Housing market, construction among key forces cited
Michael Kane
Sun
Helmut Pastrick, chief economist, Credit Union Central B.C. Photograph by : Glenn Baglo, Vancouver Sun
Are there blue skies ahead for British Columbia’s economy, or is the sky falling? Choose your analyst and take your pick.
A sharp slowdown in housing starts and a dramatic decline in employment growth will slow provincial growth from 3.0 per cent this year to 2.8 per cent in 2007, BMO Nesbitt Burns suggested Thursday.
But just hours later, RBC Financial Group countered with a forecast calling for strong growth in the province of 4.2 per cent this year, and 3.9 per cent in 2007.
The primary cloud on B.C.’s horizon for RBC is the risk of overheating an already booming economy in the run-up to the 2010 Olympics.
Local analysts lean in RBC’s direction, and none interviewed Thursday would endorse the 30-per-cent decline in housing starts anticipated by Arlene Kish in the quarterly BMO Provincial Monitor.
Kish said higher borrowing costs and slowing demand will reduce housing starts from 33,000 this year to little more than 23,000 in 2007.
“We don’t think the very high levels of activity can be sustained,” she said in an interview.
At the Vancouver office of Canada Mortgage and Housing Corp., senior market analyst Cameron Muir said declining affordability and supply constraints will reduce housing starts next year, but only to 31,300, not dramatically off last year’s peak of 34,667.
And Helmut Pastrick, chief economist at the Credit Union Central of B.C., predicts starts will increase this year and next, to meet demand and because the construction industry is investing more than $100 million this year to increase output.
“The supply of construction labour, while tight, is also expanding and the demand for more new housing is high,” Pastrick said. “People are moving here, prices are high, market conditions are expected to remain generally tight. And so long as the demand side holds up, we should see more starts, not less.”
Jock Finlayson, executive vice-president of the Business Council of B.C., doesn’t anticipate a steep drop-off in housing starts or employment growth. He expects 2.5-per-cent job growth this year and 2.0 per cent or higher next year, compared to Kish’s forecast of 2.4 per cent this year and 1.4 per cent in 2007.
Kish acknowledges B.C.’s strong non-residential construction sector, including the 2010 Olympics, and the vibrant mining sector, but she says skilled labour shortages are becoming an issue.
In his report, RBC chief economist Craig Wright notes that both the housing and non-residential markets are booming, building permits are climbing, and there has been a rise in public and private infrastructure spending on major projects.
“B.C.’s growth remains solid with strong fundamentals and a favourable fiscal situation,” he said in a release. “However, the need for prudent fiscal management is vital, given the risks leading up to Vancouver 2010 that could overheat an already booming economy.”
Wright’s worries are labour shortages, the risk of a U.S. slowdown for lumber producers, a further rise in the Canadian dollar, lower natural gas prices, and higher 2010 venue prices due to the heated construction environment.
Kish expects B.C.’s forest industry to face weaker demand as housing activity slows on both sides of the border, and suggests its woes will be compounded by a loonie topping out at 90 cents US this year, before receding in 2007 as the Bank of Canada stops tightening interest rates and commodity prices ease.
However, forests analyst Craig Campbell at PricewaterhouseCoopers in Vancouver said both currency concerns and talk of a U.S. housing bubble have been overstated.
“I have heard about the housing bubble for three years now and the fundamentals are just not saying there is going to be any retraction in building activity in the U.S.,” Campbell said in an interview.
“Housing starts will remain strong for the forseeable future, subject to some major shifts in the economy, and these things aren’t going to happen. We have already seen the Canadian dollar go sky-high and housing starts are still strong and Canada still has one-third of the U.S. lumber market. We’ve survived the oil shock, and the outlook for B.C. lumber is solid.”
© The Vancouver Sun 2006
