What happens to the economy of B.C., and of Metro Vancouver in particular, when the housing bubble bursts?
That’s something I worry about quite a bit, of late. The air is leaking out of the housing bubble. Detached house prices are finally sinking, sales are crashing, and oversupply seems certain.
So the question isn’t if or even when (it’s starting now) but how bad will it be.
I’m hoping the answer is not too bad, but I very much fear the opposite will prove true.
The construction industry is currently the third largest employer in the province, with more than 233,000 jobs involved directly or indirectly. Real estate, rentals, and leasing made up more than 18 per cent of B.C.’s GDP last year – a larger percentage than oil and gas represents in Alberta.
We’re seeing the first, earliest stages now, as it takes a bit longer every month to sell a home in Metro Vancouver.
The next stages are stagnation, layoffs in construction and real estate, and an exodus of some of the younger people who had come to B.C. to work.
With home sales grinding to a halt, some speculators will hold on to their assets and refuse to sell – leaving homes either empty, or hopefully, available for rent. (Which should make renting more affordable for a few years, at least.)
Others will be forced to sell at a loss, further driving down prices.
The provincial government will take a hit to its pocketbook. Victoria has been getting a lot of money out of the property transfer tax. Prepare for deficit spending, new taxes, service cuts, or all three.
Municipalities will take a lesser hit, but will be left to deal with vacant lots in the middle of patchy developments, and possibly with an increase in vacant homes.
We still don’t know how extreme this will be, or how long it will last.
I think we’ll be lucky if B.C. gets through it without going into a recession. Frankly, I’d be very happy to be proved wrong on all of this.