BC outlook: this is gonna hurt

Housing has been one of the major drivers of the BC economy in recent years. Low interest rates led to rising home prices and a psychology of “must get in before being locked out forever”; leading a housing bubble that had everyone in town swapping jaw dropping stories of bidding wars and outrageous prices paid. The economic driver was not so much those sales but the residential construction boom that ensued. Between 2004 and 2008 capital expenditures on housing swelled from about $10 billion to $14.7 billion, an amount equivalent to more than 2% of BC’s GDP.

Those heady days are done, and today’s psychology is retrenchment in spending overall, and in particular housing. This is going to have a substantial impact on employment through lower residential construction. If the latest forecast is to be believed, BC housing starts in 2009 will be almost half of levels in 2007 and 2008. That translates into about 3.5% of BC’s GDP, a huge hit to the provincial economy.

If the drop in housing starts translates one for one into employment losses, we could be looking at 100,000 job losses in the province (total construction employment in 2008 was 220,000, and while not all of this is in housing, the trends elsewhere are much the same), almost doubling the ranks of the unemployed. That’s not inconsisent with recent trends, either, as unemployment in December was up 29% from the previous December.

So, memo to the BC government with the budget due on Feb 17: if you are serious about infrastructure investments to heed off this recession, think big, really big.

UPDATE (Feb 5): Today’s Daily on the latest building permit numbers is indicative of the gloom above. In Dec 2007, the value of building permits issued in BC was just over $1 billion. In Dec 2008, that number dropped to $358 million, a collapse of 65%. My quick scan on the numbers (which are seasonally adjusted) is that building permits stayed in the $900 million range for most of 2008 and have dropped off the cliff only in the past three months. Thus there are many projects that are underway, which is good, although some may be cancelled or delayed. But once those dry up, trouble.