Photo: Roland Tanglao/Flickr
A slowdown in BC homebuilding could be a sign that several factors — including interest rates and multiple policy measures — are taking hold and pushing back groundbreakings, a new report suggests.
BC homebuilders are on pace to begin work on 29,860 units annually in urban areas throughout the province, according to the latest estimates from the Canada Mortgage and Housing Corporation.
Although it’s an increase from the seasonally adjusted annualized rate for September, when contractors were on pace to break ground for 25,500 such units, it’s down from the 40,000 homes BC builders were trending towards over the first eight months of the year, says Central 1 Credit Union.
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In Central 1’s latest B.C. Economic Briefing, its deputy chief economist outlines a number of developments that may be discouraging homebuilding, at least for the time being.
“While this [decline in housing starts] could be a coincidence, the combination of decelerated resale market conditions, higher interest rates, sluggish pre-sale activity since the introduction of mortgage ‘stress tests’, and announcement of a speculation tax, may be delaying project construction,” writes Bryan Yu, who has also worked for CMHC and the British Columbia Real Estate Association.
“Builders across the metro areas have seemingly ‘hit pause’ on new construction in September and October,” Yu adds.
Some markets were hit harder than others. Metro Vancouver saw housing starts hit an annualized rate of 17,920 units in October, overshooting the 14,240 units from September but below the 25,000-unit average observed in earlier months. Meantime, Kelowna’s annualized starts were pegged at 700 units last month, a far cry from the March–August average of 3,500 homes. “Unsurprisingly, multi-family construction was behind the sharp retrenchment, reflecting size and infrequency of projects,” Yu explains.
Yu doesn’t rule out a short-term recovery in construction levels, but his longer-range view suggests activity will remain dampened in the coming years. “Volatility in construction timing and project start dates could lead to a sharp rebound in the upcoming months,” he says. “Nevertheless, the trend is forecast to ease over the next two years given rising resale inventory, and policy constraints impacting housing demand.”
Unsold condo inventory in Metro Vancouver is already growing, says separate analysis from real estate consultancy Urban Analytics. The firm says unsold available new condo units totalled 4,478 last quarter, up 44 percent from the previous quarter.
“The increased amount of competitive supply being released to the market over the coming months combined with the softer demand will likely put additional moderate downward pressure on achievable sales values,” the Urban Analytics report reads. New condo prices have already fallen 5 to 15 percent, depending on the submarket, from their peak around the end of last year.
Urban Analytics expects this trend to continue as competition among builders leads to more price cuts.