British Columbia’s budget is forecasting that the historic boom in new housing construction is over and that home sales will keep rebounding, an indication that prices will soon rise once again.
Although demand is expected to keep eclipsing supply, Finance Minister Carole James said she is cautiously optimistic that real estate will become affordable for the average citizen over the next year. During the past two years, as her government introduced a host of new taxes to tamp down speculative demand, Ms. James has refused to say how much the market needs to correct or define what constitutes an affordable piece of real estate.
On Tuesday, she said her government still wants prices to come down, but sees the increasing number of real estate transactions as a sign that more people priced out of home ownership are now reconsidering entering the market. She added that her ministry’s construction forecasts have been surpassed by actual starts in recent years.
“People actually have some hope of getting in the market, they’re actually starting to look again,” Ms. James told reporters. “I don’t think there’s anyone who would say we’ve reached affordable housing in British Columbia, but what you aren’t seeing is the kind of spikes you were seeing with the speculative real estate market.”
Private and non-profit real estate developers say these two factors are likely to make housing less affordable.
The balanced fiscal plan introduced Tuesday forecasts only 35,000 new units of housing will be started in 2020, a decline of 22 per cent from the historic high of nearly 45,000 new units in 2019. This key predictor of future housing supply is expected to fall over the following two years to hit the historic 30-year average of 30,000 units a year. (This official forecast is more conservative than an average of 39,000 starts forecast by a group of 13 private-sector economists that advise her ministry.)
Meanwhile, the budget predicts a recent rebound in sales will continue, with more than $56-billion in residential property sold this coming fiscal year. The budget also pegs the amount of revenue brought in from the property transfer tax to rise slightly to $1.5-billion – roughly the same amount the levy generated in 2015 right before the price of real estate in Metro Vancouver skyrocketed.
Jill Atkey, chief executive officer for the BC Non-Profit Housing Association, welcomed the new $56-million investment for 200 more temporary modular housing units to put a roof over people who are living on the street. But she said she was disappointed the province did not increase its housing funding by the $190-million now needed to meet the government’s own ambitious target of building 114,000 new units of housing over the next decade.
“What they committed to they can’t actually deliver on now that construction costs have risen 11 to 13 per cent,” said Ms. Atkey, whose organization represents some 800 non-profit housing providers. “We are not really going to start to turn the corner on this crisis in a way that we had anticipated a couple of years ago."
Ron Rapp, a former developer who now heads the Homebuilders Association Vancouver lobby group, said the provincial government still has to do more to remove the barriers to creating more housing. The predicted downturn in new construction will only hurt home buyers as it compounds the “profound imbalance between demand and supply,” he added.
Metro Vancouver’s most desirable neighbourhoods could see housing prices rise more than the regional average, Mr. Rapp said.
Bryan Yu, deputy chief economist at Central 1 Credit Union, said the NDP government’s previous measures helped bring a “temporary pause” in the rise of home prices, but that will end this coming year as home prices continue their recent upward trend. One silver lining is that more real estate money should flow into the provincial coffers, he said.
“The ramp-up in sales should provide some lift into the revenue cycle as well," he said.
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