Photo: Richard Eriksson/Flickr
The implementation of new housing policies in BC aimed at cooling skyrocketing prices could spell trouble for households and the economy.
In fact, a relatively minor 10 per cent dip in prices could mean an average home equity loss of $70,000 for households, according to a new report by the British Columbia Real Estate Association (BCREA), published today.
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“While some may see this as a paper loss, it will have a significant impact on the economy, as declining household wealth reins in consumer spending,” reads the report.
BCREA’s report highlights what impact a 10 per cent, 20 per cent and 35 per cent decline in home prices will have on British Columbians and the economy, including higher unemployment rates and fewer housing starts. The data was collected based on simulations using BCREA’s econometric model of the BC economy.
After a housing shock, in the first year following home price declines of 20 per cent and 35 per cent, BC households would lose an average of $140,000 and $245,000 in equity, respectively.
Along with a drop in equity, a negative home price shock could slow growth across BC’s economy.
A year following a 10 per cent drop in home prices, a total of 26,000 jobs would be forfeited, resulting in the unemployment rate rising to 6 per cent from the baseline of 4.9 per cent. Meantime, the economy would lose over $3 billion and real GDP growth would fall to 1.5 per cent from 2.7 per cent.
If home prices were to experience a further decline of 35 per cent, the economy would face even more worrisome declines.
Within a year, 64,000 jobs would be lost causing the unemployment rate to climb to 7.5 per cent. In addition, the economy would lose over $8 billion and real GDP growth would plummet into negative territory at -0.5 per cent.
“If home prices fell 35 per cent, a level some activists are championing, the BC economy would collapse into recession,” reads the report.
BCREA says a negative shock to home prices would also cause home construction activity to plummet. A 10 per cent home price shock would result in 10,000 fewer housing starts while drops of 20 per cent and 35 per cent would result in 14,000 and 19,000 fewer starts, respectively.
“A negative price shock would markedly slow the expansion of the housing stock, creating even more critical housing supply problems down the road,” reads the report.