After several years of strong growth, Vancouver’s economy is poised for a pull back this year and next, partly the result of the fallout of a cooling housing market.
Local real GDP is forecast to grow 3.2 per cent in 2017 and 2.5 per cent in 2018, according to the Conference Board of Canada’s Autumn 2017 Metropolitan Outlook, published on Tuesday.
The slowdown comes following a five-year period that saw the Vancouver economy grow by nearly 4 per cent on average annually.
“It’s still pretty decent growth, it’s just not red-hot like it was two years ago,” Robin Wiebe, Senior Economist at the Conference Board of Canada, tells BuzzBuzzNews.
Wiebe says the projected economic growth this year and in 2018 is relatively healthy when compared to the city’s average of 3 per cent over the last 20 years.
He also notes that Vancouver’s economic deceleration will be broad-based, affecting all sectors of the economy.
But growth for Vancouver’s largest industries — finance, insurance and real estate — will be heavily impacted by the city’s overall economic decline.
A cooler housing resale market is easing output growth in those three industries thanks to a foreign-homebuyer tax implemented by the BC government in August 2016 for Metro Vancouver.
“As recently as 2015, finance, insurance and real estate was expanding nearly 7 per cent per year, and then last year it slowed to just under 5 per cent and this year we’re looking at 3.4 [per cent],” says Wiebe.
Immediately following the levy, activity eased in the market as buyers moved to the sidelines. However, early this year consumer confidence picked up steam and the market rebounded. According to Wiebe, the market has been on the verge of sellers’ territory since February.
Although Vancouver’s expected economic growth levels for this year and 2018 are still considered stable, a number of factors could change actual growth numbers.
For one, rising interest rates will further erode Vancouver’s poor housing affordability, says the Conference Board. Another vulnerability is the introduction of new mortgage regulations by the Office of the Superintendent of Financial Institutions (OSFI). On Tuesday, the federal agency which regulates Canadian banks, approved a proposal that requires financial institutions to use a stress-test for uninsured mortgages — a move the Conference Board says will “seriously limit Vancouver residents’ housing choices.”
With relatively fewer foreign buyers, increased rate hikes and a slowing economy, housing demand in Vancouver will decelerate over the next two years, says the Conference Board.
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As the city is still grappling from the impact of the foreign-buyer tax, the Conference Board says Vancouver’s new-home market is currently showing mixed signals.
In 2016, construction starts saw a 5.5 per cent expansion, but growth is expected to post modest increases of 1.5 per cent this year and 1.9 per cent and in 2018.
This year Vancouver’s new-home market saw ample unsold stock of multi-family units and a big decline in apartment inventories. The Conference Board says this indicates strong demand for more affordable units and that construction of multi-family homes is relatively low following a surge in 2016.
According to the Conference Board, single-family and multiple-home starts will ease this year. Total housing starts will fall from a record 27,900 units in 2016 to under 25,400 units in 2017 and 23,600 units in 2018.
Despite a significant decline, the near-term outlook for housing starts remains strong and well above the prior 10-year average of 18,700 units.
In 2017 and 2018, the Conference Board notes that construction output growth in Vancouver is staying out of negative territory thanks to the help of solid non-residential investment activity. Major projects in the pipeline, including the expansion of the Vancouver International Airport, are expected to help expand construction output well into next year.
Although Vancouver’s economy is expected to ease this year and next, Wiebe says the economy is still advancing with steady population growth and employment opportunities.