Home values likely to be the next victim of the pine beetle

Once the mountain pine beetle has chewed its way through Interior forests, real estate values in the province's booming resource towns are likely to tumble, warns a report released Tuesday by the Real Estate Investment Board.

The report details for the first time the economic fall-out of the pine beetle in terms people can understand -- real estate values -- in towns like Prince George, Williams Lake and Quesnel.

Communities have only four to five years before their economies -- and real estate values -- begin to slide, said Don Campbell, president of the privately funded board and author of the report.

Campbell said within six to eight years, residents will being moving out of Interior resource towns, a trend that can only be mitigated if new job-producing industries are brought in.

Most of the Central Interior forest is lodgepole pine that is either dead, dying or soon to be attacked by the voracious insect, Campbell said in an interview Tuesday.

Right now, logging and sawmilling is going full-throttle while forest companies try to process as much timber as possible before it decays. But in five to seven years, that processing window will begin closing.

And when that happens, jobs will dry up.

"Jobs, income and in-migration are the three major components to drive a real estate market. And when any one of these three gets out of whack, you see a market either plateauing or starting to drop," Campbell said.

The Real Estate Investment Board provides research for real estate investors, but Campbell said there is a dual purpose in making the report public:

n To warn long-term investors of the potential for a value decline as the region's forest economy withers.

n To further stimulate a strong government response to the broad economic implications of the beetle epidemic.

To forestall the scenario, Campbell said, it will require huge sums of public money invested in economic diversification strategies. Civic leaders in the resource towns, such as Quesnel Mayor Nate Bello, are sounding the alarm, but Campbell said senior governments are not responding with sufficient vigour.

The federal government's response, a $100-million-a-year commitment, much of it going into research, has been lacking, he said.

"If this was the automotive industry and it was happening in a vote-rich area and there were this type of negative economic impact occurring, the federal government would be all over it, supporting it with capital and investment trying to solve the problem.

"That is not happening here."

The report shows that the strong fundamentals that long-term investors seek in making real estate purchases do not exist in the pine beetle cities. Populations in all three dropped between 2001 and 2006, according to census data. Quesnel was the third fastest-shrinking community in Canada.

"Even with this temporary increase in [harvesting and lumber manufacturing] jobs, Quesnel is in the midst of an out-migration problem," the report states, noting that the population declined 7.1 per cent during the 2001-06 time frame. The population for the rest of the province grew 5.3 per cent by comparison.

Right now regional real estate markets are buoyant, fuelled by baby boomers buying second properties and by the jobs boom. Campbell said much of the real estate price jump is driven by speculation.

"If your population is not growing but real estate values are jumping substantially, there has to be a speculative piece in there," Campbell said.

He said people will likely leave when the processing jobs decline and that the prospect of a wilderness of dead and dying forests could put the brakes on the second property market.

"Real estate markets are mainly driven by full-time residents and this is why the decrease in population is a precursor to a future demand issue," the report states.

Pointing to an image of the pine beetle, Campbell said: "This little guy is going to affect the livelihoods of tens of thousands, if not hundreds of thousands of people in our province.

"The bottom line is: If you don't have the jobs and you don't have the income, how can there be demand on the real estate market?"

(prepared by Gordon Hamilton/Vancouver Sun)