Surrey has just recorded its second-highest total for building permits in history. The 2015 figure of $1.46 billion is second only to the 2007 total of $1.49 billion.
The building boom continues unabated in the early weeks of 2016, but there are a number of uncertainties out there which may weigh in as the year progresses. One of the biggest ones is interest rates.
The Bank of Canada is under pressure to keep rates low, due to job losses, falling commodity prices and other weaknesses in the Canadian economy. Those low interest rates are a lifeline to most home buyers, who otherwise could not afford to pay the going rate for housing. Whether they will continue is an open question.
Another uncertainty is the state of the stock market. Much of the current turmoil is due to a lot of questions about what is happening with China’s businesses. This has many side effects, some of which spill right into the local housing market.
Part of the ongoing dramatic rise in Lower Mainland real estate prices is due to offshore money coming into the market. Some of that is from China, as many wealthy residents have wanted to move some funds out of the country.
They have looked at housing in desirable parts of the world, and the Vancouver area is one of those areas. The many connections between China and B.C., not the least of which is the Pacific Ocean, make this area a destination for some of that Chinese money.
While only a small portion of that money has come directly into the Surrey and Delta real estate markets, the bidding wars for properties in Vancouver, the North Shore, Burnaby and Richmond puts a lot of money into the pockets of the sellers. Many of those sellers then come to this area to buy.
The current market turmoil in China means even more Chinese people might look to move some money out of the country. Canada will now be seen as even more desirable because of our current low dollar. In the short term, this will likely mean the booming local housing market continues.
Surrey’s figures for 2015 show that more than $1 billion of construction was residential, with less than $200 million in commercial and just $57 million in institutional construction.
A superficial comparison shows these figures are way out of balance. How can a city attract more than $1 billion in residential development and just issue $57 million in institutional permits? That means that little is being built in the way of schools, hospitals, recreation centres and the other amenities that are absolute necessities as a city keeps growing.
Surrey has had a deficit in this type of social infrastructure for decades and the 2015 building permit figures demonstrate just how it is continuing. This is a serious problem which requires attention and action from all levels of government.
The commercial building figures are also surprisingly low and seem to indicate businesses in general are not willing to put a lot of money into new construction – perhaps due to concerns about how much money consumers will have left in their pockets after paying sky-high prices for housing.
Almost $1.5 billion in construction activity is an important badge of achievement. The jobs and spinoff economic activity provided are significant in Surrey’s overall economy.
However, the uncertainties are not going away. The biggest year of construction activity on record in Surrey was 2007. The next year, 2008, was when many elements of the worldwide economy faltered significantly. There are risks in 2016 which may lead to some similar challenges.
Frank Bucholtz writes weekly for The Leader.