Consumer spending, real estate boom inspire hope for province's economy

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 that 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 on April 20, said Robinson. That's an almost two-month delay from the regular February date.

The housing market has proven 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 rein 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 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.

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, hasn't 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's 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.

“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.”