B-20 will kill $8b worth of new low-rise construction in 2019

B-20 is expected to kill $8 billion worth of new low-rise construction activity this year.

According to a Mortgage Professionals Canada study, there was an 8% decline in new home construction investment through the first quarter of 2019 when compared to the average between 2015 and 2017. Condominiums have been particularly hot since January 2018 when B-20 took effect while the low-rise sector concurrently dropped—the study determined it’s fallen 25% through Q1-2019.

Will Dunning, the housing economist who wrote the report, told the Globe and Mail that economic fundamentals are strong and couldn’t possibly be the reason for declining housing construction.

“This construction activity should now be expanding, not contracting,” he said.

Dunning didn’t intentionally study the B-20 impact, but he estimates it has would explain as much as half of the decline in new construction investment.

The report also stated that investment in the condominium sector will begin falling by the end of this year and become especially pronounced by 2021. The current condo construction cycle is the result of presales that preceded B-20’s implementation at the beginning of last year.

The report also surmised renovation construction could be hit as well, and, combined with all residential construction, that could be between $20-25 billion in lost investment and up to 200,000 jobs eliminated.

“The jobs impact that have occurred so far might just be one-tenth of the eventual total,” said Dunning’s report. “The economic adjustments have barely begun, and they will take a long time to play out.”

The report also surmised that, worst-case scenario, B-20 will be the impetus for a severe recession because homeowners will lose home equity.

The report comes at an interesting time. Virtually all sectors of the real estate industry have been exerting pressure on the government to amend, if not altogether rescind, B-20. Mortgage Professionals Canada, for its part, has called for a 75 basis point stress test instead of the full 2%, but the government has dug its heels in. The Canada Mortgage and Housing Corporation last week sent a letter to the Standing Committee on Finance imploring the government to stay the course and not cave into demands for a more lenient stress test.

Neil Sharman