Altus report latest marker forecasting lower B.C. housing starts

New-housing construction is expected to slow but remain at relatively high levels driven by population growth and immigration, according to the Altus report.

by Derrick Penner, March 18, 2019

A new report from the research firm Altus Group reinforces expectations that B.C. housing construction, particularly in Metro Vancouver, will decline under the influences of mortgage stress tests, new tax measures and a slowing economy.

The report, released Monday, estimates that housing starts in B.C. will fall to 37,475 units in 2019 and further to 36,925 in 2020 compared with 2018’s 40,875 units, perhaps adding to pressure on federal officials to change policies aimed at protecting first-time homebuyers from taking on too much debt.

“Our expectations in the budget is that the feds are going to do something,” said Peter Norman, vice-president and chief economist at Altus Group, “This is an election budget after all.”

However, whether that is abandoning or restructuring mortgage stress tests, or other direct supports to assist in building more rental housing, remains to be seen.

Mortgage stress tests, brought in last year, require that buyers have the ability to handle mortgage interest-rate increases of two percentage points in the loans they’re qualifying for. The measure was intended to protect first-time homebuyers from taking on too much debt, but in expensive markets like Metro the development community argues that the rules unfairly push too many of them out of the market.

Declining property sales and falling prices has the province anticipating a 30-per-cent decline in the number of new homes built over the next three years, though Norman points out construction will remain at relatively high levels.

“Housing starts are not going to go down all that much, although the market has a lot of adjustments going on in it,” Norman said.

Altus’s forecast for Metro’s share of 2019 housing starts total 22,400 units, down from 23,404 in 2018, then 21,900 in 2020.

“(That) 22,000 is still a pretty strong number, from a historical standpoint,” Norman said, and it will continue to be driven by healthy levels of population growth.

In its forecast, Altus expects Toronto to experience a similar decline in housing starts, to 38,500 in 2019 and 35,100 in 2020, compared with 41,107 in 2018.

However, Norman said there is also “a lot of softness” in real estate markets, particularly in housing resales, and not just in Vancouver.

“It is really coming from the financial condition of households,” Norman said, related to high debt loads and rising interest rates.

And others note that the mortgage stress test is having the effect it was intended to have, said University of B.C. academic Tom Davidoff.

“One (reason) was to prevent people from taking on a lot of mortgage debt,” said Davidoff, director of UBC’s centre for urban economics and real estate, “and I think that’s working.”

However, with so many other measures aimed at curbing demand in B.C., coupled with China putting more restrictions on the amount of money its citizens can take out of the country, Davidoff said it’s difficult to judge how much mortgage stress tests in particular are cutting into property prices.

“Starts respond to prices,” Davidoff said. “People want to build when there is a big reward, and when that reward gets smaller, the side-effect is going to be fewer starts.”

In terms of assistance for property markets in the federal budget, Davidoff said encouraging more rental-housing construction, or offering tax credits to renters in very expensive markets, might be helpful measures.

Extending the amortization period on mortgages to 30 years from 25 might be a way to help first-time buyers without easing up on restrictions of stress tests, Davidoff said.

However, loosening stress-test requirements might simply serve to pit more first-time buyers against one another competing for properties “and most of the benefit is going to go to higher sales prices,” Davidoff said.

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