Keeping an Obsessive Eye on Real Estate

Each day brings fresh headlines trumpeting a new record for construction starts or screaming about a new survey that says the average price of a home in Greater Vancouver is now a billions dollars.

The obsession with real estate has made superstars out of people like Cameron Muir, a mild-mannered senior market analylst for Canada Mortgage and Housing Corp.. Mr. Muir gets quiote in the media as aoften as Markus Naslund, captain of the hometown Canucks, or Dave Dickenson, quaterback of the hometown Lions.

Everyone wants a piece of Mr. Muir's time, an ounce of his wisdom. THe banks, developers, mortgage brokers, real-estate agents, consultants, construction suppliers, the gas company, the electric company, you name it.

His advise could be worth millions.

"How long will the boom last?" they all want to know.

"When will the bubble burst?" he'll be asked every day.

"Real estate in Vancouver is a passion," Mr. Muir said yesterday. "Everyone is keenly attuned to any changes in the market. And people want to know and understand the subtle forces at work that could change the market."

And that, of course, is the real estate story.

Beneath the rosy reports about how insatiable is the demand for new office towers and condominium complexes and million-dollar homes, concerns are beginning to precolate.

Developers in Greater Vancouver are finding it increasingly hard to increase production because of a lack of land.

Much of the land that is available is too expensive, and when you factor in how much consumers are prepared to pay for a new home. Some developers have become so desperate they are building on "brown fields" sites, land that was formerly industrial grounds. Property that once upon a time developers wouldn't cast a glance at.

Rising construction costs are also impacting developers' profit margins. Those costs include everything from the rising price of materials to the escalating per-hour rates of labourers. There is such a growing shortage of skilled labourers here -- electricians, drywallers, plumbers and so on can virtually name their price.

Mr. Muir said he was told recently that construction costs are going up three quarters of a percentage point per month. "When you compound than, that's a lot of money," he said.

One home builder was quoted recently saying that labour and construction prices have jacked up construction costs in Vancouver to at least $200 a square foot for premium multifamily project. That's up from $120 a square foot five years ago.

Builders say they can no longer sell their housing units first and then find tradespeople to build them at a later date because it's too risky. Construction costs are escalating so rapidly developers might lose their margins.

The construction boom in the Lower Mainland has been a disaster for many of the province's smaller communities. Why? Because the skilled tradespeople are leaving those small towns in droves for the bright lights and big bucks of the big cities like Vancouver, Victoria and Kelowna.

The shortage of skilled workers has become a political issue provincially. The NDP Opposition accused the Liberal government yesterday of creating the shortage by cutting training four years ago, resulting in a 44% decline in the number of people completing apprenticeship programs. The government counters by saying it recently announced $2.2-million in new funding to reduce waiting lists for apprenticeship courses.

Ho hum.

The bigger question is what this all means. If the construction boom is driving the BC economy, should we be reading here for a big crash of some sort?

No one knows for sure, of course, not even Mr. Muir. But it's safe to say there is not likely to be the kind of nosedive that would plunge BC into economic peril. But everything is cyclical and challenges the construction industry faces will no doubt lead to a slowdown in the number of nails being driven into two-by-fours.

Half the jobs being created in BC at the moment are in construction. Those numbers will begin to shrink as the amount of construction begins to constrict. Housing starts are expected to fall 8% this year from last year. And forecasts suggest there will be a further 3-4% dip next year.

As mentioned, rising costs, a shortage of skilled labour and a lack of land are all contributing to that reduction. In a sense they are acting like a natural governor on the amount of construction being done.

And at the end of the day that may not be such a bad thing.

(prepared by Gary Mason/Globe and Mail)