Economist sees clouds on B.C.'s economic horizon
Olympics costs, wages must be controlled to avoid 'boom-bust scenario'

Vancouver Sun

Tuesday, July 05, 2005


B.C.'s economy will be among the country's leaders over the next two years, but an economist warns there are some potential dangers in the forecast growth, particularly in the area of construction costs.

Derek Holt, assistant chief economist for RBC Financial Group, said that, given the province's current "stressed housing-affordability ratios, the number of people migrating to B.C., and the upward pressures upon labour costs in a very tight labour market", adding new construction of 2010 Olympic venues could create an overheated economy.

"Adding these megaprojects only adds to price and wage pressures even further," said Holt. "The thing is to keep those prices and wages in check and to make sure the megaprojects are relying upon imported labour and achieving realistic timelines so as to avoid that overheated boom-bust scenario."

RBC Financial Group today released its quarterly Provincial Outlook, examining the economies of the 10 provinces. British Columbia, which led all provinces in growth in 2004, is expected to experience about 3.6 per cent growth in 2005, second only to Alberta's 3.9 per cent. B.C. is also expected to experience 3.6 per cent growth in 2006, third to Newfoundland's 6.1 per cent and Alberta's 3.9 per cent.

Newfoundland will lead all provinces next year, the report states, because production will begin at its two megaprojects, the Voisey Bay nickel mine and the White Rose offshore natural gas site.

The report states that a number of factors have led to B.C.'s strong showing, including increased housing construction, natural gas activity in the northeast region, a change in the provincial government's fiscal position, the re-opening of Interior mines, a resurgence in high-tech industries and increased economic activity with China.

"The economy has managed to shift its trading opportunities away from Japan and all of its weakness over the last decade, and more toward China and the very strong U.S. economy," said Holt.

However, the RBC report ranks B.C. seventh in 2004 international exports at 30.8 per cent of gross domestic product, ahead of only Saskatchewan (30.1 per cent), Prince Edward Island (29.4) and Nova Scotia (27.3).

The report puts B.C. fourth in housing starts behind Ontario, Quebec and Alberta.
© The Vancouver Sun 2005

In other words, B.C. could drown over its own success?

We seem to be growing to fast for our own good, but we will all know by 2007 I think .

In other words, B.C. could drown over its own success?

Ironic, isn't it.

Wishing for the best though.

Land, skills shortage drive up home costs
Builders have hit a 'ceiling' in starting new housing projects

Bruce Constantineau
Vancouver Sun

Tuesday, July 12, 2005

The pace of home construction has fallen dramatically in Greater Vancouver because of a shortage of skilled workers and suitable properties, doubling the cost of residential building over the past five years.

According to a Canada Mortgage and Housing Corp. report, the number of housing starts during the first six months of 2005 fell 12 per cent to 8,574 units while the number of Fraser Valley starts declined 17 per cent to 3,488 units.

CMHC analyst Cameron Muir said home builders have hit a "ceiling" as they try to start new projects while coping with a record number of housing developments already under construction throughout Greater Vancouver. He said a record 18,565 housing units were being built during the first half of this year.

"Builder and developer resources are already stretched to the limit," Muir said in an interview.

"They're finding it tough to ensure there are enough tradespeople around to build the units already underway."

Cressey Development Corp. vice-president Hani Lammam said the Vancouver-based home builder has built up a significant land bank of future development sites, but a shortage of skilled trades and price uncertainties associated with those trades, have reduced the amount of new house construction activity.

He said builders can no longer sell their housing units first and then lock in contracts with tradespeople to build those units at a later date.

"That's too big a risk now because construction costs are escalating so fast that we might lose our margin," Lammam said in an interview.

He said rising labour and materials prices have pushed up residential construction costs in Vancouver to at least $200 a square foot for quality multi-family projects, up from $120 a square foot five years ago.

Muir said a strong rebound in the non-residential construction sector in B.C. -- fuelled by transportation and Olympics-related projects -- means Vancouver home builders must compete with non-residential builders for materials and tradespeople, which drives costs higher.

Lammam said another reason for the new house construction slowdown can be found at the municipal level, as some municipalities become too busy to process new housing project applications expeditiously.

Muir said the slowdown should prevent any kind of oversupply situation from developing, which could cause the housing market to "burst" at some future point.

"Since there's a ceiling of new homes being built and inventories are low, builders are constrained from overbuilding," he said.

While some Greater Vancouver developers still have significant land holdings for future housing projects, others are not so fortunate and land-supply constraints have become a big issue in the market. Muir said the biggest and best sites have already been taken, so many developers now are keen on "brownfield" sites -- properties that were formerly industrial sites.

Park Lane Homes, for example, currently plans to develop a major housing project on a former lumber operation site along the Fraser River in Fort Langley.

"Ten years ago, builders wouldn't touch those sites with a 10-foot pole, but today they represent some of the largest sites that are close to urban areas," Muir said.

Greater Vancouver Home Builders' Association chief executive officer Peter Simpson said he's not worried by the drop in new housing starts so far this year.

"Being down 12 per cent from the best year in a decade isn't really something we're overly concerned about at this point," he said. "It's still a good year."

Simpson said builders are more concerned now about the supply of building materials than about rising costs.

"So far, nobody has had to wait long for things like drywall and steel and lumber, but we monitor that all the time to make sure there is enough supply out there to feed the demand," he said. "We're competing against other parts of Canada for these materials."

Simpson said that despite rising prices, the demand for new Greater Vancouver housing remains strong because mortgage rates are still very attractive, with five-year mortgages available for just over four per cent. He noted that 47 per cent of household income was required to service debt in Canada in 1990, but lower interest rates have pushed that figure down to the 30-per-cent level.

"It would take a mortgage rate of more than 13 per cent to push us back to 1990 [debt-service ratio] levels," Simpson said.

bconstantineau@png.canwest.com

- - -

BY THE NUMBERS

Housing starts in urban areas fell in June, a trend seen in many areas since the start of the year.

June 2004 to June 2005

Jan.-June '04 to Jan.-June '05

Vancouver

-23.8%

-12.2%

Victoria

-6.4%

-6.8%

Abbotsford

+101.4%

-7.0%