High interest rates that are putting a damper on the construction and real estate sectors are expected to limit Greater Victoria’s overall economic growth to 1.3 per cent this year, according to the Conference Board of Canada.
The 1.3 per cent figure is the lowest since 2012, excluding the first year of the pandemic in 2020.
The board’s quarterly outlook, released Wednesday, says the Bank of Canada’s recent rate cuts will not be enough to buoy the Victoria economy, but there is hope for the south Island.
“Despite weakening this year in line with the national trend, [growth] will still outpace that of many other major Canadian cities,” the board said.
The quarterly outlook noted that the central bank has signalled that more rate cuts are coming, which bodes well for Victoria’s main economic engines.
“With rates now starting to fall, Victoria’s real GDP should rise by 2.4 per cent in 2025 and 2.3 per cent in each of 2026 and 2027,” the board said, adding the growth will level out to 2.0 per cent in 2028.
According to the outlook report, the finance, real estate and insurance industry — the region’s largest sector in terms of economic output — stands to benefit most from rate cuts.
That sector is expected to see 2.9 per cent growth between 2025 and 2028, though it will be limited to about 1.5 per cent this year.
Current interest rates are expected to slow the pace of building in the region this year, with the board estimating total housing starts will drop below 4,000 this year, more than 850 units fewer than the average of the past three years.
Last year, Greater Victoria homebuilders set a record with 4,992 housing starts.
“We expect builders will only slowly come back to the market over the next couple of years even as interest rates drop,” the report said. “Our call is that total housing starts will reach only 4,100 units in 2025 and 4,050 units in 2026.”
Casey Edge, executive director of the Victoria Residential Builders Association, said the estimates are probably right.
“They cite high interest rates as a significant factor, including the mortgage stress test. The shortage of skilled trades plus high government fees and material costs add to the challenges,” he said.
Edge noted single-family home builders have felt the greatest impact of high interest rates and other costs.
Single-family-home starts so far this year are down 29 per cent to 143 compared with 201 in the same period in 2023. In 2022, the region had seen 341 single-family home starts by this time and 461 by the end of July in 2021.
“Clearly there is a significant slow-down in this market,” Edge said.
The board predicts Victoria’s unemployment rate, which will be affected by an improving economy and a growing number of retirements, will drop over the next four years from 4.8 at the start of this year to 3.9 by 2028.
“While employment growth is expected to slow this year, the 2.4 per cent growth rate in 2024 is still strong by national standards,” the board said, noting employment growth will be supported by Victoria’s two largest employers — health care and public administration.
On the other hand, employment is expected to fall by more than 12 per cent in sectors that depend on leisure spending, as high interest rates force households to prioritize fixed costs, such as mortgage payments.
The board also predicts there could be other headwinds for Victoria’s tourism industry as it continues to rebound after the pandemic, including the “lacklustre” return of Chinese tourists.
“We expect longer-term growth in the sector will be limited if the Chinese tourist market fails to return to its pre-COVID strength,” the report said.
When Beijing started lifting the pandemic-era ban on group travel to other countries, it left Canada off the list of approved travel destinations — a move that has been linked to the federal government’s focus on foreign election interference.
Before the pandemic, China was one of Canada’s fastest-growing and most lucrative tourism markets. The Tourism Industry Association at one point estimated Chinese tourists spent about $1,300 a day.
Paul Nursey, chief executive at Destination Greater Victoria, said the situation with China needs to be resolved, but it’s far from the main market for Victoria or the province.
He said in B.C., the Chinese market represented about 10 per cent of visitors in 2019, but has since dropped to about seven per cent. Meanwhile, 65 per cent of visitors are from elsewhere in Canada and about 25 per cent are from the U.S.
“Canada and the United States are the bread and butter,” he said.
Nursey said while tourism is down considerably in some parts of B.C., in Victoria, it’s up. “Victoria is doing well.”
Nursey said the rebuild post-pandemic will take time, especially when it comes to key markets like Seattle and the rest of Washington state.
“We need to re-establish our brand and that will take some time,” he said. “It’s coming back but it’s not like the gates were opened and hundreds of thousands of people just came.”
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