B.C. Housing Starts Slip but Stay above Trend
By Bryan Yu, a Deputy Chief Economist at Central 1 Credit Union.
“Builders and developers continued to feed B.C.’s construction machine through June, with urban-area housing starts reaching an annualized pace of 37,300 units. While down 22% from May’s pace of 45,800, starts remained elevated and above trend.
Multi-family building volatility again drove the swing in activity as apartment starts fell 30% from May to more than offset a rise in townhome construction. Detached-housing starts were steady. Housing starts in the Vancouver census metropolitan area (CMA) led the drop, contributing most of the provincial multi-family decline. Starts in Kelowna fell by half relative to May, while activity rose in both Victoria and Abbotsford-Mission.
Monthly volatility is the norm when it comes to housing starts, and while June’s decline was significant, particularly for the Vancouver CMA, this is not the start of a down cycle. Housing starts are forecast to track a moderate annualized pace of 35,000 to 40,000 units in the second half of the year. This reflects strong demand from a high-growth economy, population inflows to large urban markets, favourable borrowing costs and strong presale conditions in recent years.
A tight condominium market and seller’s-market conditions in large urban areas will keep demand for new product strong, but high levels of units under construction are likely a capacity constraint for builders. Other constraints to housing starts include affordability erosion via higher prices and interest rates, potential government policy and wildfires in the Interior.
Annual housing starts, including rural areas, are forecast to decline 8% to 38,400 this year, though 2017 is expected to remain among the strongest years on record. Starts in 2018 are forecast at just above 40,000 units.
Non-residential building intentions in B.C. eased in May but momentum remained positive. Dollar-volume permits reached a seasonally adjusted $329.8 million, down 2.5% from April, but up 8.3% from same-month 2016. Chief contributors to the increase were related to mining and agriculture, factories and plants, office buildings and general trade structures, while public-sector permits fell after an April surge.
Year-to-date, permit volume rose 6.2%. While May was driven by private-sector activity, 2017 gains have been heavily reliant on public-sector permits led by schools including universities. Regionally, permits were up in most development regions in the province, led by southern B.C. and the Islands and the North Coast and Nechako.”
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