Landlord investor Dave Steele remains brazenly bullish on the housing market in northeast B.C., but clouds are gathering over B.C.’s most expensive housing market outside of the Lower Mainland.
Steele, chief executive officer of Western Canadian Properties Group of Vancouver, the largest multi-family developer in Fort St. John, has built higher-end townhouses and condominiums over the past few years and sold them to investors, many from the Lower Mainland, who rent them out. The formula has proven successful.
The average sale price on the strata units is $289,000, and they often rent furnished for $2,500 to $3,200 per month on one-year leases to workers in the natural gas industry. In Steele’s most recent project, 40 of the 42 townhomes were bought and rented before construction was completed. Western Canadian has already started work on another multi-family project on its 20-acre site in Fort St. John, the largest city in the region.
Fort St. John, population 26,000, has an economy framed by the giant northeast natural gas fields and, more recently, by BC Hydro’s Site C dam, where upwards of 4,000 construction workers will be needed over the next eight years to build the $8.7 billion project.
According to Canada Mortgage and Housing Corp. (CMHC), rents in Fort St. John are the highest outside of Metro Vancouver. Its average house price, at $428,900, is B.C.’s highest north of the Lower Mainland.
“More than $10 billion in projects have been approved in this area in the last year alone,” Steele told a September real estate conference in Vancouver. According to the North Peace Economic Development Commission, the region is forecast to almost double in population from 67,000 today to about 123,000 by 2020, he said. “This type of growth will put a huge strain on housing in the area.”
Steele believes that a consortium led by Shell (Nasdaq:RDS.A) will start the first liquefied natural gas (LNG) export plant, a $40 billion deal, in northern B.C., followed by Malaysia-based Petronas, a $36 billion plant and pipeline proposal, and then British Gas, a $26 billion bid. Any of these plants would require an expansion of drilling and pipelines from the Montney Formation and Horn River Basin gas fields in the northeast.
“The average age in Fort St. John is 29 and the average income is over $100,000 per year,” Steele said. “Some 18-year-olds are making $80,000 a year.”
But Steele’s bravado weakens when you talk to local realtors and nearly vanishes when gas and oil industry observers are contacted.
“Housing sales in Fort St. John are down 30% from last year,” said Roland Cataford, a Century 21 agent in Fort St. John and regional director of the BC Northern Real Estate Board (BCNREB). “We are in a downturn, a bit of a correction.”
While CMHC pegged the official vacancy rate in Fort St. John last spring at 4%, Cataford estimates it is now closer to 5% or 6%. The board reports that it now takes an average of 44 days for a house to sell in Fort St. John, and there are nearly 600 homes on the market. In nearby Dawson Creek, the rental vacancy rate has spiked to around 10% and housing construction has stalled.
Last year, BC Stats reported that the unemployment rate in northeast B.C. was too low to count. This October it had soared to 6.2%.
The housing and employment angst is underscored by uncertainty over the future of the LNG industry in northern B.C.
Art Jarvis, executive director of Energy Services BC, which represents B.C.’s oil and gas industry, is among those warning that the perception that the northeast is booming is off the mark.
“Investors [outside of the region] think that gold is going to be flowing down the ditches here. That’s what they think,” Jarvis told the Alaska Highway News. “[They’re] under the impression that B.C. is doing great; LNG is going crazy. Well, it’s not.”
This month, Calgary-based Encana, which has been drilling more than 50 gas wells a year in the Montney area for a decade, said it would likely drill from five to eight wells in 2016.
“With the present price environment that we’re in, we’ve definitely reduced our activity in the area,” said Encana spokesman Brian Lieverse.
A major Montney worker camp to house Encana staff was downgraded from 2,500 people to 1,200 earlier this year. Today, only 271 people are currently living on site.
With trillions of cubic feet of gas stranded in the ground without access to markets, and with the price of natural gas in some cases too low for development, the myth of northeast B.C.’s LNG boom towns is just that, Jarvis warned.
On a recent tour, officials from the District of Squamish, where an LNG plant is also proposed, alluded to this when they toured northeast drilling sites and related facilities this fall.
“I expected to see a bustling downtown core and a city that was really happening,” said Coun. Doug Race. “Everything is spread out, and I don’t know where everyone is living; they must be in camps.”
Petronas, the Malaysian state-owned company heading up the Pacific NorthWest LNG project, gave conditional approval for the project in June, but it is still dependent on the new federal government giving it the green light. And, judging from recent comments reported in the Malaysian press, Petronas may be hedging its bets (see sidebar).
There is also opposition to the Petronas project from the Lax Kw’alaams Band, which is seeking aboriginal title to Lelu Island and Flora Bank on the north coast, where most of the project would be built. The band has had an occupation camp on the island since late August.
Meanwhile, another large project, LNG Canada, a partnership among Shell Canada, PetroChina, Korea Gas Corp. and Mitsubishi Corp., is expected to make a final investment decision in early 2016.
But Dawson Creek Mayor Dale Bumstead said what he heard from Shell at an LNG conference last month in Prince George wasn’t encouraging.
“For me, the presence and profile that I saw at the conference with Shell gives me reason to believe that the LNG Canada proposal is not closer to [a final investment decision],” he said.
The current lull may offer a chance for residential investors, Steele said. “Listen, there are 27 LNG projects planned for the north and we have an $8 billion safety net with Site C,” he said.
William Lacy, vice-president of the BCNREB, agrees.
“With potential boosts to the market via large energy projects, this may be an opportunity to take advantage before the next upswing in the [housing] market begins,” Lacy said. •
– With files from Alaska Highway News
