THE FOURTH QUARTER …
As the seasons begin to change and a note of fall is in the air, we look forward to the fourth quarter of 2022, and what can we expect? We have some significant headwinds to deal with including another potential wave of C19 as we move indoors, continuing inflationary pressures, and interest rates pushed up to combat inflation.
The market and the industry have seen marked slowdowns, but many members report being as busy as they ever have been and are continuing to be challenged by labour shortages in the face of substantial work in place now, and well into 2023. It remains to be seen as to what will prevail moving forward, and while there are many dire predictions of recession and significant reversals in housing prices and sales it may not all be doom and gloom.
Finance Minister Selena Robinson offered some observations recently that suggest that BC’s economy is still strong in the face of the noted headwinds. Unemployment is currently at 4.8%, and employment is up by 3.6%. Real GDP growth in BC adjusted for inflation is 3.2% in 2022 and projected at 1.5% in 2023. The strength of commodity prices such as natural gas and coal have helped to support the economy with NG royalties up $1.7 bn in 2022 and resource exports up by 32.1%, with a recovering service and tourism sector also lending a hand. Per Minister Robinson:
“A lot can change between now and the end of the year, and we need to keep making thoughtful decisions – especially with everything that’s going on around the world,… But this indicates that we’re in a strong position to continue investing in the things people need to reduce costs, strengthen services and build a stronger B.C. for everyone.”
The BC Real Estate Association (BCREA) reports that despite decreased activity the real estate market is showing signs of stabilizing. As noted by Brendon Ogmundson, BCREA Chief Economist:
“Housing activity across the province remains well below normal but is showing signs of stabilizing … while inventory is up over last year, active listings have somewhat stalled at relatively low levels in most major markets and as a result we are seeing a healthier balance compared to last year.”
There is no doubt that inflation and the rising interest rates are taking a bite out of the market and some projects are being withdrawn by some members in the face of increasing uncertainty and costs, however, the driving forces of immigration, interprovincial migration, increasing household formation with 30-somethings, and being a desirable retirement location for boomers is still driving a demand that the current “supply” pipeline cannot satisfy.
Low levels of inventory were the focus of the Re/Max Canada Housing Inventory Report released last week that looked at eight Canadian cities including Greater Vancouver and found that despite the downturn in the market inventory levels are short of the 10-year average in seven of the eight centers studied, with Vancouver at 16% below the 10-year average. From the report:
“Inventory remains key to the overall health of Canadian housing markets — affordable, accessible housing depends on supply, … a recent report from Canada Mortgage and Housing Corp. (CMHC) concluded that the country needs to build 3.5M new homes by 2030 to tackle the affordability issue, yet Canada is averaging only 200,000 to 300,000 new units per year. And it’s creating a ripple effect that leaves no element of the housing market untouched.”
While the noted headwinds have and or may derail projects due to thinner margins or poor financial viability, it is starter homes and the more affordable end of the housing continuum that will be most affected. These are, however, the very homes that are most needed to meet the demand and stabilize affordability and supply. To this end, it is important that all levels of government recognize that any “lull” in the market is an opportunity to affect change to the status quo such that the supply side of the equation can be elevated when – and it will, the market rebounds. As noted by RE/Max Canada President Christopher Alexander:
“Removing barriers and cutting red tape is necessary. A crisis is looming, but the outcome is not cast in stone. There is a short runway to reverse course before the impacts become very real for Canadian homebuyers and renters.”
Removing those barriers is key to ensuring that the cycle of spiraling increases in home prices and constrained supply does not continue. The structural housing shortage is huge, and it will require leadership at all levels of government, but particularly at the municipal level. The topic was front and center at last week’s annual Union of BC Municipalities Conference in Whistler. Housing, and the need to ensure more housing is built, is at the forefront of the provincial agenda which was reinforced by Premier Horgan, the Cabinet ministers in attendance, and NDP leadership hopeful and possible next premier, David Eby.
HAVAN and CHBA-BC staffers were both in attendance to participate in a number of discussion groups and forums, but more importantly to emphasize the critical need to not allow the housing crisis to become deeper through complacency or refusal to recognize the needs. HAVAN staff, in particular, used the event to personally engage councilors and or mayors running in the October 15 elections, and to distribute the Bringing it Home information sheets and candidate surveys. In the coming weeks, the feedback gained from our survey will be made available to members along with the specific data provided for individual municipalities. We urge members to review and decide which candidates will be best suited to providing the leadership required to make the necessary changes and avoid exasperating the housing crisis.
It is the choices and decisions made by voters during the province-wide municipal elections on October 15th that will determine the outlook and health of our sector moving forward. It is incumbent on everyone to make the choices that will provide for the continued health and strength of the residential construction sector. The choices made on October 15 will make a difference in what will prevail in the fourth quarter of this year, and what we can expect in 2023, 2024, and beyond.