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Hearth & Home October 2016

A portion of the Vancouver port.

Canada: An Introduction

By Richard Wright

Canada’s economy is struggling, its oil industry is hamstrung by low costs, Foreigners with Money are disrupting the housing market in some of its most attractive major cities, and Metro Vancouver is experimenting with a Net Zero program.

What a difference a few years make. Step back six years or so and you’ll find the U.S. economy, in general, and housing and employment in particular, struggling in the midst of the greatest downturn since the Great Depression. At that same time, Canada, its economy and employment were moving smoothly along.

One of the few red flags was its housing market; prices were climbing way too fast. David Madani of Capital Economics was one of the voices predicting a “25 percent house price correction over three years, which is likely to have negative implications for housing growth and consumption growth.”

Today, the situation in Canada is quite a bit different. “Canada’s economic recovery is lagging so far behind the U.S.,” according to Bloomberg News, “that even a rebound in crude prices is failing to boost the nation’s currency.”

That currency is now (Sept. 11, 2016) at $1.31 per U.S. dollar, and it’s expected to drop to $1.35 or $1.40 by year-end, according to banking experts. (see Figure 1). Meanwhile, the price of a barrel of oil remains low at $44.90, while a figure of $65 or so is necessary for profitable drilling to occur in the Alberta oil sands.

According to the Canadian Association of Petroleum Producers, 35,000 jobs have been cut this year, 25,000 from the oil services sector and 10,000 from exploration and production (other sources indicate that number is closer to 50,000).

Even worse, according to Bloomberg, “Canada’s economy shrank by 0.1 percent for the second quarter as a whole, the most since 2009, and meeting the bar of what is legally defined as a recession.”

“The economy is still struggling to deal with low oil prices,” according to Madani. But the hearth business continues to grow.

“Over the past year we’ve experienced growth in Canada,” says Martin Miles, CEO of Valor/Miles Industries. “It slowed overall from the prior year, but there is a continuing strong demand on the West Coast, and hearth dealers in southern Ontario have been strong. Quebec has been very strong. As you would expect, Alberta is softer. Newfoundland, which is also dependent on its oil industry, has softened.”

Glen Spinelli, president and COO of Fireplace Products International (Regency) is experiencing much the same thing. “Our business is really strong in Canada right now,” he says. “On both the West and East coasts the hearth business is booming. There was some retraction in the central Provinces when the fuel prices went down, but up here in Canada we can always count on cold weather and snow, so there is a driving force to buy hearth products.

“A good portion of our business is done in wood,” he says, “and I’m a bit concerned because of the confusion and the changing regulations. Most of us are okay with our products meeting the new standards, but we’re still confused about the testing methods. What is the test method? That has put the industry on hold; that is the biggest threat to our industry.”

Housing: A 15% Brake

Too much of a good thing? A robust housing market usually is a foundational factor for a healthy economy, but it can get out of hand when prices rise well beyond reasonable value.

Such has been the case in the Vancouver area and, to a lesser extent, in the Toronto area as well; in both of those areas, the price of a house increased by slightly more than 16 percent over the past 12 months. That brought the average price of a house up to C$1,007,687 in Vancouver, and C$709,825 in Toronto (see Figure 2).

The national average price in 2016 is C$490,743, which represents an annual increase of 10.8 percent (see Figure 3,4,5).

For years now, money has been pouring into Vancouver, in particular, for it’s seen as a safe haven for money, and one that appreciates at a rapid pace. Those funds are primarily from Asian countries and some of it may be from questionable activities. In fact, many of the homes purchased are left unoccupied; they’re simply a place to park funds.

Data from Canada Mortgage and Housing Corporation.

Data from Multiple Listing Service/Canadian Real Estate Association.

According to Michael de Jong, Finance minister of British Columbia, foreign nationals invested more than $1billion CA in properties in the Province in the five weeks between June 10 and July 14; more than C$860 million was spent in Metro Vancouver alone.

In an attempt to slow the pace at which housing is appreciating in the Greater Vancouver area, the British Columbia government, with only a few days notice, announced a hefty 15 percent tax on foreign homebuyers in the Metro Vancouver area, e.g., the extra tax on a C$2 million home would be an additional $300,000. Revenue from the surcharge would be used to fund housing, rental and support programs.

The tax went into effect on August 2, only nine days after it was announced, and in the first two weeks of that month home purchases declined by 65.7 percent compared with the same period in 2015.

Industries supporting, and dependent upon, housing are bound to suffer, such as builders, electricians, HVAC contractors, plumbers and real estate agents.

Tom Davidoff, professor at the University of British Columbia’s business school, speculated that some foreign money might now be directed to other Canadian cities such as Victoria, Kelowna, B.C., or Toronto, and the problem of unaffordable housing might go with it.

“We’re living in a brave new world,” he said, “where internationally mobile capital is actually chasing single family homes and apartments. That didn’t use to happen as much.”

The decline appeared to accelerate in the first two weeks of August, when the number of sales plunged by 65.7 percent compared with the same period last year. However, experts caution they can’t say how much the foreign tax is to blame – if at all.

Vancouver & Net Zero

The city of Vancouver has decided that being efficient just isn’t good enough. It has made the reduction of the city’s energy consumption and greenhouse gas emissions a priority. The city is requiring, by 2020, all newly constructed buildings to be carbon neutral in operating, as well as have achieved a reduction in energy use and greenhouse gas emissions in existing buildings by 20 percent over 2007 levels.

That means the building sector will have to figure out how to heat, cool and power every new construction without any net greenhouse gas emissions.

The city government is leading by example: all new city-owned, and Vancouver Affordable Housing Agency, projects must meet that high standard starting now. That’s key for testing out the building techniques that later will be codified into the building standards, according to Sean Pander, head of the city’s Green buildings program. The next phase will require all rezoned residential developments to comply by 2025, with other new buildings following suit by 2030.

“The way homes will be constructed in the future is going to change, and that’s inevitable,” says Miles. “That doesn’t mean a small, efficient gas flame couldn’t be the appropriate heat source for a lot of those homes down the road. There will be changes over time, and our industry has to adapt to a changing landscape.”

The Hearth, Patio & Barbeque Association Canada (HPBAC) will be reviewing the Vancouver Greenest City Plan and will meet with stakeholders in the coming months.

Proven reserves are those quantities of petroleum which can be estimated, with a high degree of confidence, to be commercially recoverable.

More Stories in this Issue

The Loonie & the Buck

By Bill Sendelback

The loonie may be down, making it difficult for U.S. manufacturers to sell into Canada, but the Canadian hearth industry can easily supply its own dealers and distributors.

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Canadian ’Que

By Lisa Readie Mayer

Despite (because of ?) the country’s economic turmoil, interest in barbecuing remains high and is stoking sales.

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Engaging the Senses

By Lisa Readie Mayer

From grills to outdoor kitchens, and from Montreal to Vermont and New York, this three-year-old store has a business plan that appears to be working well.

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Surprisingly Strong

By Tom Lassiter

Canadians are a resilient lot, and that shows in the continuing sales of patio furniture – at very high prices – if not in retail margins.

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2016 August Business Climate

In early September Hearth & Home faxed a survey to 2,500 specialty retailers of hearth, barbecue and patio products, asking them to compare August 2016 sales to August 2015. The accompanying charts and selected comments are from the 198 useable returns.

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Parting Shot: Hôtel de Glace

Twenty minutes north of Quebec City, in a year-round resort and waterpark called Valcartier Vacations Village, you’ll find the Hôtel de Glace – the Ice Hotel – certainly one of the most unusual places to spend a night.

» Continue