British Columbia’s economy is expected to lose momentum this year, as a slowdown in Metro Vancouver’s once red-hot housing market will no longer be able to sustain the province’s economy as it has in past years.
With home sales dropping, most notably in Metro Vancouver, since late spring 2016, fewer new homes will be built in the province this year, which will affect BC’s overall economic performance, according to a Business Council of BC (BCBC) report published last week.
“There’s still going to be a reasonable amount of activity but it’s not more than the previous year so it won’t be adding to growth. It will probably be detracting slightly from growth,” BCBC Chief Economist and Vice President Ken Peacock tells BuzzBuzzNews.
After three years of above average gains, BC’s real gross domestic produce (GDP) growth is anticipated to drop to a below average rate of 2.2 per cent over the next two years, compared to its above 3 per cent growth last year.
According to the report, residential real estate activity accounted for about 35 per cent of BC’s economic growth in 2015 to the first half of 2016.
Residential real estate activity refers to a boost from residential construction, real estate legal and financial services and a lift in parts of the retail sector.
However, as Metro Vancouver’s elevated sales activity tapered off in the latter half of 2016 and with the introduction of the 15 per cent foreign-buyer tax for the region further dampening sales, a drop in BC’s economic growth is to be expected, says the report.
The slowdown in the province’s residential real estate market is the biggest factor affecting BC’s overall economic growth this year and next, according to the report.
Other factors include a slowdown in BC’s export growth, job creation, consumer spending and in the tourism, film and TV industries.
Compared to 2016, single family home sales in Metro Vancouver, have declined 60 per cent and sales of attached and apartment units dropped 30 per cent, says the report.
Last year, BC recorded the highest number of housing starts since 1993, with almost 42,000, says the report.
With market activity cooling off, new home construction is expected to drop to 35,000-36,000 units this year and in 2018.
According to the report, residential sales in 2017 will continue to decline, as the market remains impacted by last year’s implementation of tighter mortgage insurance rules and the foreign-buyers tax.
Peacock says the factor that would have the biggest potential impact on the market may still be on the horizon.
An unanticipated increase in interest rates would dampen the housing sector even more than the foreign-buyers tax, he says.
“But there’s not any indication that there’s going to be any significant hike in interest rates,” he adds.