By Mike Archer. Every time we publish a story about the decline in housing starts and why it is so critical to understanding Abbotsford’s slow but steady economic decline over the last decade, we get comments and emails from realtors and other positive thinkers pointing out some obscure statistic which could be interpreted to mean that the storm clouds actually hold a tiny silver lining . . . if only over the very, very long run.
The fact is that even during what were boom years (prior to 2008) in other jurisdictions, building permit values, and residential housing starts were on an inexorable decline in Abbotsford. A brief reprieve due a spurt of condo development in 2006/07 couldn’t mask the reality of what has been going on.
According to a CBC report Sunday, “A spate of fresh data and yet one more market-cooling tweak from Ottawa last week has put one of the most important sectors in the Canadian economy, and the most important asset-source for most Canadians, on a kind of death watch.”
“That’s because while some of the data, such as home prices and starts, is pointing to the soothing “soft landing” that homeowners, economists, banks and politicians are fingers-crossed hoping for, others, like land purchases and building permits suggest the real message is: the crash is coming.”
Developers, builders and investors have simply been putting their money elsewhere and that is very bad news for a city which so desperately needs more money to cover its mounting losses.
This has been going on in Abbotsford since long before the deathwatch began on the Canadian housing market as whole at the beginning of 2013.
While all of the signs indicating the relative health of the local economy were pointing downwards (housing starts, building permits, unemployment) and the necessary cures – fixing our out-of-date, broken infrastructure, using our Economic Development Department to attract the right kind of employers – were at hand, Abbotsford politicians and administrators, led by John Smith and Bruce Beck, sank the city heavily into debt in order to build vanity projects such as the Abbotsford Entertainment and Sports Centre, the Friendship Garden, the Reach Museum and Gallery. Several years of internal borrowing and a doubling of taxes and water rates kept the wolves at bay for a while, but now, with George Peary’s Deal to bankroll the Calgary Flames, the cost of managing the AESC and the annual subsidy to the Reach mounting into the millions of dollars, more and more answers to our problems are getting completely out of reach.
Our infrastructure simply can’t handle any serious amount of economic development, especially single family detached homes.
In an article in the Huffington Post by Daniel Tencer Friday, titled, ‘Canadian Housing Market On The Precipice? Collapse In Land Investment A Red Flag,’ he revealed that “Three of Canada’s largest housing markets have seen a severe drop in residential land investment, a sign the housing market is in a “major slowdown” that could last years, a real estate analysis firm says.
“RealNet reported this week that purchases of land for new housing all but collapsed in Calgary, Toronto and Vancouver, which the firm suggests is a sign developers believe Canada’s long-running housing boom is at an end.
So Bruce Beck’s and Johns Smith’s plan to borrow and commit as much as $500,000,000 in order to take advantage of ‘inevitable economic growth’ which would then pay for the infrastructure necessary for the city to grow has failed miserably.
And it has failed at the wrong time.
As Tencer points out in his story, “The RealNet study links the health of land investment to the long-term health of the housing market, as buying land is the first step in the development process.
“”This is definitely a major slowdown” that will persist “for some time,” Richard Vilner, a RealNet research manager, told the CBC.
“The housing market experienced a “mini-boom” earlier this year as mortgage lenders dropped rates to rock-bottom levels below three per cent. That caused a jump in housing starts and house prices, leading many economists to declare Canada had avoided the housing crash many had been predicting for years.
“But a spike in bond yields in the past several months has forced lenders to raise their interest rates back above three per cent, as bond yields are linked to fixed-rate mortgage rates. And that small increase in rates seems to have been enough to tilt the country’s most expensive markets back into negative territory.
A Major Impact
While that scenario began playing itself out in Abbotsford long before the Wall Street crash of 2008, it has shown signs of gathering steam ever since.
Despite occasional spikes, brought about mostly due to institutional, industrial, business or apartment buildings, the number of residential housing starts in Abbotsford has been nosediving.
All indications are now fairly clear in predicting that Abbotsford cannot rely on economic growth or population growth to get it out of the financial bind its politicians have put it in. The drop in land investment for housing Tencer has noted, and collapse in the housing market many others are predicting, make betting on endless economic growth a fool’s game.
Residential housing starts provide a very clear indication of how much confidence developers, realtors, builders and investors have in the short, medium and long term economic health of a community, a province or a country.
This month’s release of the stats behind the economic indicators in Abbotsford revealed serious declines in both single family detached home housing starts and residential build permit values.
Says Tencer, “The CMHC reported Friday that housing starts are back on a downward trajectory again, following some surprise spikes earlier this year.
“BMO Capital Markets noted that, while housing starts this year are down 10 per cent from last year, they are still higher than “household formation” — that is, developers are still starting construction on more homes than there are people to populate them.”
A study released by Canso Investment Counsel Ltd. of Richmond Hill, Ont., shows just how much the federal government has contributed to the sense of impending crisis
“Housing became more expensive for Canadians because of the misguided efforts of the CMHC to make mortgages easier to obtain. Canada borrowed its way out of the 2009 recession by stoking our residential housing market to absurd levels. We cannot afford the houses we are in.”
There is disagreement among analysts about whether we can expect a soft or hard landing as the real estate bubble fizzles.
Whether a hard or soft landing awaits the housing market as a whole, Abbotsford find itself in the worst of all possible situations if it is hoping either population growth, the housing market or economic growth are going to ease its financial problems.
Without some serious changes to the financial strategy which Abbotsford council has been blindly following based on assurances that it would eventually pay off, Abbotsford taxpayers are in for another series of rude awakenings as Canada’s housing market slows.