City of Vancouver Permit Update for 2010

I have been producing some graphs starting in early 2009 showing the trend of permits in the City of Vancouver (here and here). Here is an update to December, 2010.

Residential dwelling permits graphed since 2007:


Permits parsed for 1-2 dwelling units only (i.e. SFHs):Multi-unit building permits:

All permits' value, residential and commercial:


Analysis:

1. There was a significant, though not full, rebound in multi-unit permits in late 2009 and into 2010. This is commensurate with the rebound in construction employment coming out of the recession.
2. The detached market is extremely hot right now. This is evident through significant price appreciation of detached-zoned lots in the City, notably (but not exclusive to) the west side.
3. Detached permits have been falling significantly since mid-2010. Seasonality in permit applications cannot be discounted; I would not be surprised to see detached permit applications rebound going into the first half of 2011. A builder friend of mine claims the City's permit office has a backlog it's working through.
4. The building recession in late 2008 through mid-2009 is now bookended.
5. The data presented here show what a severe housing recession looks like and hint at how dependent the City is on sustained permit revenue to fund its operations.
6. The permit data are coincidental with faltering sales, however the permit data are released with about a month's delay; sales are available with virtually no delay thanks to paulb over at vancouvercondo.info. It's worth remembering that with housing markets, prices are a lagging indicator.
7. Laneway housing continued its upward trend. Builders and the permit department are likely becoming more familiar with the process and relevant codes (and likely fine-tuning it as they go). I would expect to see a continued increase in laneway housing permits, barring any major pullbacks in the availability of credit.

Housing starts and under construction

Just had a look at the CMHC Housing Now publication with the January starts/completions data. Completions exceeded starts by 2115 in January 2010--which is the most for a single month since 1981 (and the data in 1981 is really wonky so I don't know what to make of that). Correspondingly, under construction is 'cliff diving' as they say over at Calculated Risk. Straight downhill.


The 12 month total of starts tweeked up in January 2010, but it is still at a deep low. How deep? Check the data back to 1948 below.


The 12 month total of starts is in the neighbourhood of the lows hit in 1967, 1983, and 2000. That's right, lower than the depths of 1967--when Vancouver's population was much smaller. That is not a lot of starts.

What do I see happening over the rest of 2010?

1. It is unlikely that starts will stay so low. Look at the green line--it has never rested at the bottom before (but perhaps we've never had such a speculative glut before!).
2. Completions will continue to chug along at the current pace for the rest of the year, still exceeding starts.
3. Under Construction will drop below 10K and might touch historic lows close to 5K if starts don't pick up as much as I think they might.
   

One big implication of this is for the employment market. We know that a big part of the boom in the BC labour market was driven by construction employment. Construction employment depends on the 'under construction' total. As that number continues to drop over this year, we will see unemployment rise.

About a year ago, I predicted 10% unemployment by June 2010. We're at 8.1% now. I don't know if we'll make it to 10% in the next 4 months, but it's not a crazy prediction to hit 10% sometime in 2010 as the Olympic workforce gets laid off and the construction workers join them.

We see the next labour market data point this Friday. That data comes from the middle of the Olympics, so we won't start to get a real glimpse of the post-Olympic period until the March numbers come out in April.

City of Vancouver Permit Update

I produced some graphs about 10 months ago showing the trend of permits in the City of Vancouver. Here is an update to November, 2009. I do not yet see data from December or January on the City's website.

First all residential dwelling permits graphed since 2007.


Here are the permits parsed for 1-2 dwelling units only (i.e. SFHs):


Note there is an increase in permit value in the later half of 2009. I am unsure why that occurred.


We turn our attention to the proverbial elephant in the room, multi-unit buildings (i.e. condos):


And a quick look at all permits' value, residential and commercial:


Analysis

1. There should be no doubt in anyone's mind that the City of Vancouver has become reliant upon permit revenue to fund its ongoing operations. That the City has announced severe cuts to operations -- layoffs -- should come as no surprise after looking at these data.
2. This is the strongest evidence I have seen that there was a severe building recession through most of 2008 and into early 2009, though we all pretty much knew this to be the case without these data. The total number of permits issued through this recession is significantly below what is required to feed the City's average population growth rate of the last decade.
   
3. Permits for SFHs eked out a rebound in the second half of 2009. I am not surprised by this at all given how low mortgage rates were and continue to be. I would expect a continued higher level of permit applications for SFHs through at least the first half of 2010.
   
4. The proverbial elephant in the room is multi-unit permits. While there was a slight resurgence in permits for condos in the latter half of 2009, it is significantly subdued from those heady days earlier in the decade.
5. The majority of laid off construction workers must look elsewhere for employment in the coming year.
   
6. Laneway housing started to be reported in November 2009. There were a handful of permits issued: 9. I will be interested to see how successful this scheme becomes in the coming year.

Construction employment

Housing starts have really fallen off a cliff in the past year. However, we have not yet seen the last of the construction lay offs. Why not? Because construction employment relates to units under construction, not starts. Units under construction has fallen, but still has some way to go--we're maybe half way there. I predict it will bottom out below 10K/year. This means we still have a lot of construction jobs to be lost.


As for construction employment, it has dropped by around 20 percent since the peak. I think it has a long way to go--I would not be surprised at seeing 2001 levels again by the end of 2010.

That alone, all else equal, would be enough to push the unemployment rate back above 10 percent.

These rates do appear to have plateaued at current levels. However, once the Olympics are done and we see the continued completion of construction projects through the spring and summer, I would not be surprised at all to see 10 percent unemployment in BC by the end of the year.

July 2009 Vancouver CMA CMHC Stats

Here is what CMHC has to say:

Housing starts continued to trend lower in July. Foundations were poured for 517 new homes, down 73 per cent from July 2008. The majority of new housing projects were in Surrey and Vancouver City, and these were mostly single detached homes.


During the first seven months of the year, a total of 3,859 homes were started in the Vancouver census metropolitan area (CMA) compared to some 12,082 units for the same period last year.


Single-detached home starts have been trending up since the beginning of the year, and accounted for almost half of the new developments in July. Multiple-family units normally accounted for the larger share of total housing starts inVancouver.


Multiple-unit projects, on the other hand, continued to retreat. Developers have been taking a wait and see approach towards the multi-unit market even though the number of units absorbed has begun to trend upward and narrow the gap vis-à-vis last year's figures. There are still numerous projects under construction and a sound inventory of unsold new homes available. Homebuilding will remain modest until more of the inventory of new and existing homes is sold off.

Here is the data:

There were 517 housing starts. 236 of those starts were single family homes. 96 of those were in Surrey. Single family homes are simple and quick to permit, construct, and sell if need be.

There are still 19,292 housing units under construction in the Vancouver CMA. 13,754 are condominiums. There are 4,912 units under construction in the City of Vancouver and 3,007 in the City of Surrey.

There were 925 completions during July. 367 were townhouses. There were 222 completions in the City of Surrey.

The number of completed but unabsorbed units has been rising and is at 2,350. 726 of those are in Surrey and 307 of those are single family homes.

Vancouver CMA CMHC Data for March 2009

Good morning,

I apologize for being a little sparse with the posting of late. Having a newborn baby at home is quite tiring and work has been very demanding the last couple weeks which leaves little time for providing quality analysis and posting. Jesse has really provided some exceptionally well thought out posts lately and I encourage you to read them. Thanks Jesse.

The CMHC released housing market data for March 2009 and here are the highlights.

Housing starts are continuing a deep downward slide in the Vancouver area and March 2009 saw only 509 new dwellings started.

Completions are continuing at an expected high pace with 1160 completions during March. There is seasonality to completions with more completions occuring in the summer on average.

The number of units under construction is falling dramatically at 24,446 down from a cycle high of just over 27,000.



The number of completed but unabsorbed units is now at 2,345 units up from 1,413 one year ago. We aren't even half way through the down cycle yet so I am looking for things to get much worse from here.

City of Vancouver Building Permit Analysis

It was recently reported that "British Columbia saw a surprising 86.5-per-cent surge in the value of building permits issued in February". Jeff Meggs has commented that Vancouver joins construction upturn. Well great. Thanks for Jeff Meggs and ht to Frances Bula for pointing me to the city's permits data. Let's take a closer look!

I am presenting data mostly from 2007 and 2008 as an indication of whether the construction downturn we are hearing about is observable. I will be showing the graphs but not much in the way of quantitative analysis. I urge readers to not read too much into what they see as a "trend"; there are definite statistically significant differences for sure just by using the old eyeball but try not to imagine things not really present that suit the argument you are trying to make.

First let's look at total construction value. 2007 and early 2008 had many spikes.

We next drill into residential permits. Below are the totals. It is evident that 2008 was not a stellar year for total permit value compared to 2007. This is mostly due to large condo projects not starting up.

Here are the graphs for 1-2 dwelling permits and multi-dwelling (i.e. condo) permits:

Interesting that in '08 there was a drop in SFH/duplex permits (in the second half) and what looks to be a statistically significant drop in condos for pretty much the full year. This seems to fit with the news stories we have been hearing in the past year, of new large scale residential projects being cancelled or delayed. The decline in SFH/duplex permits is intriguing.

I plotted the average value per permit of SFH/duplex. Seems rather flat, indicating the construction quality and costs are roughly the same for both 2007 and 2008. I have data from as far back as 2002 showing an increase in SFH construction costs as we have suspected.

Another thing the city tracks is renovation and addition permits. There is nothing to indicate a drop in permits from 2007 to 2008.

An interesting indicator is tracking demolitions. Here we can see fewer demos in the second half of 2008, ticking up in February 2009 (this is likely one or more multi-unit demos; there are only 35 permits for 110 demolitions). There is no discernable trend over the past 7 years.

Overall we can see that the initial claims that Febrary is "picking up the pace" is perhaps a bit too quick because January had zero large condo permit applications and February had one. Late 2008 and 2009 look to be filled with "shot noise" condo permits so the data in terms of % change month over month will be more striking.

The graphs also point towards what the city looks for to rate the construction industry's success. Based upon volume, the city is extremely dependent upon condos; roughly 50% of construction spend goes to condos based upon permits issued. When no new condos sprout up, so does half the city's permit-related construction GDP and, to a lesser degree, a drop in permit revenues for the city.

The other striking observation is where the city's new dwellings are coming from. Around 80% of all dwelling permits issued are for multi-unit constructions, only 20% for SFH and duplex. Vancouver is being built up, literally. Total dwellings do not include unendorsed basement suites. If we assume most SFHs contain 2 basement suites (as is currently the norm), the total number of dwellings attributed to SFH construction increases but so too do the total dwellings produced. City Hall would be well advised to understand where a good third (more recently over half!) of the actual dwellings are being built. Based upon the data there is some credence to Vancouver detached properties having some densification premium, with all the caveats that go along with such assumptions.

TD Economics: R.I.P. residential construction boom, 2002-2008.

Canadian housing starts largely unchanged at 177,300 units in December.

R.I.P. residential construction boom, 2002-2008.

After falling from 212,000 units to an upwardly revised 178,000 units (from a preliminary 172,000) in November, we got confirmation this morning that housing starts have indeed embarked on a cyclical downtrend. In other words, that the drop recorded in November was not a kink in the data or dismissible as purely weather-related or sheer volatility, which monthly housing starts figures can be prone to exhibit, especially in the multiple-family unit segment. The year 2008 will have marked the seventh consecutive year where total housing starts where higher than 200,000 units. Residential construction activity had already turned the corner a while ago, however, and today’s data help confirm this. After running at a pace well below the rate of formation of new household for an entire decade (1991-2001), housing starts ramped up significantly starting in 2002 to satisfy pent-up demand from that previous decade. It is our view that this pent-up demand has been absorbed. Consequently, housing starts will, over the long-term, have to come in line closer to the latest estimate of household formation rates, roughly 175,000. R.I.P construction boom, 2002-2008.

Is 175,000 units or so the new norm or level we should expect going forward? Not likely. In a recessionary context, we think housing starts in Canada will undershoot that benchmark for a while. On a national scale, our forecast calls for a bottom in housing starts near 140,000 units in the fourth quarter of this year – hence another 20% lower than the last recorded levels. On an annual average basis, starts will likely average around 150,000 units in both 2009 and 2010. From a regional perspective, the housing starts downtrend, while broadly-based, has been, and will continue to be, most severe in B.C. and Alberta. No province is immune from this, however, and we expect every province to record double-digit percentage dips in housing starts for 2009 when compared to the still lofty levels of 2008.

The employment data also line up well in confirming this long-awaited, and just as long in coming, downturn. During the first three quarters of 2008, the construction industry (as defined in the Labour Force Survey (LFS), which includes non-residential construction) was creating jobs at an average monthly pace of 11,200. A sharp U-turn occurred in the fourth quarter of 2008 to close out the year on a sour note, with jobs being shed at an average monthly pace of 15,300. Back-checking with the establishment payroll survey helps confirm that the residential segment, rather that the non-residential or engineering segments of construction, is indeed most likely responsible for the construction employment losses showing up in the LFS data. All said, it certainly seems as though an important chapter in which the residential construction industry was contributing to Canadian growth and employment in an outsized fashion, has come to an end. Lagging slightly behind the rest of the economy, residential construction has crossed over into the recessionary chapter, and looks unlikely to come out of it before 2010.

Pascal Gauthier, Economist, 416-944-5730

Vancouver Housing Starts - December 2008

The Canada Mortgage and Housing Corporation released December 2008 housing starts data for the Vancouver Census Metro Area this morning and here is the data. Starts are continuing to moderate although developers started construction on 1108 housing units during the month which is still a very brisk level of activity.

I am looking for starts to moderate quite a bit more during 2009 with several months having less than 1000 units started. This will be a far cry from the past few years level of activity.

CMHC Data for Vancouver - November 2008

The Canada Mortgage and Housing Corporation keeps accurate statistical records of the housing market activity across the country and here is a collection of that data for the Vancouver Census Metro Area up to November 2008 (pdf). The chart shows the number of housing units started in the past 12 months (red), completed in the past 12 months (yellow) and the number of housing units under construction (blue) at any point in time. Click the chart to make it bigger.



Several interesting things pop out to me as I observe this chart and the data underlying it:
1) We are currently in a very large building boom.
2) There have been several boom cycles in Vancouver's history
3) The current cycle has born witness to a statisical occurence that has not happened in any previous boom cycle - the number of units under construction has far exceeded the number of starts or completions.

This last observation could be for a variety of reasons:
1) More multi-unit projects which take longer to complete - has that really changed so much since the 90s?
2) A shortage of labour - why start so many projects if developers don't have the labour
3) The prevalence of the pre-sale contract which allows the developer to pass on a portion of the financial risk to the pre-sale buyer and thus no rush to complete when you already have buyers locked into a contract. Why not start more projects so you can lock in more pre-sale buyers and then take a long time to complete because you have too many projects on the go. Seems like a recipe for success from a developer standpoint. The issue then becomes what happens when all developers proceed down this path and a systemic problem creeps into the system with that systemic problem being gross oversupply. Add in the unprecedented level of speculators taking part in pre-sale contracts and we are now just seeing the tip of the iceberg of what happens to a local housing market when these things converge.

Fun times!

On another note - CMHC tracks the number of completed but unsold housing units and this number has risen from 892 units (11/07) to 1295 (11/08). Clearly the market is saturated and cannot absorb any more housing units at current price levels.

Vancouver CMA Housing Starts

The CMHC released the preliminary housing starts data for Canadian major centres for the month of November and housing starts basically dropped off a cliff across the country with Vancouver being no exception.

Starts fell from 2768 last November to 971 this November. It appears that the trend for starts is downward as we enter the correction phase of this real estate cycle. The rolling 12 months of starts has now fallen from a cycle high in July of 21,948 to 19,660 in November.

Construction unemployment is likely to start rising dramatically through 2009 if this trend continues.

CMHC Data - Vancouver

Click on the charts to make them bigger.

It appears that we've hit the peak in units under construction (dark blue line). As the number of units falls, we should watch for the impact on employment.



It is truly amazing how the construction sector has boomed during these past few years. From the lows of the year 2000 to the lofty heights of 2008. And now here comes the ride back down again.

Housing starts, prices show more signs of slowing

CBC News - Last Updated: Monday, August 11, 2008 9:08 AM ET

Canada's housing industry showed more signs of softening amid reports of easing summer construction starts and slowing price increases for new homes.

Canada Mortgage and Housing Corp. said Monday that the seasonally adjusted annual rate of housing starts in July was 186,500 units, down from 215,900 in June.

Starts of urban multiple units, such as condominiums, dropped 20.2 per cent to 91,600, while starts of urban single homes eased 6.6 per cent to 69,800 units.

"After a strong first half of the year, the volatile multiple segment is now readjusting itself," said Brent Weimer, a senior economist at CMHC's market analysis centre. "This brings activity since the start of the year closer in line with our 2008 forecast of more than 200,000 housing starts for the seventh consecutive year."

Meanwhile, Statistics Canada also reported Monday that new housing prices in June increased at their slowest pace in over six years. That continued a slowdown that started in September 2006, the federal government agency said.

The June decline reflected a softening housing market in Western Canada, Statistics Canada said.
Across the country, contractors' selling prices rose 3.5 per cent between June 2007 and June 2008. That was down from the 4.1 per cent year-over-year increase in May.

The June increase was the slowest rate of growth since March 2002 when year-over-year prices increased by 3.4 per cent.

June 2008 CMHC Data

CMHC released the nationwide monthly housing statistics and here are the numbers for the Vancouver Census Metro Area.



There were 1730 new dwelling starts during June.
There were 1600 completions during June.
There were 26444 new dwellings under construction in the Vancouver area during June.

I have a feeling that we've seen the cycle highs for dwelling starts and units under construction and it is probably all downhill from here at this point. We can keep an eye on these numbers each month to see if that holds true. There is a lot of current inventory which will hold back developers from starting as many projects as they have been and this will free up labour to work on the existing projects. I'm looking for the completions to speed up dramatically by the end of this year and for the units under construction to drop to its normal levels below the annual number of starts and completions. This process will probably take at least 18 months. I expect the prospects for construction employment to be extremely negative by the end of 2009 in the Vancouver area.

Vancouver Area May 2008 Housing Starts

VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 9, 2008) - Canada Mortgage and Housing Corporation (CMHC) preliminary figures show that ten per cent more homes were started in the first five months of 2008, compared to the same period last year.


While single detached starts continued to trend down, multiple unit home building, particularly apartment condominium building, was well above last year's."High starts and longer completion times have pushed the number of apartment homes under construction to record highs," said Robyn Adamache, senior market analyst with CMHC. "However, an estimated one-half of apartment units underway are pre-sold, and over the past year, virtually all (98%) units were sold within the same month they were completed. This has left a very lean supply of completed and unsold new apartments on the market.
While the supply of unsold new condominiums has been edging up since last year, it remains at less than one-third of the ten-year average."A similar trend is emerging in the Abbotsford CMA, where multiple unit developments have made a resurgence this year, following a slowdown in building last year. As a result, home starts in Abbotsford were up by one-third, compared to the first five months of 2007.

April 2008 CMHC Data

CMHC released their monthly Housing Now publication for the Vancouver / Abbotsford areas this morning and here is the data for the Vancouver Census Metro Area.

Starts: 1560
Completions: 2328
Under Construction: 26253 (21910 Condos, 3737 Freehold, 606 Rental)
Completed and not Absorbed: 1445 (up 23% from last April)

I expect we'll see a couple months this year where completions are in the 3000 to 4000 range. This will reduce the number of units under construction and reduce the number of people employed in these residential construction projects. The completions will free up labour and hasten the completion of the remaining projects and these expected completions combined with the wrap up of several billion dollars worth of infrastructure projects will likely push the BC economy into recession by early 2009.

Unprecendented isn't even the right word to describe the current number of units under construction. Bubblicious - perhaps.

The majority of the BC economy is a farce. We have an economy that is built on ever increasing home values, condo speculation, rampant consumption, and the psychology of prosperity without the actual prosperity. Aside from a couple of bright spots like our agriculture, natural gas and mining sectors the BC economy is a house of cards. When the economic winds get blowing like they are now, our house of cards will fall.

Tsunamis - VHB Makes an Encore Appearance

How do tsunamis work?

This first image does a good job illustrating how a real tsunami works. Watch out on shore when that tsunami hits. It is a dangerous place to be.


This second image does a good job illustrating how a condo tsunami might work. Thanks VHB. It shows the massive amount of condos under construction in the Vancouver area. One could call it a tsunami of condos. Watch out when it lands on shore when these condos start completing. It could be very dangerous.

Note: this chart does not include the additional 5,000 units that have been started since September 2007.


'Nuff said. Have a great weekend.
mohican out.

February 2008 Vancouver CMA CMHC Data

February was a busy month for developers in the Vancouver area. They started construction on 2,446 new homes and completed only 1,484. This pushed the number of new homes under construction in the Vancouver Census Metro Area to a new record high of 26,560.



The number of completed and unabsorbed homes continues to rise in the Fraser Valley markets of Langley, Surrey, Abbotsford, Maple Ridge and Pitt Meadows. The total number of unabsorbed new homes rose to 1,384 which is 24% higher than last year.

With the number of new homes that will complete soon and the number of unabsorbed units rising, one wonders why developers are starting construction on so many projects.

Vancouver CMA Housing Starts

Developers started construction on 2174 condos and townhouses in February. This, in addition to 272 single family home starts, pushed the number of homes under construction in the Vancouver Census Metro Area to another all time high.

773 of these starts were in Vancouver City.
745 of these starts were in Surrey.

Bring on the supply.

CMHC Data Update

I received the August Housing Now report yesterday from the Canada Mortgage and Housing Corporation for the Vancouver and Abbotsford Census Metro Areas. The report covers housing starts, units under construction, and completions for these areas during the month of July 2007.

Starts were 1524, which is down significantly from July 2006 at 2163 but the starts series is highly volatile and July 2006 was a higher than average month.


Completions were average with 1534 new housing unit completions in the month of July.


There is still a near record number of units under construction in the Vancouver area right now at 21941. Starts have really come off their rolling 12 month highs during 2006.


On another note, I have noticed a recent trend with the completions numbers that CMHC publishes. They publish two separate completion numbers: 1) Completed and Absorbed and 2) Completed and Not Absorbed. The "Completed and Not Absorbed" count has risen by 48.4% from last July. There are currently 1083 new housing units for sale (Up from 730 in July 2006) that nobody apparently wants to buy. I wonder why?

And just to emphasize my point for clarity. Who the heck is going to buy all of these new units? If existing residents buy them then who will buy their house?

Population growth is anemic and current building levels are unsustainable without population growth. Who wants to move here with these high housing prices?

Props to VHB for the head start on the charts.