Consumer spending and real estate boost B.C.’s financial outlook
Rob Shaw
The Vancouver Sun
VICTORIA — British Columbians are spending significantly more money on things like food, electronics and real estate than they did before COVID-19 started, one of many hopeful signals the province’s finance minister cited Thursday as evidence the worst of the pandemic may has passed.
“While there’s still a long road ahead, this update offers hopeful signs for all of us,” Finance Minister Selina Robinson said as she delivered an economic update.
“The improvements are especially clear in areas like employment, retail sales and housing activity.”
Government saw revenues increase $1.4 billion this fall, due mainly to growth in income tax and real estate. But it also spent $2.2 billion in pandemic aid programs. The result is an $850 million increase to the provincial deficit forecast, to $13.6 billion, for the current fiscal year ending March 31, 2021.
The next full B.C. budget will be tabled April 20, said Robinson. That’s an almost two-month delay from the regular February date.
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The housing market has proven particularly resilient, posting sales in November that reached levels seen during the real estate spike of 2016, as well as a record-high average provincial home sale price of $806,356.
The property transfer tax, which lets government earn a slice of revenue on every home sale, jumped $479 million since the summer and is now on track to earn the treasury $1.75 billion this year — almost $200 million more than government forecast in February before the pandemic began.
The booming real estate sector helped underpin better-than-expected financial results for Robinson on Thursday, but also undermined her government’s attempts to reign in housing prices and improve affordability.
“That’s always the tension,” said Robinson, a former housing minister. “Housing starts and housing sales continue to be robust. People want to be here. And I can’t blame them. It’s a beautiful place, British Columbia.”
The booming real estate sector during the crisis is part of the “unusual world of pandemic economics,” said Brendon Ogmundson, chief economist for the B.C. Real Estate Association.
“We’re in this historic recession and global pandemic and yet home sales are on track to finish the year up close to 20 per cent and home prices up about 10 per cent,” he said. “So it’s pretty incredible.”
Part of it is pent-up demand from buyers who waited during the popular spring market when the virus was at its worst, combined with lower supply from sellers who still don’t want people physically viewing their properties, said Ogmundson.
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Record-low interest rates, quick pandemic aid to households by the federal and provincial governments, and growth in employment for higher-income earners have driven demand for detached homes on Vancouver Island, the interior and Fraser Valley by people who want space to work at home with backyards for socially-distanced entertaining, he said. The condo market, meanwhile, has not grown as quickly.
The province is currently on track for as many as 92,000 home sales this year, which is higher than the provincial average of 86,000 but lower than the record 112,000 units, said Ogmundson.
The B.C. government is projecting a 6.2 per cent drop to the economy in 2020, and three per cent growth in 2021 as part of a soft recovery. That’s a conservative outlook and the province will likely do better, said Jock Finlayson, executive vice-president of the Business Council of B.C.
Part of the spending growth that is boosting B.C.’s budget is the $15 billion in aid that Ottawa has spent in B.C., including the $2,000 monthly emergency benefit called CERB.
“There was a lot of extra cash shovelled into the province, much of which went to people who weren’t even impacted by the pandemic,” said Finlayson. “So that bolstered savings rates and has given a lot of households more spending capability than before the pandemic.”
That’s registering on the provincial books when combined with middle-to-upper-earning households that have saved money by not going on vacation and eating out less, he said.
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“A lot of people are finding themselves relatively flush with cash in 2020,” said Finlayson. “It’s one of the ironies in this COVID recession period. That has shown up in a rebound in retail sales and relatively high transactions in housing.”
Opposition Liberal leader Shirley Bond said the economy is recovering partly because the Liberals left the province in stable financial shape.
“I’m not prepared to give credit for the government when we stop and look at what happened this session,” she said. “We have restaurants hanging on by a thread. We have the tourism sector that’s been decimated. We have cuts to programs to support persons with disabilities. All those things make a difference.”
B.C. does deserve some credit for its policy work, argued Marc Lee, senior economist at the Canadian Centre for Policy Alternatives.
“A lot of this is government policy working,” he said. “Between the federal contributions and the provincial ones, financed by deficit, the support is something like 17 per cent or 18 per cent of GDP (gross domestic product). That’s underpinning a lot. And money is really cheap right now.”
Not all the financial news in B.C.’s fiscal update was positive.
Gambling revenue has collapsed by almost $1 billion from pre-pandemic levels, as the B.C. Lottery Corporation grapples with casino and gaming centre closures.
The Insurance Corp. of B.C. posted a $324 million improvement on its finances, and is now sitting at a net income of $410 million, mainly due to fewer accidents and lower claims costs caused by fewer people driving during travel restrictions. ICBC and government have been under pressure to refund those savings to drivers in some manner.
Thursday’s fiscal update came on the last day of the legislative sitting in which the NDP government passed $2 billion in supplementary spending for COVID-19 aid programs and legislation that allows it to push the budget to late April.
© 2020 Vancouver Sun