By Mike Archer and Win Wachsmann. ’Housing Starts Are Down’ - a statement that sends shudders through the economy even though few of those reporting the news are very good at reporting what it means and why it is important.
Why are housing start numbers important?
House construction is a huge driver of the Canadian economy.
“A housing start is defined as beginning the foundation of the home itself. Building permits are counted as of when they are granted.
“Analysts will use the housing starts report to help create estimates for other consumer-based indicators; people buying new homes tend to spend money on other consumer goods such as furniture, lawn and garden supplies, and home appliances.”
Editor’s Note: Statistics for Abbotsford housing starts from 2003 to 2012 can be found at the bottom of this post
And yet Abbotsford newspapers rarely report Economic Indicators like housing starts, building permit values, real estate sales, real estate prices or employment rates even when numbers are good and improving and never when numbers are trending down.Composite economic indicators show those with money to invest – businesses, developers and construction companies – where to invest.
As well, those with household and family decisions to make – where to live, whether or not to sell their house, whether to take a job – often use those numbers to decide whether a community is doing well or having trouble.
In a word, economic indicators take the economic temperature of a city, a province or a country.
Just as importantly, economic indicators provide public policy makers with a measure of whether or not their policies are working. Beyond issues of taxation levels, water rates, infrastructure capabilities and Development Cost Charges (DCCs), economic indicators tell developers and people who have invested heavily in real estate what is happening to their investment.
Housing starts are therefore not only a significant figure for homeowners whose primary investment is their house but they are also a leading indicator for the business community as a predictor of consumer confidence and people’s ability/willingness to spend money.
Abbotsford’s Steady Decline
The decline’s significance becomes all the more important when it is put alongside other major financial and economic indicators for Abbotsford.
In 2005 former Parks and Rec Director Mark Taylor (now deceased) released Abbotsford’s Parks and Recreation Master Plan, and at about the same time the engineering department, under Chief Engineer Jim Gordon, began planning for a large increase in the demand for water.Both strategies seem to have been based on the expectation that Abbotsford’s population would rise rapidly and continue to rise from the 123,000 residents in 2005 to over 140,000 by 2012 and as high as 172,000 (quoted in some publications) over the coming years.
As Councillor Henry Braun recently pointed out to an embarrassed Mayor Banman at an open council meeting, Abbotsford’s population has stalled at 133,000 – only 10,000 more than when all of the predictions and plans were made in 2005/2006. An average annual increase of less than 1500 people does not justify all of the money spent and borrowed on vanity projects and money-losing investments when we have failed to bring our water, sewer and roads infrastructure into the modern era.Perhaps the the slow population growth is a lifestyle choice by Echo Boomers who would rather live in the big city to take advantage of entertainment options rather than live in the suburbs. Or people have examined the economic indicators and the massive future tax liabilities and said “No Thanks”.
In 2006, Abbotsford adopted Plan A – a half billion dollar venture including the Abbotsford Entertainment and Sports Centre (AESC), the Reach Museum and Gallery and upgrades to the Abbotsford Recreation Centre (ARC).
A narrow margin of victory in a referendum with low voter turnout and hyped by both chain-owned newspapers and $120,000 worth of taxpayer advertising (based on faulty assumptions and deceptive projections), gave Abbotsford Council permission to borrow $55 Million to start the Plan A project.Abbotsford Ratepayers Association (ARA) president Vince Dimanno warned at the time that the ultimate costs of the project would end up being in the area of $500,000,000 when all of the borrowing costs and other long and short term costs were factored in.
So far, according to Dimanno, the AESC, the contract to have Philadelphias Global Spectrum manage the arena, and the losses to the Abbotsford Heat which are covered by Abbotsford taxpayers, are costing Abbotsford taxpayers at least an extra $10 million every year.
These extra costs are seriously impacting the average Abbotsford household in ways that can’t help but have a detrimental impact on people’s willingness to move to Abbotsford.Property taxes went up almost 50 percent after the AESC was built, water rates increased (actually doubling in 2010/2011) and the balance of the Development Cost Charge (DCC) fund was drastically reduced – it went from a positive balance of $28 Million in 2006 to a negative balance of -$13 Million in 2012 – representing a $41 Million drop in value in only six years.
Abbotsford is the only municipality (other than Vancouver) with a negative balance in its DCC fund and a combined per capita borrowing (both external and internal) that is second only to Vancouver.
So what happens to the city budget when housing starts collapse and the ability to replenish the DCC fund is reduced drastically as a result. Existing homeowners will pay more taxes, or Abbotsford’s infrastructure will degrade even further making developers even less willing to invest in Abbotsford.
The impact on the local economy is hard to exaggerate. The DCC fund is the fund used to pay for developing water, sewer and road infrastructure – all essential for economic growth. Abbotsford’s water and sewer pipes are so old and small they cannot be hooked up to some developments and cannot deliver sufficient volume to others.
Some Vancouver builders simply don’t bother to even respond to opportunities in Abbotsford because they know the City can’t accomodate them.
More than any other city in BC, Abbotsford leans heavily on its existing residents to pay for the costs of development. And yet the Community Charter defines DCCs as charges to industry and developers so that they pay for development.
Without the necessary upgrades to roads, sewer and water, economic development in Abbotsford is at a virtual standstill evidenced by stalled housing starts and plummeting building permit values.
Simply put; the development industry won’t come to Abbotsford because we have nothing to offer them but high taxes, high water rates, low levels of service and infrastructiure they can’t use.Thanks to the fateful decision to throw all of its taxpayers’ chips into the Plan A gamble, taxpayers have been saddled with rapidly increasing costs at the same time as we are experiencing rapidly declining revnues.
The City of Abbotsford has dealt with that problem by:
a) Internal Borrowing from the DCC fund
b) Doubling water rates
c) Increasing taxes by 50%
With no viable business plan for the AESC, no way of making money on the investment, and the decision to subsidize the Abbotsford Heat owners and the Calgary Flames farm team over for ten years, Abbotsford has run out of money. And we still have six years to go on the contract.
Those decisions, heavily supported by both chain-owned newspapers and successive executives of our Chamber of Commerce have turned out to be an abysmal failure.Abbotsford now taxes its residents at higher rates than all its neighbours in the Lower Mainland. We have higher water rates, lower service levels and inadequate Parks and Recreation programs.
Our infrastructure deficit has been festering since the mid 1990s and successive councils have repeatedly deferred the necessary work in favour of vanity projects. Vanity projects which are strangling the economic growth in our City.
Think about it … Why should developers invest here when the economic indicators have been declining so much, so consistently and for such a long period of time? Would you?Some, like Abbotsford Ratepayers Association (ARA) Vince Dimanno have argued we have to get out of some of the more onerous and costly obligations such as the Abbotsford Heat contract signed by former mayor George Peary, and bring our costs of running the City under control.
Dimanno who has been warning against the decisions which have put us in the financial mess we find ourselves in since 2006, does not believe the City’s situation is hopeless.
“We just have to be prepared to make some tough decisions in the taxpayers’ interests,” he says.
Councillor Henry Braun has argued forcefully against taxpayer supported projects such as the temporarily stalled YMCA proposal and has identified water infrastructure and the DCC fund debt as two of the biggest problems facing the City.Braun has argued that Abbotsford needs to find a way out of the Abbotsford Heat contract as well saying the City has to bring its costs.
Whatever the solutions turn out to be it is quite clear that a decade of spending taxpayers’ money building vanity projects in the hopes that economic growth would inevitably pay all the bills and cover up the bad decisions has turned out to be a fools game.
The vanity projects and overly optimistic predictions have not caused an increase in population or revenue. In fact they have caused a huge drain on the treasury that has forced us, in recent years, to borrow from ourselves in order to meet our commitments.
And there is more on the way. Just last month Mayor Banman announced that Abbotsford taxpayers will be on the hook for another $8.33 million as our portion of the costs for a $25 million overpass at Vye Rd which will benefit a handful of businesses.
That project has been on hold since 2005 when Abbotsford taxpayers’ would only have been on the hook for $600,000.
Like other such projects announced by senior levels of government, the costs can end up bankrupting local governments by the time all is said and done.
Unless the City of Abbotsford deals with the real world it has created and learns to stop spending money it doesn’t have, the economic indicators are not likely to reverse. And that can only mean higher taxes, higher water rates, lower services … which will simply lead too a steadier decline in:
- Real Estate Sales
- Real Estate Prices
- Building Permits
- Housing Starts
Perhaps the most frustrating aspect of all of the mismanagement and bad decisions to many residents is that, none of it has been inevitable. Years of presentations by a variety of groups and individuals at public meetings, council meetings, budget meetings … all have been to no avail.
Abbotsford’s two chain-owned newspapers have consistently supported the City of Abbotsford’s decisions and even gone so far has to participate in the marginalization of the City’s critics by ignoring press releases, letters, and attempts at contributing to the public discourse by some organizations.
The disconnect between the City of Abbotsford, its politicians and the citizens who pay for it all seems to have been getting wider and wider as the decline in housing starts, building permits and economic growth has slowly taken hold of the local economy.
Whether through an inability or an unwillingness to accept, admit or deal with their rather enormous failures, our public officials seem to be acting as though they think the whole thing is nothing a good PR strategy can’t fix.
Isn’t that what got us into this mess in the first place?
Abbotsford Housing Start Statistics:
For the full report simply click on the link: Housing Starts Vancouver and Abbotsford CMAs
To follow Abbotsford’s Economic Indicators simply click here.
Originally published Apr 19, 2013