It’s no wonder British Columbia’s government took so long to intervene in Vancouver’s overheated real estate market last year. Thanks to new data released by Statistics Canada last week, we now know that real estate makes up a greater chunk of BC’s economy than oil does in Alberta.
University of Calgary economics professor Trevor Trombe was one of the first to point the change out on Twitter. In 2016, real estate industry grew to 18.4 percent of BC’s economy, while oil and gas fell to 17 percent of Alberta’s.
This means BC is more dependent on real estate than any other province in the country. For comparison, the property markets in Quebec, Alberta and Ontario sit at 11, 12 and 13 percent of provincial GDP, respectively.
“On one hand it says less about BC than it does about Alberta,” Trombe told VICE. “We've seen the real estate share in BC's economy rise gradually over the past few years, not making any kind of large jump from one years to next.
“Whereas in Alberta we've seen a very substantial decline in the amount of economic activity accounted for by oil and gas.”
Back in 2014, when oil prices were over $100 a barrel, oil and gas actually made up 27 percent of Alberta’s gross domestic product. When oil prices dropped by a half, and stayed that way for the following years, associated economic activity fell “off a cliff”—by about 10 percent of Alberta’s GDP in two years.
Trombe told VICE there are some lessons BC can take away from Alberta’s bumpy economic ride. He said the decline of Alberta’s central industry particularly hurt young, high school educated labourers.
“We’re not producing less oil, we're actually producing more than we used to, so production jobs were not the big source of layoffs,” Trombe told VICE. “Where most of the employment drop occurred was in supporting activities. These are the jobs associated with exploration, drilling, new development, and a lot of construction jobs—building new facilities, things like that.”
While corporate oil workers have had an easier time “adapting” to the new market conditions, the young guys working construction have been hit exceptionally hard, Trombe said.
If BC were to see a big drop in housing values, we’d see a similar drop-off in new construction, and our young labourers would probably feel the brunt of it.
Granted, Trombe doesn’t think BC’s real estate sector is “orders of magnitude” out of line with the rest of the country, and he thinks the industry is better regulated here than in the US. Despite a real risk of a bubble bursting, Trombe says it’s not necessarily a bad thing when provinces focus on economic areas they’re good at.
But he does think Alberta chose “unwisely” to rely on the oil boom to fund public services, which has affected the province’s ability to provide a social safety net in downtimes.
Apparently BC has a similar thing going on. “BC raises a lot of revenue from land transfer taxes,” he told VICE. “If real estate markets cool down dramatically, that's going to cut into government revenue.”
One thing that Albertans had, that most British Columbians don’t have, is savings for a rainy day. Trombe said BC’s savings rate is sitting at negative one percent, compared to nine percent on the other side of the Rockies.
How this could play out in a housing crash situation is anybody’s guess. When asked what a 40 percent price drop might do to BC with so much invested in real estate, Trombe said the smartest answer is “I don’t know.”
“The financial crisis in the US has made it quite clear that it’s difficult to predict how a price drop would cascade through economy.”
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