British Columbia's hot building market is expected to cool in 2006 -- but not as much as the average across Canada.
Canada Mortgage and Housing Corporation's first-quarter Housing Market Outlook report predicts that housing starts in B.C. will fall from the 34,667 housing starts reported in 2005 to 32,600 starts in 2006, representing a six per cent drop.
The downward trend is expected to slow in 2007 when CMHC predicts 31,300 starts, a four per cent decrease from 2006.
Across Canada, housing starts are expected to slow down to a greater degree. Actual starts reported for 2005 stand at 225,481. CMHC forecasts that number will decrease by 7.5 per cent with 208,700 starts in 2006. The trend is expected to continue at a more moderate pace in 2007, when the numbers may fall to 194,800 starts, a 6.7 per cent drop over the previous year.
"Higher mortgage carrying costs due to strong house-price growth and modest increases in mortgage rates will contribute to the slower pace of new home construction," says Bob Dugan, chief economist at CMHC.
No Victoria figures were available from the report. However, a spokesperson for Victoria's Canadian Home Builders Association (CHBA) says that if Victoria experiences a similar decline, lending rates would not play as great a role as other factors.
"Increasing land costs, material costs and labour costs, combined with the projected increases in interest rates -- all of those things combine to create the slight dip projected for the market in 2006," said CHBA executive director Casey Edge. "We already saw a slight dip in 2005 versus 2004, and given the skilled trades shortage in this community, I'm not sure how much more activity the industry would be capable of handling."
Reflecting back on surges in housing starts that occurred during 1981 and 1989, Edge notes both were followed by rapid market plunges.
"The existing growth is probably what the industry can handle," said Edge, "and we need to build up the number of skilled trades in this community."
Edge points to another pressing concern affecting the growth of housing stock: "Victoria needs to look at its infrastructure, particularly its transportation systems, and to look at those kind of solutions to accommodate the housing growth expected over the next 10 to 20 years."
Even with the modest decline, CMHC says that new home construction in B.C. is strong by historical standards. The report expects that strong demand for new homes can be expected as "a spillover from the resale market, increased employment, growth in incomes and high levels of consumer confidence." Those factors may, however, be offset by gradually rising interest rates and increased construction costs.
In Alberta, high investment in the oil sands sector, a strong job market and population growth is expected to keep housing starts strong with 39,500 units expected in 2006, and 37,500 units in 2007. Actual housing starts for that province were reported at 40,847 in 2005.
Manitoba is predicted to see new housing starts rise from 4,731 in 2005 to 4,800 in 2006 and 5,000 in 2007.
While percentages rise and fall, when it comes to sheer numbers, all provinces are overshadowed by Ontario, where 78,795 housing starts were recorded in 2005. That province, however, will see a big drop in 2006, when the numbers are expected to fall to 73,800, and again in 2007, when the numbers will dip to 68,000.