Construction generates a lot of buzz, especially when talking about the jobs created by new oil & gas projects. Here, we take a deeper dive into the sector as a follow-on from our recent report, “What’s Fuelling BC’s Economy?”
Are construction jobs the missing link?
In BC, the construction sector – building everything from houses to roadways – is responsible for 7% of our GDP and almost one in ten jobs. It’s also one of our province’s fastest-growing sectors. But how does it break down, and what are some of the factors that keep the construction sector booming?
What fuels construction?
The construction sector is one of the primary drivers of our provincial economy. It’s a $15 billion dollar industry in BC – and over the past decade, has consistently been one of the fastest growing sectors.
So where is this growth coming from? Just over half of the GDP from BC’s construction sector comes from retail and commercial building construction and another 16% comes from repairs. Finally, the remaining 31% is from industrial projects, everything from roadways to hydroelectric dams [source: BC economic accounts – download].
Should Canada adopt the same energy model that made Norwegian citizens theoretical millionaires?
Written from an interview with prominent Vancouver business leader Leonard Schein
What is Norway’s energy model?
To understand Norway’s energy model, it’s helpful to go back to 1962, when excitement ignited about the possibility of oil in the Norwegian Continental Shelf (NCS). A year later, Norway claimed sovereignty over the NCS and deemed any natural resource found there the property of the government. This initial government response forms the basis of the very different philosophies between Norway and Canada on natural resource ownership. While Norway claims ownership over oil in its land, Canada assumes that any oil in the ground belongs to the companies that extract it.
The disparate philosophies of the role of government in the oil industry seem to be at the crux of Norway and Canada’s very different paths in the industry. In 1972 the Norwegian government established its own oil company, Statoil, which was awarded 50% of all petroleum production licenses. (Currently the government owns 67% of Statoil, and the other 33% is public ownership.)
(click on image to expand)
How important is the energy sector to BC?
And is it more or less important than other sectors? We’ve compiled this report to find out where the jobs, GDP and growth are coming from in order to determine BC’s main economic drivers.
DOWNLOAD “What’s fuelling BC’s economy?”
How important are resource jobs to BC’s north?
After posting a report highlighting that only 1 in 100 BC jobs are in the mining, oil and gas sectors & that more people in our province work in the tech sector than in oil, gas, mining, forestry and utilities combined, we started having conversations about the tensions between different parts of our province – is information like this more relevant to Vancouver and the surrounding south coast than to the interior and north?
Outside of the urban and populous south coast, it’s often assumed that vastly different market forces are at play. We decided to examine the data and see if these assumptions matched up with reality.
In particular, we were interested to learn what regional job markets in the north of the province look like, which industries are growing & which are shrinking, and where future demand is expected to come from. What would the same jobs breakdown look like in Kitimat or Prince George – both places where primary resource industries have traditionally played a significant economic role? Is there a much higher reliance on extractive industries (oil, mining and gas) than in the south? The following summarizes our initial research:
Job creation is often touted as a primary reason to go ahead with energy projects like the Trans Mountain Pipeline. But in fact, energy takes a back seat to many other sectors.
For example, the tech sector is significant in job creation – it employs 84,000 people in BC, which is more than oil, mining, gas, and forestry combined. If this number surprises you, take a look at some other surprising stats on where BC’s wealth comes from. We find that the energy sector is small potatoes when it comes to job creation, funding social programs and generating wealth for our province.
Why does this conversation matter?
In order to decide whether energy development projects should go forward, it’s essential to have a good understanding of where the sector fits into the bigger economic picture. Of course we know that energy is important to Canada, but how important? In what ways? And is it more or less important than other sectors?
Where does our wealth come from?
It’s often said that British Columbia is a resource-based province. In actual fact, the reality is a lot more complex. While it’s true that much of BC was built on natural resources, and that even today sectors like technology and construction have a certain amount of inter-relationships with the resource sector, the basis of our economy has overwhelmingly shifted to service-based industries. More than 4/5 of us work in services and over 76% of our GDP comes from those sectors.
It’s also important to note that a significant part of our economy is based on small businesses. Small businesses make up 98% of all businesses here in BC, more than any other province.
Although economics can be complex and numbers can tell different stories depending on how they’re interpreted, some data speaks for itself. Here’s a chart breaking down the main sources of GDP in British Columbia:
Source: The 2012 British Columbia Economic Accounts, BC Stats
Oil, gas and support services make up just 3% of our GDP, compared to 15% for manufacturing and construction and over 23% for financial and real estate services. When secondary energy services are added into the equation, the total contribution to GDP is still only 11%. While this number is significant, it’s certainly not where most provincial economic activity is coming from.
When an oil pipeline or tanker spills, how many homes are impacted and what do those impacts look like?
Our recently released report How do pipeline spills impact property values? concludes that, although direct contamination certainly hurts a home’s value, even neighbouring areas can expect to lose some value in the aftermath of a spill or other incident.
This is because public perception extends beyond the homes that are directly impacted. Especially if it’s not the first spill or leak along a particular pipeline, the surrounding area’s reputation will suffer.
Three cases of reputational damage highlighted in the report show an average value loss of 5-8% for homes up to a kilometre away from the incident. In Vancouver, where the average price of a home is just over $600,000, this could amount to a loss of $30-40,000.
A new report from CRED, How do pipeline spills impact property values?, reveals that an oil spill in Burrard Inlet or along BC’s south coast has the potential to negatively impact property values and cost jobs in real estate and property development, in areas both adjacent to spill sites as well as the surrounding region.
DOWNLOAD THE REPORT
The research concludes that oil spills have direct and lasting impacts on property values. In particular, the report finds that:
- In eight documented cases, properties directly impacted by spills were significantly devalued
- Nearby properties lost up to 8% of their value
- Where homes relied on well water and the groundwater was contaminated, the value loss was permanent
The goal of the report is to increase access to information and support a transparent conversation around the economic risks and rewards of Kinder Morgan’s proposed new Trans Mountain pipeline. CRED is calling for an independent study of the economic risks of the proposal.
Downloadable image highlighting the report’s main conclusion:
Business leaders react to the report’s findings
“This report brings up important information and concerns. As planners, it’s our job to be aware of all potential risks to housing and land values. We hope that the government will take action to protect Vancouver’s market from the impacts of an oil spill.” – Blaire Chisholm, Planning Manager at Brook Pooni Associates
“Vancouver is famous the world over for its natural beauty and pristine environment. This is the driving force behind all of our real estate-related industries. As a realtor, it is my responsibility to let my clients know about the risks they could face by buying a property near pipeline infrastructures.” – North Shore realtor and CRED advisor Dallas la Porta
“As a realtor I have noticed that with the huge amount of negative publicity surrounding the expansion of this pipeline, people are on red alert and are very aware of the potential impacts of the pipeline on their properties. As a result, buyers will typically avoid a property anywhere near a pipeline and this does have a negative impact on values.” – Langley realtor Annabel Young
Read the full report here
The following is an excerpt from CRED’s upcoming report. To be notified when the report is launched and available for download, please contact us or join our mailing list.
British Columbia’s property development sector is a significant driver of economic growth and an important source of employment. According to the Urban Development Institute, the sector is directly and indirectly responsible for over 220,000 jobs across the province, in areas from planning and construction to secondary supplier purchases. It makes a bigger contribution to provincial GDP than any other sector – more than natural gas, tourism, mining, forestry or film and television.
In the real estate sector, a sub-section of the property development industry, there are over 14,000 people working as realtors in Greater Vancouver, Vancouver Island and the Gulf Islands alone. The coastal real estate market is also important to private homeowners who gain value not only from a physical property but from its viewscape, proximity to waterfront and wilderness, and location in one of the world’s most liveable regions.
CRED is seeking to better understand the risks of an oil spill as part of an ongoing dialogue about the economic future of the region. Where are the best places to invest for future growth and prosperity? How can we safeguard our quality of life and support industries that will ensure long-term responsible development?
Real World Examples
To begin assessing risk, we gathered information on eight separate oil spills in the US and Canada. In three of the cases, the spills directly impacted properties and in two further cases, the proximity and perceived impact of the incidents devalued properties. In the final three cases, residents have claimed values losses but they have not yet been independently confirmed.
Case study: Pepco Pipeline, Maryland, 2000
Loss in value: 11-12% in the 1st year
In 2000, a 3,800-barrel (120,000-gallon) oil spill in a suburb of Washington DC affected property near the Patuxent River. A study published in The Appraisal Journal in 2001 concluded that waterfront and beach-access homes were significantly and negatively affected by the spill.
In the year following the incident, home values within a 10-mile study area fell 11%. In addition, waterfront properties experienced reduced sales volume. According to real estate listing data, only three waterfront homes sold in the first sale season after the spill, a 40% decrease from the previous year. Because there was no substantial variation in regional markets, the study concluded that this decline was likely due to the spill.
This is a small excerpt from an upcoming CRED report on the link between oil spills and local property values. If you would like to read the whole report, please contact us or join our mailing list.
On September 12th the federal government announced a new strategy to garner support in BC for the development of new oil pipelines.
In response, CRED is calling on the federal government to do a full assessment into the economic risks of new oil pipelines before pushing for their approval.
If the government is serious about protecting the long-term prosperity of Canadians, there needs to be a real consideration of whether new oil pipelines could hurt more jobs than they create. Over 80% of British Columbians work in the service sector – they need to know that their jobs aren’t at risk of similar impacts as seen after oil spills in the Gulf of Mexico and elsewhere across North America.
Meeru Dhalwala, co-owner of celebrated local restaurants Vij’s, Rangoli and Shanik and CRED advisor, says:
“Tourism is a key source of income for our BC economy, particularly in Vancouver. I’ve read much on both sides of the argument and I am not at all convinced that the relatively few permanent jobs created by new oil pipelines are worth the massive risks–the most important risk being a major and expensive oil spill that would devastate our waters, wildlife and economy.”
UBC economist and CRED advisor Dr Rashid Sumaila echoes the need for a robust, independent cost-benefit analysis:
“Any decision about whether to approve a new pipeline in BC needs to weigh economic costs against the benefits, especially for those of us who live and work along the pipeline and tanker routes.
How might a new pipeline impact the brand of Vancouver? How would it affect the price of gas in the lower mainland? If a significant spill were to occur, how many jobs would be lost? How much would an oil spill cost to clean up and who would pay? All of these questions need to be carefully considered before sending delegates to BC to campaign for approval.”