Housing starts drop off steeply in February

Housing starts in February were down 70 per cent in Vancouver, and as much as 98 per cent in other parts of the province compared to a year ago, the Canada Mortgage and Housing Corp. reported Monday.

Last February, builders started 2,446 homes in the Vancouver area, which stretches from Langley to Lions Bay. This year there were only 701 starts. In Abbotsford and Chilliwack the drop was even more dramatic, with decreases of 84 and 80 per cent respectively, but on much smaller volumes.

But nowhere in the province fared worse than Kelowna, where only 11 single detached homes and no multiple-unit dwellings were started in February, down 98 per cent from 79 detached homes and 379 multiple units last year.

Kamloops also suffered, with its starts down to two units from 46, a 96-per-cent decline.

A large part of the market in Kelowna is "discretionary housing," people buying second residences and resort properties, and the demand for those properties has definitely cooled because of the economy, said Paul Fabri, CMHC market analyst for the area.

Richard Sam, a CMHC market analyst for the Lower Mainland, says the percentages are exaggerated because housing starts a year ago were high.

"So we're coming off from a high to a low," Sam said.

Part of it may be seasonal, since it is more difficult to build in the winter, he said.

But the main reason is that the supply of both resale houses and new unsold houses remains high compared to demand. Until that supply gets absorbed, housing starts are likely to continue to be slow, Sam said.

Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C., said the drop in starts "is about time."

The number of sales starting dropping a year ago, and prices peaked in mid-2008. So Somerville would have expected housing starts to drop dramatically in the fall, which they didn't.

But now that they have, Somerville won't predict how long they will continue declining.

The bright side to the slowdown in starts is that "if it wasn't [slowing], then we'd have real serious potential problems," Somerville said.

Growth in supply has to slow down so the real estate market becomes more balanced and prices can, in theory, stabilize.

"But it's the kind of good thing that leads to unemployment, lower income, that kind of stuff," Somerville said. "So it's a good thing for housing market balance, [but a] bad thing for the economy.

"If the economy was calm and not tanking, we'd see this step back in real estate as a breather from overexcitement, just letting everything come back into balance," he added. "The problem is, the definition of what's in balance right now is getting weighed down by what's going on in the economy."

In the Lower Mainland a number of high-profile condominium projects have been put on hold, including the Ritz-Carlton in downtown Vancouver and the 16-tower Sun Tech City in Richmond.

Across the country, housing starts fell 12.3 per cent, "the sixth consecutive monthly decline and the slowest pace of residential construction activity in about eight years," Robert Kavcic, an economist with BMO Capital Markets Economics, said in a note.

"The Canadian housing correction is in full swing with starts now well below the rate of household formation, offsetting the overbuilding of the past five years," Kavcic wrote.

Delta, with an increase from 25 to 65, was the only Lower Mainland area that bucked the trend.

(prepared by Fiona Anderson/Vancouver Sun)