Analysis: Housing woes cloud B.C.’s economic outlook

Construction of other non-residential capital projects should keep provincial economy moving in a positive direction

After three years of rapid growth, B.C.’s economy moderated in 2018, with an estimated provincial GDP growth rate of 2.3 per cent, down a full percentage point from 2017. Several factors contributed to this slower growth: decreased housing activity, increased labour recruitment challenge and continued trade uncertainty. These three factors continue to challenge B.C.’s economic growth, but the construction of the LNG Canada project and other non-residential projects should keep our economy moving in a positive direction in 2019.

Housing slump

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Rising interest rates, tighter lending requirements, and new taxes on foreign buyers slowed B.C.’s housing market in 2018. While this was a welcome sign for those hoping to own a home, it has impacted our province’s economy. 

The cooling of housing activity across the province affected employment in the finance, insurance, real estate and leasing industry, which lost 5,400 jobs, the first time this industry has seen job losses in three years. Fewer real estate transactions also moderated consumer spending on big-ticket items for their homes in 2018. B.C. retail sales grew by 2 per cent in 2018, compared to 9.3 per cent in 2017.

According to the BC Real Estate Association (BCREA), the stricter lending requirements that were imposed in 2018 will continue to affect housing demand. 

The BCREA expects 80,000 units to be sold across B.C. by the end of the year, only a slight increase from 2018.

Skilled trades shortage

Employment in our province grew by 1.1 per cent to reach 2.5 million jobs in 2018, compared to an impressive record of 3.7 per cent in 2017. B.C.’s unemployment declined to 4.7 per cent in 2018, one of the lowest in the country, and our job vacancy rate is one of the highest in the country. Together, these numbers indicate that our labour market is near capacity. 

In fact, nearly three-quarters of B.C. certified professional accountants (CPAs) identified the ability to attract and retain talent as the No.1 challenge for their business in our annual Business Outlook Survey. This was echoed at an economic roundtable held in Vancouver with executive CPAs, and they expect this to be an ongoing issue for 2019 and beyond.

B.C. added another 16,300 jobs between December 2018 and February 2019, indicating continued labour demand. It is anticipated that our province will continue to have one of the lowest unemployment rates in the country.

Trade uncertainty

The overall value of B.C.’s exports increased by 7.3 per cent to $46.4 billion in 2018. This was the third consecutive year in which B.C.’s export value has grown.

Pulp and paper exports accounted for the largest share of this gain, as global demand for pulp products increased. On the downside, softwood lumber exporters took a hit from the ongoing dispute with the U.S., with this sector seeing a $187 million decline in export value. 

Looking at 2019, we can expect trade activity to continue at a more modest pace. Forest products exports will continue to be weak, and log shortages, which began to materialize in late 2018, will further affect export potential. 

Ongoing diplomatic issues with China could also negatively affect B.C.’s exports. China’s recent move to ban Canadian canola products has caused farmers in B.C.’s Peace region to be concerned about their businesses.

Construction boost 

B.C.’s construction activity continues to provide a solid economic foundation and is expected to sustain provincial economic growth for the next two years. B.C.’s capital investment in non-residential construction grew by 16.8 per cent to $1.4 billion between the last quarter of 2017 and last quarter of 2018. Commercial investment also increased during the same time period, by almost one-third, to $970 million. 

Not surprisingly, B.C.’s construction industry added almost 10,000 jobs in 2018, largely due to ongoing construction activity in southwest B.C. In the Vancouver census metropolitan area, total non-residential capital investment increased by almost two-fifths to $1.1 billion, driven primarily by solid growth in commercial building investment, as office space is at a premium in the region. 

We can expect construction activity to continue into 2019 and beyond. The approval of the $40 billion LNG Canada project in the last quarter of 2018 is expected to create 10,000 construction jobs and 950 permanent jobs, as well as many spinoff opportunities. The LNG Canada project, in addition to other major projects in the province’s interior, will continue to positively impact economic activity across the province. This construction activity will offset the effect of a slower housing market and trade uncertainties. For 2019, we can expect B.C.’s economy to continue to grow, but at a moderated tempo.•

Lori Mathison, FCPA, FCGA, LLB, is the president and CEO of the Chartered Professional Accountants of British Columbia (CPABC). The Regional Check-Up reports are published by CPABC, and are available at bccheckup.com

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