Slight dip shows industry has reached its capacity
Gillian Shaw
Sun
Housing starts dipped slightly in Vancouver last month, but only because B.C. builders are so busy the residential construction industry has reached its capacity, according to the Canada Mortgage and Housing Corp.’s latest report.
In the Lower Mainland, it’s a case of “if you build it they’ll buy it,” but developers are already producing as much inventory as they can, the report suggests.
Multiple housing starts totalled 1,381 units in May, up two per cent from the same period last year, while single-detaching housing starts dropped 17 per cent to 416 units, with an overall drop of three per cent to 1,797 units in May compared to May of 2004.
However, the drop indicates housing construction is at capacity, not that there is any dwindling in demand, according to Cameron Muir, senior market analyst at CMHC.
“Demand is still very strong out there,” said Muir. “There is still a hefty number of units being built, but the capacity of the industry has been pretty much reached.”
Muir said the factors that are keeping housing stats from rising even further include:
– A limited and shrinking land supply, particularly in downtown Vancouver but also in areas out from the city centre and into the suburbs. Developers are turning to so-called brownfield sites, former industrial sites that may require extra work to make them usable, because the prime building sites have been used up.
– A shortage of trades people to fuel the labour needs of the construction boom.
– A shift in straightforward multi-family towers to more complex mixed-use building, increasing both the time to get the project approved and off the ground and the construction time to complete it.
The CMHC is forecasting about 19,500 housing starts this year, making it probably the fifth or sixth best year in history, according to Muir, but there is no expectation it will crack the 20,000 mark.
Compared to the rest of Canada, housing inventory in Greater Vancouver is slim. Muir said there are only about 100 units that are completed and unoccupied in the region, whereas five years ago that number would have been around 2,600. In the downtown core, that inventory stands at zero today, said Muir.
“If you want to buy in the downtown core, you are going to buy a unit that’s under construction, or a parking lot with a sign on it,” said Muir. “Builders and developers are seeing their inventory waning.
“We now have 11,500 apartments and condos under construction in the Lower Mainland, but 75 per cent of those are sold.”
Muir said while builders and developers know new construction will be snapped up, they can’t increase their output to meet the demand.
“Low inventories and high pre-sale activity is the signal to increase the number of units being built, but we’re not seeing that because of the land-supply issue, the more complex developments, and as well a workforce in the construction side that is finite,” he said.
A report by Scotia Economics, said the national housing boom may be coming to an end because of rising construction costs that are being fuelled by higher prices in building materials, by increasing development fees, and by rising land values.
Scotia Economics senior economist Adrienne Warren said inventory is building up in such cities as Toronto and Montreal, but the experience is not being shared in Vancouver and Victoria.
“Things are slowing down to a more sustainable level,” said Warren. “It’s not so much a hard landing or a bursting of the bubble, but an easing of the growth.”
Warren said rising construction costs are just one factor expected to contribute to a slowdown in the housing market in the next couple of years. “We have already seen a peak in construction last year,” she said. “Rising construction costs is one factor, there is also an inventory of unsold homes building up, particularly in the condo market and there has been a reduction in pent-up demand.”
Peter Simpson, chief executive officer of the Greater Vancouver Home Builders’ Association said his industry is so busy that builders will be pushed to meet this year’s forecasts for housing starts. He pointed to a reversal that has seen multiple housing starts climb to far outstrip single-family housing starts.
“Twenty years ago 45 per cent of housing starts were multiple, today multiple housing represents 75 per cent of housing starts,” he said.
