THE RENEWAL OF TRUST IN
RESIDENTIAL CONSTRUCTION
Commission of Inquiry into the Quality of
Condominium Construction in British Columbia
Submitted to the Lieutenant-Governor in Council
Government of British Columbia
by Dave Barrett, Commissioner
June 1998


Chapter One: The Problem Continued

III. The Importance of Residential Construction to BC's Economy

Residential construction activity in British Columbia is a key component of economic growth, employment, and income. Construction is BC's second largest industrial activity, in terms of value and employment. Approximately 10.7% of the province's annual output and more than 10% of the province's employment is driven by residential construction.

Recently, residential construction activity experienced a slow-down -- in part, driven by general economic conditions in Canada and Asia. It is also due to a growing crisis of quality. Most of this crisis is directly related to poor construction in the multi-family housing sector. Housing starts have fallen from a high of 42,807 in 1993 to a predicted 25,000 starts for 1998, and the value of residential building permits fell by 20 percent during the first quarter of 1998 compared to the same period last year.

More significantly, residential sales, which include new and existing housing, have fallen from a high of 105,910 units in 1992 to a predicted 60,000 for 1998 -- signifying, in part, the resistance to buying potential problems. According to the Multiple Listing Service (MLS), Vancouver-area condo sales in the first five months of 1998 were 38 percent below the same period last year.

Graph 1

RESIDENTIAL REAL ESTATE SALES
UNITS AND AVERAGE PRICES
BC
1983-1997
Graph 1
Source: Canadian Real Estate Association

The residential construction industry is not only a leading indicator of the business cycle, it is also very volatile. This results from its sensitivity to consumer expectations and financial conditions, such as access to funds and the level of interest rates. A collapsing housing market can drive the economy into a recession; whereas, a strong market propels the economy to a much higher level in the expansion phase of the business cycle. It is unfortunate that construction quality issues become more important in declining markets. The adjustment in market values places an even greater burden on owners facing repairs.

The impact of the housing market on the pace and magnitude of business cycle activity exists because of the strong relationship between residential construction, job creation, and consumer spending. The number of jobs created by a typical housing start is 2.5, including the effect of on-site employment, off-site employment, and spin-off spending. Simply put, each housing start injects approximately $100,000 into the economy. For example, housing starts in the early 1990's averaged 38,000 per year. During the latter part of the decade, they fell to an average of 31,000 per year. This decline has reduced economic growth by more than $700 million per year. Because of the strong impact on economic growth, maintaining stability in the housing market becomes an important consideration, not only for individual economic wealth, but also for public policy.

"I believe that the issue is one of concern to every citizen of British Columbia because it will affect the economy of our province, and anything that affects the economy in total needs to be addressed with great seriousness, perhaps even the cutting back of some other projects that the government my have decided are important. So it could be a priority issue, it could be private finding, it could be a number of other creative ways of developing financing."

Stuart Kirkpatrick, British Columbia Real Estate Association

The decline in general economic activity, coupled with the emerging repair needs of many multi-family housing projects, is creating an economic problem. Unless significant and urgent action is taken to re-inject trust into the marketplace, the costs to society will continue to escalate.

"This is not a proud moment in history for British Columbia's construction industry. Despite the fact that we possess the skills and abilities to produce world class construction, a major consumer and industry problem has been allowed to grow to terrible proportions."

Dave Robertson, BC Construction Association

 

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This electronic version is for informational purposes only.
The printed version remains the official version.

Copyright © 1998: Government of the Province of British Columbia