Economic outlook with RBC economist, Craig Wright

Next year will feel much like last year on the housing front according to Craig Wright, chief economist with Royal Bank, at a recent address to the Urban Development Institute in Vancouver.

Growth will moderate, although he predicts B.C. will be top-of-the-pack for 2020 capital investment intentions, with a projected 12.9 per cent increase from 2018. The next closest province, Quebec, is projected to show a 5.7 per cent increase.

The question of supply

Not surprisingly, the issue of affordability was up-front-and-centre for a large part of Wright’s stats-filled presentation. “This is not a demand issue, it’s a supply issue: We don’t build enough new homes or offer enough alternatives like purpose-built rentals,” he emphasized. It’s a familiar refrain, but one he noted politicians still seem to prefer to ignore.

He cited a recent meeting between 18 developers, two economists, and “several” local politicians. When city officials posed the question, “How to fix the affordability problem?” the developers were unanimous: Increase supply. To which the politicians replied, “Well, of course you’d say increase supply — you’re builders.” When both economists immediately gave the same answer, however, it caused city officials some consternation — although whether they will take the recommendation to heart remains unknown at this point.

Although bureaucratic red tape, especially at the municipal level, continues to create delays bringing the needed new product to market, it’s the shortage of skilled trades people that’s of even greater concern to many developers and builders. “It’s difficult to attract top people in this kind of market,” said Wright.

Brace for a recession

“We’re also hearing the recession word creeping into conversations,” Wright noted. Brexit plus the escalating U.S. and China trade wars are at least partially to blame. He anticipates Canada will experience its 11th recession since 1930 sometime in the next seven to 48 months.

Nor can Canadians look forward to a balanced federal budget any time soon. With a projected $115-billion deficit, the country can expect to remain in the red for a long time.

On a more positive note, Wright acknowledged that the housing market recovered more quickly than he expected from the financial impact of the infamous stress test. “In combination with a number of other initiatives, we actually achieved a soft landing. We do need to revisit it, but it’s too soon right now. Let’s watch and observe a bit longer to see if low interest rates continue.”

UDI is the voice of B.C.’s construction industry. For more information, visit online at udi.bc.ca.