Economic Analysis of British Columbia

Transcription

1 Economic Analysis of British Columbia Volume 36 Issue 6 December 2016 ISSN: Regional Economic Outlook Lower Mainland-Southwest Driven by a Metro Vancouver economy that is on track to be the strongest economic performer among larger Canadian metro areas, the Lower Mainland Southwest (LMSW) which spans from the Fraser Valley to the east, through the Sunshine Coast to Squamish- Lillooet, has established itself as B.C. s runaway growth leader. A glance at labour market performance provides the clearest picture of strength and aligns with strong retail sales and housing activity. While there are signs of moderation since August, employment growth in the region has remained robust. Annual employment growth is on track to exceed 4.5 per cent, a record annual pace going back to at least Strong job growth has outpaced labour force expansion, pushing the unemployment rate to near five per cent, and an annual average of 5.6 per cent. In comparison, national employment growth tracked 0.7 per cent over the period. Industry employment growth points to a market firing on nearly all cylinders, albeit with services-sector expansion leading the way. Employment growth is in the double-digits in the information/culture/recreation, wholesale and retail trade sectors, and business management, while construction and manufacturing exceed the regional gain, public administration. Losses were observed in accommodations/foodservices, and resourceextraction. That said, there are significant regional differences. Metro Vancouver is experiencing one of its strongest employment cycles on record and ranks near the top when compared to other large urban areas in Canada. In contrast, the employment cycle deteriorated mildly in Abbotsford-Mission after an early-2015 peak near seven per cent of the labour force. Chilliwack employment has climbed sharply after a sharp 2015 contraction, but remains below levels seen two years ago. The regional economy has benefitted from both export-oriented gains and strong consumer demand owing to broad macro-economic factors including the low Canadian dollar and interest rates as well locational advantages which will continued to underpin growth. While the pace of growth will Per Cent Lower Mainland-Southwest Labour Market Forecast Employment Growth Unemployment Rate Source: Statistics Canada, Central 1 Credit Union, Forecast Employment Growth by Metro Area Vancouver Abbotsford-Mission Calgary Toronto Montréal Canada Per Cent Source: Statistics Canada, Central 1 Credit Union YTD Nov decelerate from strong gains in 2016, economic growth in the Lower Mainland-Southwest will remain steady and underpinned by population growth and export-oriented service sectors, with downside risk coming from the housing market. A favourable exchange rate will maintain high levels of international tourist visits. Metro Vancouver is a highly attractive destination with the low dollar and safety concerns elsewhere. Dollar-conscious Canadian tourists who are staying north of the border have also contributed to higher hotel occupancy rates, room revenues, as well as the retail and food-service sectors. Hotel room revenues in the region were trending 15 per cent higher this year, according to B.C. Stats estimates. The TV and film production sector is similarly benefitting from the exchange rate and renaissance in TV 1

2 show demand due to on-demand distributors like Netflix and Amazon. From , B.C. TV/film and post-production revenues rose 28 per cent, with much of this work in the Vancouver CMA area. Anecdotal evidence points to persistence of an industry operating near capacity in 2016 which will continue going forward. The region is home to a number of high profile productions and associated post-production jobs to including DC Legends of Tomorrow, Supergirl, A Series of Unfortunate Events, among others. Feature films adding to the landscape include Why We re Killing Gunther and Okja. Regional tech sector expansion continues with organic growth of the local tech cluster and large unicorn status for such companies as Avigilon, Hootsuite and Slack. 1 Large multinationals including Microsoft and Amazon have increased their regional footprint in recent years. B.C. technology services employment has climbed sharply this year owing mostly to a rise in software design employment. While spread across the province, employment is concentrated in Metro Vancouver, which by our estimates is home to about 70 per cent of all companies 2, with nearly all of those with 200 or more employees are in the region. The sector remains competitive as the low Canadian dollar drives service exports, while the large pool of local and less expensive talent, provides a competitive advantage. The federal government announcement to loosen foreign worker restrictions for high skilled tech workers should be a boon for the industry and expansion plans. High employment growth has contributed to population gains, reflecting economic migrants from other provinces and rebound in international migrations, partly due to the number of Syrian refugees. Population expansion will continue to underpin consumer demand for goods and services and long-term growth in homeownership demand, while putting pressure on an undersupplied rental market. Population growth in the Lower Mainland-Southwest will average about 1.3 per cent through 2018, representing average gains of about 37,500 persons each year. Economic fundamentals will remain strong, but the regional housing market will face a period of stagnant sales and prices declines from a combination of local and national housing policies designed to stem price growth. The combination of measures including provincial luxury home tax in the spring, foreign buyer tax in August, and subsequent tightening of Defi ned as Computer systems design and related services (NAICS 5415) Units Lower Mainland- Southwest Home Sales 8,000 6,000 4,000 2,000 Lower Mainland Unit Sales (MLS ) LMSW Resale Activity (Landcor) Source: REBGV, FVREB, Landcor, Central 1 Credit Union, seasonally-adjusted Lower Mainland - Southwest Resale Housing Forecast Units (000s) Dollars (000s) Transactions (L) Median Price ( R) Source: Landcor Data Corp, Central 1 Credit Union, Forecast mortgage insurance qualification policies look to have ended the rise in the housing cycle. Detached housing has thus far borne the brunt of the downturn with market conditions shifting into a sellers market, driving lower realized and listing price expectations on the part of sellers. Detached home prices arguably ran ahead of themselves in the spring months, and a natural pull back due to affordability constraints was further impacted by policy measures. We do not see the foreign buyer tax as having a long-term impact on the market. While short-term speculators will be pushed out, those with a long-term horizon, future residents, and students will internalize the cost. Metro Vancouver remains well priced compared to other global markets and highly desirable. However, tighter mortgage insurance rules will mark an end to the current housing cycle across the Lower Mainland-Southwest as first-time and lower-equity buyers as well as the move-up market cool, maintaining low sales and declining prices in Sales have declined for multi-family product, but lack of inventory in both the resale and new home market have supported price levels. Economic Analysis of British Columbia 2

3 The regional housing market is amid a modest correction phase that will continue into mid Media reports will invariably focus on average price levels, which are impacted in large part by product composition, and show deep price declines, the underlying price declines will be less exciting. We forecast median home values in the Lower Mainland-Southwest to decline four per cent in 2017 to $575,000 and a peak-to-trough drop in the benchmark home value of five per cent. While sales activity will remain weak due to policy constraints, the impact will predominantly be through low sales volumes. Strength in the economy, which will lift average employment by a mild 1.1 per cent in 2017 after a strong gain of 4.9 per cent in 2016, will mitigate panic selling on the part of sellers. Many prospective sellers will wait on the sidelines, rather than sell their homes, maintaining a period of frigid volumes in the region. More significant impacts will come on the new construction side, where residential permit volumes in the Lower Mainland-Southwest will fall 25 per cent after a 15 per cent surge in Vancouver CMA housing starts hit a record high in 2016 with a more than 30 per cent year-over-year gain, with Abbotsford-Mission also displaying a similar gain. The impacts of weaker residential investment will likely spread into 2018, as strong housing starts in 2016 maintain substantial construction work this coming year. Despite near-term weakness, housing affordability will remain a challenge over the medium-to-long term. This primarily reflects supply-side factors of a constrained land base which will maintain upward pressure on land values, and require increased density in the region to meet population needs. Bryan Yu Senior Economist, Central 1 Credit Union byu@central1.com Economic Analysis of British Columbia 3

4 Lower Mainland Southwest Labour Force (000s) 1, , , , ,677.0 % ch Total Employment (000s) 1, , , , ,588.2 % ch Full-Tme Employment (000s) 1, , , , ,258.5 % ch Part-Time Employment (000s) % ch Unemployment Rate Residential Transactions 45,195 59,036 68,000 52,000 55,000 % ch Median Price 507, , , , ,000 % ch Residential Permits ($ millions) 5, , , , ,000.0 % ch Non-Residential Permits ($ millions.) 2, , , , ,350.0 % ch Private Non-Res Building Permits ($millions) 1, , , , ,850.0 % ch Public Non-Res Building Permits ($millions) % ch Population (000s) 2, , , , ,990.0 % ch Sources: Statistics Canada, CMHC, Landcor, C1CU notes: Housing sales and prices represent arms-length resale land-title transfers for detached, attached and apartment units Economic Analysis of British Columbia 4

5 Vancouver CMA Labour Force (000s) % ch Total Employment (000s) % ch Full-Time Employment (000s) % ch Part-Time Employment (000s) % ch Unemployment Rate Residential Transactions 38,974 50,873 58,000 44,000 47,000 % ch Median Price 547, , , , ,000 % ch Residential Permits ($ millions) % ch Residential Permits ($ millions) % ch Private Non-Res Building Permits ($millions) % ch Public Non-Res Building Permits ($millions) % ch Population (000s) % ch Sources: Statistics Canada, Landcor, C1CU notes: Housing sales and prices represent arms-length resale land-title transfers for detached, attached and apartment units Economic Analysis of British Columbia 5

6 Abbotsford-Mission CMA Labour Force (000s) % ch Total Employment (000s) % ch Full-Time Employment (000s) % ch Part-Time Employment (000s) % ch Unemployment Rate Residential Transactions 4,446 5,840 8,150 7,200 7,400 % ch Median Price 329, , , , ,000 % ch Residential Permits ($ millions) % ch Non-Residential Permits ($ millions.) % ch Private Non-Res Building Permits ($millions) % ch Public Non-Res Building Permits ($millions) % ch Population (000s) % ch Sources: Statistics Canada, Landcor, C1CU notes: Housing sales and prices represent arms-length resale land-title transfers for detached, attached and apartment units Economic Analysis of British Columbia 6