B.C.'s housing-addicted economy not sustainable, experts fear

[Sheba]

Analysis: B.C. has an unusual economy because it hinges so heavily on “outside money,” say economists. How long can it go on?

B.C.’s economy is not as healthy as it might appear, since it relies too much on housing and newcomers to keep it above water, say prominent economists and analysts.

The real estate sector makes up a much larger section of the B.C. economy than in the rest of the country. The B.C. economy is heavily reliant on large-scale flows of people arriving each year from other provinces and countries, say the specialists.

They maintain B.C. has not been effective at developing its resources, businesses and industrial capacity in a way that increases wages and improves productivity. This B.C. phenomenon, going on for two decades, puts demand pressure on housing prices.

Don Wright, former head of B.C.’s civil service, says there is a general feeling among British Columbians that the economy is healthy because unemployment is relatively low and government revenues stable.

But there is a distinct possibility the economy is not sustainable, Wright says.

...

B.C. has an unusual economy because it hinges so heavily on “outside money;” on new arrivals coming in to “buy real estate and support consumption with income earned elsewhere,” says Wright, an economist who gives presentations on the issue to Ottawa politicians and business organizations.

“In essence we are ‘exporting’ the right to reside in B.C.,” Wright says.

“This has become our largest ‘export industry.’ It accounts for more than twice the annual level of forest industry exports. In the short run, this injection of dollars does create the impression of a healthy economy, but how long can this go on?”

The business council’s Williams generally agrees. A tremendous amount of B.C. money is going into “housing-related consumption,” he says.

But investment dollars are not flowing strongly enough into such things as new machinery and equipment and intellectual property rights, said the business economist. Those sectors can much more add to the “economy’s future productive capacity” and potentially increase stagnant wages.

...

According to Stephen Punwasi, of Better Dwelling, B.C.’s economy is almost twice as reliant as neighbouring Alberta on real estate, which accounts for 20 per cent of B.C.’s GDP.

That compares to an average of 13.5 per cent across the country, a proportion that is still much higher than in the United States. If B.C.’s construction industry is included, it adds up to almost one third of B.C.’s GDP coming from real-estate related services.

Canada, and especially B.C., are “addicted” to real estate-driven growth, says Punwasi, who maintains it’s an unhealthy dependence that won’t be easy to break.

...

What might happen to B.C. “when the party stops?” Wright asks, referring to a time when newcomers stop bringing in tens of billions of dollars each year from beyond provincial borders?

B.C., he said, will need to restructure by strengthening sectors such as forestry and mining, manufacturing and high tech — all of which are capable of producing superior middle-class wages.

“We better know,” Wright says, “how to rebuild the standard of living of the next generation.”

Not exactly breaking news... I hope we don't have to go through a major crash before we finally start diversifying.

[jollyburger]

Answer: Log the old growth forests

[Changing City]

Originally Posted by jollyburger

Answer: Log the old growth forests

We're doing that already. That's why there are protests. Maybe the quoted ex civil servant now being vice-president of a lumber company might be why he's keen on seeing support (rather than restrictions) on 'traditional industry'?

Forestry and logging has been falling as a proportion of total GDP in BC for decades, partly because the supply of lumber has been reduced as the effects of climate change has had a dramatic impact on the available cuttable lumber, through loss to fires and beetle strike (which also makes forests more likely to burn).

We also export more of what we cut down as raw logs, rather than value adding here, (manufacturing of wood products has fallen by more than logging has, as a % of Provincial GDP in the past 20 years).

[Changing City]

Originally Posted by Sheba

Analysis: B.C. has an unusual economy because it hinges so heavily on “outside money,” say economists. How long can it go on?



Not exactly breaking news... I hope we don't have to go through a major crash before we finally start diversifying.

The economy has been diversifying quite a bit in the past 20 years. Real estate overall has gone up by a couple of percent points of the total economy, until 2020, when it really jumped to be 20% of total GDP. However, that's not because it was dramatically growing - it increased slightly. It was because GDP fell overall, and several sectors collapsed, thanks to covid for the most part. The increase that real estate saw was balanced by a collapse in a few services - Arts and entertainment (obviously), Accommodation and food, and transit all saw a really significant drop in 2020 from the previous year. If/when they recover, then real estate would probably drop to around 18% of the economy again.

[Migrant_Coconut]

Diversification requires the housing market to cool down regardless - there's more than a few businesses that want to set up in Vancouver, but they and their employees can't afford it.

[Changing City]

Originally Posted by Migrant_Coconut

Diversification requires the housing market to cool down regardless - there's more than a few businesses that want to set up in Vancouver, but they and their employees can't afford it.

In this case we're discussing real estate development (so development, construction, and all its related employment) as a proportion of total economic activity in BC. If real estate development drops significantly as a % of total GDP, it would most likely be because there was less development activity - fewer residential units being planned or built, less industrial or office construction, less infrastructure development like Site C or SkyTrain.

Fewer residential units being built would tend to see rental and condo prices hold up. Only lower demand and higher vacancy rates will lower rents, and lower prices will probably see fewer units built. I'm not sure we've seen projects being cancelled here yet, but in the Greater Toronto area 45 have now been cancelled or “shelved” this year. (Residential real estate condo and rental) [source].

If you want market rental prices to drop, you need more units built. It looks like the higher interest rates could well push housing prices lower - as is already happening - but that'll cut the amount of additional supply for a while. (That'll mean less development, and so development will be a smaller proportion of the total GDP, and it'll look like we diversified more!)

[Sheba]

Originally Posted by Migrant_Coconut

Diversification requires the housing market to cool down regardless - there's more than a few businesses that want to set up in Vancouver, but they and their employees can't afford it.

As I've posted before, why does it have to be Metro Vancouver? There's a lot of the province sitting empty that would be cheaper.

[Migrant_Coconut]

Originally Posted by Sheba

As I've posted before, why does it have to be Metro Vancouver? There's a lot of the province sitting empty that would be cheaper.

Economies of scale - it's a lot easier to grow existing tertiary/quaternary sector markets than to make completely new ones from scratch. Doubt Kelowna's getting a large tech or film industry (or the talent/amenities/infrastructure to support one) any time soon.

We could try and expand our existing primary sector (fishing, logging, mining, etc etc) to make up the loss, which'd likely help the rest of the province, but the environmental cost is going to be steep.

[wabooba]

Originally Posted by Sheba

As I've posted before, why does it have to be Metro Vancouver? There's a lot of the province sitting empty that would be cheaper.

Yes, it's true that there's "a lot of the province sitting empty," but usually, it's out in the hinterland where there are few towns or amenities. Either it's wilderness (with cold winters) or
else smaller towns like Nelson, Kelowna, (two of the nicer ones) or else wild, mountainous country like the Kootenays or up in the Stikine. Businesses and people are attracted to cities and what they offer.
Have you any suggestions or ideas where new businesses might set up, other than metro Vancouver? What you said is very true, but how practical is it? Where else in BC could attract businesses? Kamloops? Victoria? What ideas have you got?

[Sheba]

Originally Posted by wabooba

Yes, it's true that there's "a lot of the province sitting empty," but usually, it's out in the hinterland where there are few towns or amenities. Either it's wilderness (with cold winters) or
else smaller towns like Nelson, Kelowna, (two of the nicer ones) or else wild, mountainous country like the Kootenays or up in the Stikine. Businesses and people are attracted to cities and what they offer.
Have you any suggestions or ideas where new businesses might set up, other than metro Vancouver? What you said is very true, but how practical is it? Where else in BC could attract businesses? Kamloops? Victoria? What ideas have you got?

From a few weeks ago on the Burnaby Updates thread:

One thing I've wondered is in BC roughly 50% of the population is in Metro Van - we're a tiny dot on a BC map. Shouldn't we be enlarging other cities and then connecting them with dedicated passenger rail? We've got a lot of empty space in this province and we're preoccupied with fitting many many more people into one tiny area.


(in regards to where)

I'd vote for Victoria on the island, Kelowna for the interior, and Prince George (home of the main UNBC campus) for the north. They could certainly take up some of the slack.


(about if it should be regular or high speed rail)

I left it as passenger (vs freight that supposed shares with passenger) rail - I'll leave the speed for other people to debate.

[Migrant_Coconut]

The time for that was 50-100 years ago, when BC was still (relatively) young. We'll still give it a shot eventually, but costs are much higher... and benefits much more sporadic.

In addition, it might be easier to get rail to Kamloops than Kelowna, for the same reasons CP did in the 1880s.

[wabooba]

Originally Posted by Migrant_Coconut

The time for that was 50-100 years ago, when BC was still (relatively) young. We'll still give it a shot eventually, but costs are much higher... and benefits much more sporadic.

In addition, it might be easier to get rail to Kamloops than Kelowna, for the same reasons CP did in the 1880s.

It seems a shame in a way that they dismantled the old Kettle Valley Railway. It went up to the Okanagan, and if it were still extant, could possibly be made into regional rail. Alas ...

[FarmerHaight]

Originally Posted by Sheba

As I've posted before, why does it have to be Metro Vancouver? There's a lot of the province sitting empty that would be cheaper.

It's worth noting that many of the most economically productive states and provinces in North America have this same "issue".

Take a look at NY state, California, Texas, Massachusetts, and Quebec. All of these have one or two large metropolitan areas and are surrounded by a vast hinterland. Northwest NY state has some college towns and manufacturing cities, but most of the state outside of NYC is farmland or forest. Quebec is very similar. California's four cities all have distinct identities (Sacramento is government, S.F. is tech, L.A. is entertainment, and San Diego is military) but the more rugged areas akin to B.C.'s interior are essentially unpopulated except for some holiday destinations.

In some countries where decision making is centralized, it may be possible to decide that Prince George is going to become some sort of tech hub. China has certainly created a lot of economic powerhouses out of thin air through some combination of incentives, propaganda, and forced relocation. But in Canada business is much more free-flowing. Maybe a tech founder can be convinced to base his business in Prince George, but will they really be able to attract talent away from Vancouver, Seattle, S.F., or NYC? Or even Austin or Charlotte?

Or what about manufacturing, warehousing, and shipping? Vancouver is already in a pretty bad spot for that, given our poor freight connections to anywhere besides Seattle and Portland. Nanaimo or Kelowna or Prince George would be even worse!

Or what about healthcare? The interior may attract some NPOs because of the opportunity to work with indigenous peoples and others with poor access to healthcare, but for-profit healthcare companies will want to be where a large population already is.

The best opportunities for growth in B.C. will be more resource extraction, adding value to our extracted resources - why should we ship our wood, energy, seafood, etc. to other places to be processed, only for them to be shipped back in order to sell to consumers? - and remote work. A lot of B.C.'s communities would be pretty incredible to live in if internet was reliable and I could work from anywhere. These remote workers would serve to increase the demand for goods and services in these communities, and increased population would justify increased spending on infrastructure, healthcare, education, etc.

[Migrant_Coconut]

There's plenty of medium towns that could take on refining roles (laminated timber, steel, etc) and be middlemen between the forests/mines/etc and the logistics hubs in Vancouver. But we are a market economy, not a planned economy, and said businesses will likely stick to the Lower Mainland, if BC at all.

Originally Posted by wabooba

It seems a shame in a way that they dismantled the old Kettle Valley Railway. It went up to the Okanagan, and if it were still extant, could possibly be made into regional rail. Alas ...

In fairness, this makes for pretty lousy passenger rail. You'd probably be able to get out and bike faster.

[FarmerHaight]

Originally Posted by Migrant_Coconut

In fairness, this makes for pretty lousy passenger rail. You'd probably be able to get out and bike faster.

Thanks for sharing. I was looking for a map after wabooba mentioned the railway as I had never heard of it before. Talk about circuitous!

Just for fun, I would love for someone to do the estimated cost for a railway from Hope to Princeton to Penticton to Kelowna. Utilizing as much dynamite as possible, of course

Are we talking 10s of billions? More?

Of course, the more economical option would be Hope to Merritt to Kelowna, following the Coq and then 97C, but what fun is that?

[2009]

Deleted

[whatnext]

Originally Posted by FarmerHaight

Thanks for sharing. I was looking for a map after wabooba mentioned the railway as I had never heard of it before. Talk about circuitous!

Just for fun, I would love for someone to do the estimated cost for a railway from Hope to Princeton to Penticton to Kelowna. Utilizing as much dynamite as possible, of course

Are we talking 10s of billions? More?

Of course, the more economical option would be Hope to Merritt to Kelowna, following the Coq and then 97C, but what fun is that?

The grades on parts of those highways would be impossible for conventional rail. Vancouver’s geography makes getting out of the area impossible to do quickly by rail. The only exception being South to Seattle. I’m case anybody’s noticed that been out of service since Covid and supposed to resume in September. Did anyone notice?

[Vin]

This is what I have been saying all along: people here are always taking the easiest way out with the least effort and input possible, and the easiest way to make quick profits for many would be through real estate. Like it or not, this is a province of lazy folks.

Incomes? Calgary, Edmonton put Vancouver in the shade
https://www.vancouverisawesome.com/r...dq7SF_EZ1KLlwE

Funny that everyone is complaining about the sky-high real estate prices when this is pretty much the only commodity we have.

[Migrant_Coconut]

All the more reason to diversify. We've got Alberta next door being a prime example of why doubling down on a single industry is moronic.

[GenWhy?]

Originally Posted by Vin

This is what I have been saying all along: people here are always taking the easiest way out with the least effort and input possible, and the easiest way to make quick profits for many would be through real estate. Like it or not, this is a province of lazy folks.

Funny that everyone is complaining about the sky-high real estate prices when this is pretty much the only commodity we have.

Sounds like of of the cities with the youngest populations have higher median incomes.