Developers face threat of over supply

A surge in home building in B.C. during a time of falling sales could leave developers out in the cold if the trend continues to the point where supply exceeds demand.

Tsur Somerville, director of the Centre for Urban Economics and Real Estate at the University of B.C.'s Sauder School of Business, said the situation in B.C. "does bear watching" in the wake of a Statistics Canada survey released Thursday that showed the value of residential permits in B.C. shot up 11.4 per cent from July to August, to $649 million, a $67-million increase over July.

In the Real Estate Board of Greater Vancouver's region, September sales dropped 24.7 per cent from the same month a year ago. New listings in the region increased 11.4 per cent.

In the Fraser Valley board's region, September sales equated to a 23-per-cent decline from September 2005. Total listings increased 19 per cent.

Somerville said in an interview Thursday: "If sales continue to decline as listings rise and starts increase sharply, then you have to be concerned."

From July to August, Vancouver showed a 33.8-per-cent increase in the value of all permits, both residential and non-residential, from $445 million to $596 million, while Abbotsford posted a 65-per-cent gain, from $8.4 million to $13.9 million.

However, Victoria posted a 40.5-per-cent decline in the value of all permits, from $110 million to $65 million, although the value of permits in Victoria for the year so far is up 15.8 per cent over 2005.

In the non-residential sector, things were quieter in B.C., which saw a drop in the value of permits by 4.1 per cent from $325 million to $312 million from July to August.

Somerville said it's too early to say there's an oversupply of new housing in B.C. Statistics Canada measures the value of the permits issued, that is, how much each project would be worth upon completion, so some of the increases reported Thursday reflect higher construction costs, not just more units coming into the market.

He said, for example, that if construction costs go up 20 per cent while starts drop 10 per cent, then the value of permits would still rise 10 per cent.

"Construction costs are up between 10 and 12 per cent in the Lower Mainland this year over last year," he pointed out. "So this is not the kind of situation that would have us freaking out."

Peter Simpson, CEO of the Greater Vancouver Home Builders' Association, called the report a mixed message.

Simpson agreed that the increase in value of building permits partly relates to the higher cost of construction.

But, he added: "We acknowledge there's some slowdown on the resale side and that'll likely transfer to the new home sites.

"But when it happens, we don't believe it will be a sharp drop [in demand].

"Right now, demand still outstrips supply as far as new homes are concerned," he added.

(prepared by Brian Morton/Vancouver Sun)