B.C. Industries Wonder if Decline is Natural Cycle or a Vicious Downturn

Toronto Star

Vancouver – Adam Clark is barely 23 and has already racked up 10 years in the construction industry, starting as a teenager demolishing crematoriums.

As ominous as the predictions are about the sector, he isn't quite ready to pull the plug on an industry he believes is just undergoing a natural rotation in the cycle.

The construction sector that powered much of B.C.'s growth during the past two years is in decline, and driving up the province's unemployment rate.

Tightening credit and worries about housing starts contributed to the construction industry getting hit with 6,200 fewer jobs in October than the month earlier, for a 2.8-per-cent drop, as the province's overall jobless rate reached its highest levels in almost two years.

"I saw this happen to my dad, who's the first guy I ever worked for, and knew it was going to happen," says Clark. "Some people who just started a couple of years ago, they thought it would stay crazy forever."

But Clark, who has always balanced working for construction companies on major commercial projects and his own sideline business doing house renovations, could tell a few months ago that cash was tight.

For the past couple of years, homeowners were flush with cash taken out of the equity of the rising values of their homes. But, recently, Clark has been getting paid through cash advances from credit cards and withdrawals from customers' lines of credit.

Residential housing starts dropped dramatically but the industrial sector is still strong, says Keith Sashaw, president of the Vancouver Regional Construction Association. "The outlook is certainly not as robust as it was even two or three months ago. There are still opportunities out there and order books are full through 2009 but there has been a disruption."

He says the province's plan to move forward on projects such as upgrades to schools and hospitals and infrastructure development will help weather the decline.

The construction downturn is just the latest to hit the resource-dependent province, which has seen a decline in its forestry and mining sectors as prices for those commodities drop.

"You looked across the board and everything was going up in value. Everything except forestry and lumber, which was trending down and down," says Rick Jeffery, president and CEO of the Coast Forest Products Association. "We were the harbinger of things to come and people weren't paying attention."

The province had been basking in the lowest unemployment rate it's ever seen, with work fuelling employment in Olympics projects, infrastructure and building roads and highways, while an oil and gas boom fuelled record prices and even more construction. On the retail end, people bought couches, fridges and stoves to fill their new homes.

"Life was good, except if you looked at the underpinnings of what was going on, and we knew it wasn't sustainable," says Jeffery. "We were living it and we kept telling everyone else, `Look out, this is coming to a theatre near you.'"

At the other end of the construction sector, David Podmore, president and CEO of Concert Properties, saw the same darkness. About 18 months ago, his company stopped taking on new projects and started building its cash reserves to buy or take over properties already under development.

"We live in this insulated area in the southwest corner, and somehow we thought we would be immune from what was happening elsewhere in the province," he says.

When the resource sectors declined, towns like Mackenzie, about 1,000 kilometres north of Vancouver, saw hundreds of forestry workers laid off. All four mills in the region shut down recently.

What keeps the outlook from being completely dim is the continued rise in immigration, and the labour shortages, which remain despite the job losses.

"We're increasingly diversified but we're still very much a resource-based economy and we're going to face some fairly tough times ahead as we see export demand drop further," says Podmore.

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