Douglas Todd: BC’s housing-addicted economy isn’t sustainable, experts fear

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BC’s economy isn’t as healthy as it might seem, relying too heavily on housing and newcomers to stay afloat, leading economists and analysts say.

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Real estate makes up a much larger section of BC’s economy than the rest of the country. BC’s economy relies heavily on massive influxes of people arriving each year from other provinces and countries, experts say.

They contend that BC has not been effective in developing its resources, business and industrial capacity in a way that raises wages and improves productivity. This BC phenomenon, which has lasted for two decades, puts demand pressure on housing prices.

Don Wright, a former head of BC’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 are stable.

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

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BC’s trade deficit has been growing steadily since 2005. The province, he said, is “spending about $28 billion per year more than we’re earning.”

Both Wright and David Williams, senior policy analyst at the BC Business Councilthey say the provincial economy relies too heavily on large-scale immigration to attract capital, which boosts the housing sector and props up spending on goods and services.

Last year, according to the BC government, the province hosted a record 100,000 new people. About 33,000 came from other provinces, which is the most in three decades. The other 67 percent came from other countries, a lower proportion than normal, with the majority choosing Metro Vancouver.

BC has an unusual economy in that it relies heavily on “foreign money”; about newcomers arriving to “buy real estate and support consumption with income earned elsewhere,” says Wright, an economist who gives presentations on the topic to Ottawa politicians and business organizations.

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

“This has become our biggest ‘export industry.’ It represents more than twice the annual level of exports of the forestry industry. In the short term, this injection of dollars creates the impression of a healthy economy, but how long can this last?

business council williams generally agree. A huge amount of BC money goes to “housing-related consumption,” she says.

But investment dollars aren’t flowing strongly enough into things like new machinery and equipment and intellectual property rights, the business economist said. Those sectors can contribute much more to the “future productive capacity of the economy” and potentially increase stagnant wages.

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Immigration should not be seen as a panacea for Canada’s or British Columbia’s economic problems, says Williams.

He questions the way Canada, particularly BC, relies on “record levels of immigration to accelerate population growth and housing demand.” Canadian economists believe YoImmigration figures have an overall neutral effect on real wages and gross domestic product per capita.

According to Stephen Punwasi of Better Dwelling, BC’s economy is nearly twice as dependent on real estate as neighboring Alberta, accounting for 20 percent of BC’s GDP.

That compares with an average of 13.5 percent nationwide, a proportion that is still much higher than in the United States. If BC’s construction industry is included, it accounts for nearly a third of BC’s GDP from real estate-related services.

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Canada, and especially British Columbia, are “addicted” to real-estate-led growth, says Punwasi, who argues it’s an unhealthy dependency that won’t be easy to break.

Wright, who was deputy minister to NDP Prime Minister John Horgan until he resigned in 2020, cites the danger of relying too heavily on newcomers.

When 100,000 people move to BC and buy homes and services “it creates the illusion that the economy is strong. But for me the question is, ‘Is it sustainable?’” says Wright.

“Let’s say someone from outside of BC retires to Comox and buys a place. And they have amassed a huge amount of net wealth during their lifetime. Whenever they spend money, it is money that is not earned in BC. In the short term, it is not bad for the economy, because it generates employment when someone goes out and eats in a restaurant.”

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But Wright doesn’t think relying on imported wealth is sustainable, for two reasons.

The first is that “you can only sell real estate to someone outside the province once,” he said.

“And another reason is that it is not socially sustainable: young people can no longer afford a house.” And too many new real estate units are not suitable for families.

“An entire generation will be locked out of the housing market, unless they have a generous, well-capitalized bank from mom and dad.”

What could happen to BC “when the party is over”? Wright asks, referring to a time when newcomers stop bringing in tens of billions of dollars each year from across provincial borders.

BC, he said, will need to restructure itself by strengthening sectors such as forestry and mining, manufacturing and high technology, all of which are capable of producing higher wages for the middle class.

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

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