Les Leyne: Housing starts headed in wrong direction

Les Leyne mugshot genericIt’s startling how a government that is so committed to easing the housing crisis can be so consistently pessimistic about the outcome of its efforts.

Finance Minister Carole James’ quarterly report, released last week, included a projection of housing starts. It’s significantly lower than you’d expect, given the NDP government’s emphasis on housing.

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It’s pitched very optimistically and puts the best possible light on the expected drop. But the numbers are clear — the finance ministry expects a drop of almost one-quarter in the number of housing starts in the medium-term, by 2020.

No wonder it’s tucked into the text and didn’t get highlighted when she released the report. A lot more attention was paid to the more cheery projections. Those included good economic growth (moderating but still respectable), continued low unemployment and a solid fiscal situation.

The sizable predicted downturn is almost the same as the one included in the February budget, meaning they have been holding to the expectation of a slump in starts for six months. It’s partly based on the Canada Mortgage and Housing Corp.’s similar outlook.

For all the enthusiasm to tackle the supply problem, after 13 months in office the government is still expecting supply to drop, not increase.

The projection starts from the position that the current level of starts — which is very high — is an anomaly.

“The ministry expects residential construction to gradually transition from the elevated levels observed in recent years.”

It’s quick to add a reassurance: “While the rate of growth for home-building activity is forecast to decline in the near-term, the overall level of construction is higher than previously forecast.”

The government expects it to trend toward the historical average of 30,000 units.

If anyone thinks “trending toward average” is good news, they’re mistaken. The average number of starts didn’t meet demand. And the smaller the number of homes under construction, the more valuable they are, which is where the price spiral started.

The rest of the forecast dampens any expectation of progress on the supply front.

Housing starts will total about 39,500 in 2018, which is in the range of what would be called a boom. (The 2017 total of 43,700 was the highest since 1955.)

Then the government expects them to drop to 32,000 units in 2019 and drop again to about 30,300 units in the medium term.

That would be a one-quarter drop in housing starts over a period when the government has promised to pour hundreds of millions of dollars into fixing the crisis.

The supply of lots is probably a big reason. The demand is there and everyone wants to meet it. But they can’t find the land to build on. The CMHC also said builders are at capacity.

The NDP had a grand 10-year plan during the election campaign.

“Through partnerships, we will build 114,000 new rental, social and co-op, and owner-purchase housing units,” said the platform. That number was wildly ambitious.

After taking power from the B.C. Liberals and getting organized, the NDP’s first full budget attempted a start toward that goal.

It came with a 30-point housing plan that promised $6.6 billion over a decade for building homes of all sorts.

Governments with a four-year lifespan making 10-year promises always makes for absurdity, but it’s a fixed tradition.

Housing Minister Selina Robinson refined the number slightly in the legislature.

“In this budget, we’re already moving ahead to directly support investments into 36,700 units over the next 10 years. We’ve already started to make significant investments there.”

Later on, she refined it further.

“The member asked specifically how much government is going to build. We anticipate building between 2,500 and 3,500 a year over the next three years. That’s government-built.”

But the private side would have to ramp up building significantly, as well, in order to reach the original 114,000 target.

Instead, the government is expecting building to subside.

The new stress tests this year for mortgage applicants and the background worries about rising interest rates are factors. And the finance ministry is always conservative in its outlook.

But you’d think a grand plan to spend $6.6 billion on housing would drive the estimated number of starts up, not down.


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