have curtailed presale activity, which will lead to a drop-off in multi-family developments.”
As a further sign that not all indicators are headed in the right direction for James, on Tuesday her hometown newspaper, the Victoria Times Colonist, reported a five per cent drop in the value of residential construction this year over last.
Back in February, when the budget projected a decline in housing starts of up to 33 per cent over four years, I took it as evidence that her own ministry recognized that the New Democrats were not doing enough to increase in the housing supply.
But if the surge recorded by CHMC in the late spring proves to be sustainable, then come September’s update on provincial finances, James will be painting a much rosier picture on housing starts.