Rising construction costs, slowing market set stage for 2019
By the time you read this, most property owners will know what the BC Assessment Authority thinks their property is worth – or was worth, as of the valuation date of July 1, 2018. However, interest rate hikes, government policies and other factors have helped keep prices in check in recent months.
The benchmark price for residential properties handled by the Real Estate Board of Greater Vancouver fell from $1,093,600 at the end of June to $1,042,100 at the end of November, a 4.7 per cent drop. Assuming even a modest decrease in December, the benchmark will be down more than 5 per centin the latter half of the year.
While the BC Real Estate Association (BCREA) remarked in August that “the downturn in housing demand induced by the mortgage stress test is now largely behind us,” it had changed its tune by early November. RBC Economics followed in December, reporting that the effect of higher qualification requirements and interest rate hikes continues to be felt.
“Market dreariness is here to stay for a while,” it dourly observed. “We expect low temperatures to persist over the coming year as rising interest rates, the mortgage stress test, market-cooling measures in B.C. and stretched affordability continue to exert significant restraint on homebuyer demand.”
The outlook prompted BCREA to forecast a 2.9 per cent increase in average pricing in 2019, on the back of a 1.8 per cent increase in 2018.
“Despite the mortgage policy drag on the sector, strong performance of the B.C. economy continues to be highly supportive of housing demand,” remarked BCREA chief economist Cameron Muir, projecting an average price of $1,080,000 for 2019 – exactly where he expected prices to land in 2018.
We all pay
Do you know how much tax you’ll pay based on the assessment you received this week?
On the one hand, a host of new taxes from the province is set to boost what the most expensive properties pay. Moreover, we’ll all have to tell the province whether or not we’re resident in our homes if we’re in one of the regions subject to the vacant-home and speculation tax.
Vancouver, meanwhile, has asked the province to exempt it from the surcharge on properties worth $3 million and up – but with some of the province’s most expensive residences within its boundaries, that seems unlikely. Moreover, taxing residential properties isn’t really the issue for Vancouver councillors, who approved a 4.9 per cent increase in property taxes last month to cover rising expenses. (More than a third of the increase was to pay for the province’s employer health tax – a case of taxing Peter to pay Carole.)
But the increase will really bite non-residential property owners, who pay 3.8 times the residential rate. This is an improvement from a ratio of 4.9 in 2008 but could rise when rates are finalized in May. Business properties bear a disproportionate share of the tax burden because their numbers aren’t increasing as quickly as residential units. In short, there’s relatively fewer of them to foot the business share of the bill.
With activity cooling and asset prices set to moderate, higher taxes aren’t likely to sit well with property owners. Sure, property values have risen in recent years, but now carrying costs are rising, too. Creating affordable housing might have been the challenge of the last government; finding a fair means of financing the ambitions will challenge the current administration.
Construction cost increases are projected to average 6 per cent to 8 per cent in 2019, according to BTY Group’s annual Market Intelligence Report.
While regional variations will exist, with projects closer to the core of Metro Vancouver seeing higher prices, all signs point to slower increases than a year ago.
“The rate of increases seems to have declined through 2018,” said Neill McGowan, a quantity surveyor and partner with the consulting firm.
Many general contractors having a full book of activity through 2019, however, means significant increases are still possible thanks in large measure to competition for workers. Some contractors are marking up jobs 20 per cent and 30 per cent to ensure they can command the labour needed to get the work done.
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