The B.C. economy and the Broadway Plan: an explainer
The B.C. government is in a financial pinch and things may not get better for a while.
This fiscal year, Finance Minister Selina Robinson has forecast a $5.5-billion deficit. That will be followed by a $4.2-billion shortfall in the following year and a $3.2-billion deficit in 2024-25.
It adds up to B.C. being nearly $13 billion in the red over three years. That is if everything goes according to plan.
Over that period, the taxpayer-supported debt is anticipated to climb from $61.7 billion in 2021-22 to $90.9 billion by 2024-25.
That too is based on everything going according to plan.
"The Province's debt-servicing costs remain at a historically low level due to prevailing low interest rates," the budget document notes.
In fact, rising interest rates have led the finance ministry to forecast unit home sales to fall by 22.2 percent this year, 7.1 percent next year, and then stay flat from 2024 to 2026.
But even then, the forecast for interest rates is relatively conservative: 10-year Canadian government bonds are expected to rise from 1.82 percent this year to 2.14 percent next year to 2.25 percent over the following three years.
There's a similarly cautious forecast for three-month treasury bills—from 0.65 percent this year to 1.56 percent in 2023, and 1.88 percent in 2024.
The province also expects the Canadian dollar is to remain fairly steady, with one loonie going for between US$0.789 to US$0.799 over the next several years.
Anything that goes beyond the norm, including with interest rates or the exchange rate, could make a mess of the government's finances.
Macroeconomic factors underlie agenda
There are lots of reasons for the B.C. government to be eager to have more homes built. Here are a few:
* Canada has a relatively low number of homes per capita in comparison with other OECD countries;
* there will be greater labour shortages as the population ages, which will need to be addressed through immigration;
* most immigrants move to urban and suburban areas;
* more homes have the potential to temper the rising cost of ownership, which has become a political powderkeg;
* more homes are necessary to acccommodate the huge cohort of millennials in the population;
* an increasing number of people believe they will never become home owners, so more rental stock will need to be built to house them;
* if the province is going to sink billions of dollars into rapid-transit projects, it makes sense environmentally to have more people living near the stations so they can use this service rather than driving;
* and creating compact communities results in a lower ecological footprint.
Building homes floats the economy
But there's another reason for the B.C. government to push for greater density, which is rarely discussed.
To put it simply, the province needs the money. Badly.
Once upon a time, people would say that for every dollar generated in B.C., 50 cents came from forestry. That's far from the case today.
B.C. government forests revenues clocked in at $1.85 billion in 2021-22, due to a short-term spike in the price of lumber. That is expected to fall to $1.12 billion in this fiscal year before plunging to $887 million in 2023-24.
It's a similar story with natural-gas revenues. They're forecast at $911 million this year, falling to $691 million the next fiscal year, then dropping to $580 million by 2024-25.
Fuel, carbon, and tobacco tax revenues will remain flat. Medical-services premiums are now dependent on the health of the economy because employers are paying the tab.
And property-transfer tax revenues are also not going to come close to the $3.25 billion generated in 2021-22. The best they'll do over the following three years is $2.5 billion, according to the finance ministry.
One of the few hopes for the B.C. government is if property prices keep rising. That way, it will collect more property taxes to stem the red ink. But even that is questionable, given the recent decline in home prices in East Vancouver.
A massive home-building initiative offers a way out of the fiscal mess.
First of all, most of this would be financed by the private sector. That ensures the B.C. government won't have to add more to the ballooning taxpayer-supported debt.
Secondly, when those homes are sold, it will fatten the provincial treasury through property-transfer taxes.
Nobody should envy Finance Minister Robinson. Some of the old standbys—forestry, natural-gas, coal, fuel, and tobacco taxes—no longer rain money on the government like they used to.
The climate crisis is adding another burden.
One of the bright spots in the B.C. economy in recent years has been agriculture. But the breakdown of the hydrologic cycle—caused by a rising global temperature that creates more atmospheric rivers—is delivering a body blow to farmers.
Heavier rainfalls are reaching deeper into B.C.'s mainland. The infrastructure there wasn't built to withstand that. And we probably haven't seen the worst of the runoffs from the mountains, which have potential to cause rivers, including the mighty Fraser, to overflow their banks.
As old-growth continues to be logged, there's less capacity for forests to hold back the water.
Meanwhile, longer dry seasons and hotter temperatures, in some cases driven by changes to the jet streams, will likely lead to more brutal forest fires, also undermining the B.C. economy.
The fishing industry is also vulnerable because rising water temperatures make it more difficult for salmon to reach the spawning grounds.
It's true that technology has been a bright light. And a great deal of technological wizardry is reflected in Vancouver's world-class visual-effects and animation sectors. Let's hope that they remain resilient in the face of declining box-office revenues in the movie industry as a result of COVID-19.
Then there's COVID-19's impact on tourism, another B.C. economic mainstay. It's hard to conceive of it ever returning to its glory days before the pandemic. With each new variant, there is the potential for future lockdowns.
That's to say nothing of the pernicious impact of Long COVID on the labour force and its impact on health-care costs.
It's crunch time for the NDP
The B.C. NDP is probably already thinking about how it's going to get reelected in 2024 in the face of these headwinds.
The party's brain trust realizes that putting more shovels in the ground for housing projects can keep the economy humming.
Of course, that requires having enough construction workers at the ready—which is far from a sure bet, as the Straight reported last month. The lack of skilled tradespeople is already causing building costs to shoot through the roof. Supply-chain issues are also dogging this sector.
It's not a pretty picture.
Plus, there's opposition to densification in various communities.
On May 7, hundreds gathered outside Vancouver City Hall to protest the Broadway Plan. It proposes a dramatic increase in density over a 500-block area of the city in the general vicinity of Vancouver's newest SkyTrain extension.
Tenants are feeling vulnerable, notwithstanding Mayor Kennedy Stewart's recent pledge that no tenant along Broadway today will see their rents rise in the event of redevelopment.
He says the Broadway Plan will offer paid relocation to a temporary rental, with a top-up keeping interim rents the same.
Stewart is assuring these tenants that they will be given a right of first refusal to return to the new project with rent at 20 percent below the Canada Mortgage and Housing Corporation's citywide average rents.
“For those already paying high rents along Broadway, this means you could see your rents fall, once you move back to your new building,” Stewart declared in a news release. “But for those paying low rents today, I want to go even further and make sure you won’t have to fear paying more as we renew and expand housing along Broadway.”
It's a delicate balancing act. Tenants have long formed an important voting bloc for the NDP.
Yet the B.C. government essentially feels that it needs to kick a fair number of them out of their homes for several years as new towers go through the approval process and are built. This is part of its grand plan to densify a significant chunk of Vancouver to help pay the bills and avoid being slaughtered in the 2024 election.
The higher property-tax revenue will also fatten the treasury at city hall.
Why is this necessary?
To put it bluntly, the B.C. NDP must avoid allowing the taxpayer-supported debt to rise above $100 billion by the time the next election rolls around. Otherwise, Premier John Horgan risks becoming mincemeat for the B.C. Liberals under new leader Kevin Falcon.
The answer—for Robinson and Horgan—is to build as many homes as possible. Attorney General David Eby is the chief salesman for this project as the minister responsible for housing. And Mayor Stewart is a willing accomplice in this endeavour.