BC housing starts remain solid, but the building cycle has lost momentum after a flurry of spring activity. After a sharp August decline, urban-area starts edged slightly higher to a seasonally adjusted annualized rate of 37,500 units, but were down from a pace of nearly 45,000 units earlier in the year. Fewer multi-family unit starts have underpinned the decline.
Starts in the Vancouver census metropolitan area (CMA) fell to their lowest number in seven months. While volatile given the influence of large multi-family projects in any given month, the slide could reflect supply-side constraints. Current demand remains strong, evident in solid economic growth, high resale transactions and low existing- and new-home inventory. However, higher starts in recent quarters have outpaced completions, lifting units under construction up 10% from a year ago to a record high of nearly 40,000 units. Capacity constraints could be holding back new product.
In contrast, urban-area housing starts outside the Vancouver CMA are rising. Starts spiked higher in Victoria, which was the main driver of the provincial uplift, while levels were high in both Abbotsford-Mission and Kelowna, with three-month trends in these regions more than double those of same-period 2016. Year-to-date, provincial urban starts are down 5.5% with a 19% decline in the Vancouver CMA the principal driver. However, this largely reflects a record performance in 2016. Most large urban markets have recorded increases in building activity, with a few exceptions such as Kamloops and Prince George.
Total annual starts, including rural areas, dips about 6% to 39,100 units this year, with slightly fewer starts forecast in 2018. Tighter credit conditions, including higher interest rates, and supply constraints will offset expansion in the economy and population.
Meanwhile, non-residential investment intentions popped higher in August following three straight declines, suggesting a return to life for business investment. Industrial permits more than doubled from July while commercial permits edged higher, driving the increase as public-sector intentions scaled back.
Total dollar volume rose 13.6% from July and 22% year-over-year to a seasonally adjusted $341.8 million, and pushed year-to-date growth to nearly 9%. That said, the numbers compare to a disappointingly weak 2016.
For the most part, both private- and public-sector permits have shifted higher this year, though U.S. protectionism and a still-nascent recovery in commodities-related activity could be holding back investment.
Bryan Yu is deputy chief economist at Central 1 Credit Union.
