BCBusiness

I s this a case of be careful what you wish for? As a historic housing boom gripped B.C., where the aver- age sale price has doubled since taking a minor dip in 2008, real estate developers preaching the virtues of more supply urged municipalities to cut red tape and allow wide- spread densi•cation. The wait is over: after years of moaning and groaning from the devel- opment community about long delays and rising construction costs, the province has more new and un•nished housing than ever. Based on a 12-month roll- ing average, residential unit completions throughout the province reached about 32,000 this March, according to Canada Mortgage and Housing Corp. That's the most since May 1994, and there's plenty more to come. In March, units under construc- tion in B.C. surged to a record 55,692. Our last construc- tion boom topped out at some 39,000 units a decade earlier. Meanwhile, housing starts, de•ned as pouring concrete and laying a foundation, have never been higher, setting a 12-month average pace of 40,264 in March. This ensures that a tidal wave of new supply will ‰ood the B.C. real estate market over the next few years. With the construction pipe- line full and housing demand starting to slide—sales fell 12 percent year-over-year in the •rst quarter, the Canadian Real Estate Association reports—it looks like B.C. is following the textbook boom-and-bust real estate cycle. Phase 1 of the cycle is recovery, according to Glenn Mueller, a professor at the University of Denver's Franklin L. Burns School of Real Estate and Construction Manage- ment. With unemployment spiking, construction grinds to a halt. Phase 2 is expansion: new construction starts to pick up, the jobless rate improves, and the economy keeps churn- ing along. New opportunities prompt more immigration, and the strengthening business environment helps create jobs. Phase 3—which B.C. has entered—is hyper-supply. This is when everyone feels like a real estate investment guru and construction •res into overdrive. The result is misallo- cation of resources and capital, with developers overshoot- ing supply as demand falls. Climbing house prices absorb an ever-larger percentage of income, becoming a drag on consumer spending. Sales drop oœ, housing starts decline, and construction slows, sowing the seeds of phase 4, recession. Vacancies rise and house prices fall before the cycle begins all over again. Today's conditions don't suggest that B.C. has moved from property boom to impending doom. But they're a reminder that real estate mar- kets are cyclical—and that this province is no exception. This Time It's Different Yeah, right. A building frenzy has left B.C. awash in new homes—setting the stage for a boom-bust cycle by Steve Saretsky ( the informer ) SOURCES: CANADA mORTGAGE AND HOUSING CORP.; STEVE SARETSKY P R OP E R T Y WAT C H Home Record B.C. residential units under construction, annualized pace 20,000 40,000 60,000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 0 Big Finish B.C. residential units complete, annualized pace 20,000 40,000 60,000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 0 jULY/AUGUST 2018 BCBusiness 25

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