The B.C. and federal government’s efforts to cool an overheated urban housing market are working, and that’s among the factors leading to a slowdown in B.C. economic growth, the Conference Board of Canada says.
The board’s latest provincial outlook predicts “weaker but still above-trend” growth of 2.1 per cent for 2018 and 2019, after growth above three per cent between 2011 and 2017. It calculates that one third of that growth was due to residential housing investment.
“The double-digit increases in B.C. housing starts in 2015 and 2016 were linked to several factors, including rock-bottom mortgage rates, rapid population growth and tight supply,” the report says. “The pace of expansion was unsustainable, and new tighter mortgage rules and several housing market taxes implemented in the provincial government’s 2018 budget have resulted in a sharp slowdown in activity.”
The B.C. Liberal opposition has been focusing on the projected decline in housing starts, which was also forecast in Finance Minister Carole James’ latest quarterly report.
“Unemployment rates in B.C. remain low, but that’s because the NDP has added 20,000 public sector jobs,” said Shuswap MLA Greg Kyllo, jobs, trade and economy critic for the B.C. Liberals. “From Statistics Canada to this Conference Board report, all signs are showing that we’re on the brink of a real economic downturn here in British Columbia.”
A “speculation tax” on vacant homes in the tightest urban markets is set to take effect in 2019, based on 2018 property values. Local politicians from some of the affected cities, including Metro Vancouver, Kelowna, West Kelowna, Greater Victoria and Nanaimo, called on the province to let cities decide housing taxes, but James said the tax will go ahead as planned.
While home sales in B.C. have slowed considerably, prices were still rising in July, the latest Statistics Canada figures show. The average cost for a new B.C. home rose 1.3 per cent in July. The increase for Victoria was 1.4 per cent and in Kelowna it was 2.0 per cent, compared to 0.5 per cent nationally.
Trade tensions with the U.S. are another factor in slowing economic growth for B.C., the Conference Board concludes.
“The slower growth will be a result of tight labour markets restraining employment growth and of the uncertain outlook for trade and investment attributable to an escalating global trade war and difficulties in obtaining approval for pipelines and liquefied natural gas export facilities throughout the province,” the report says.