By DOUG SMYTH Regional Research Director During 1979 the IWA will be conducting major negotiations on behalf of its members who are covered by the Coast, South- ern Interior and Northern Interior Master Agreements in Brit- ish Columbia, as well as a significant number of independent company agreements whose terms usually follow the pattern- setters. Although the economics of the B.C. wood products industry during 1979 will not be as favorable as they were dur- ing the past two years, they should still permit the IWA to nego- tiate substantial improvements in wages and fringe benefits this year. HOUSING STARTS IN THE UNITED STATES The economic health of the B.C. lumber industry is directly dependent on the construction of new homes, or housing starts, in Ss United States. During a normal year, for example, approximately 80% of B.C. softwood lumber is shipped to the United States, and practically all of it is used in the construc- tion of residential housing. The residential housing industry has always been an extremely volatile market. It has experienced extreme fluctua- tions in demand because of a high degree of sensitivity to infla- tion and rising interest rates, and has always led the U.S. economy into a recession following a boom in the business cycle. The following table shows the sharp fluctuations which have taken place in U.S. housing starts during the 1970’s. PE eNG STARTS IN THE UNITED STATES Annual Starts 1970 1.5 million units 1971 2.1 million units 1972 2.4 million units 1973 2.1 million units 1974 1.34 million units 1975 1.16 million units 1976 1.56 million units 1977 1.99 million units 1978 2.02 million units —— 1972 and 1975, for example, the number of units started fell from 2.4 million to 1.2 million units, or just one-half of the 1972 starts. And during the past two years the U.S. hous- ing industry has enjoyed record levels of approximately 2 mil- lion starts per year. Even more encouraging, however, has been - the large number of single-family detached houses which have been built compared to the previous record year of 1972. HOUSING STARTS IN THE UNITED STATES Annual Starts 1972 1977 1978 _ Single-family detached houses Multifamily units (mostly apartments) 1.1 million .535 million .584 million 1.3 million 1.45 million 1.43 million THE WESTERN CANADIAN LUMBER WORKER Total 2.4 million 1.99 million 2.02 million The table shows that in 1977 and 1978 an average of 1.44 mil- lion single-family homes were started, or about 72% of total starts. This number compares very favorably with the previous record of 1.3 million singles built in 1972, or only 55% of the total number of housing starts made during the early 1970's. The much higher proportion of single homes built in the past two _ years has generated record levels of demand for the B.C. lumber industry because the average single consumes three times as ich wood as the average multifamily or apartment-type unit. SS. HOUSING STARTS PROJECTIONS FOR 1979 Our projections of U.S. housing starts for 1979 are somewhat ver than the level of starts which was achieved during 1978. HOUSING STARTS IN 1979 Annual Starts 1.1 million .4 million 1.5 million units The 1979 total of 1.5 million units represents:a 25% decline from the 2.0 million started in 1978. The 1.1 million single units for 1979 compares with 1.43 million in 1978. Space does not permit a detailed explanation of these projec- tions, but it is important to point out that we are already view- ing some of the symptoms of the downturn. 1. Housing sales have begun to decline from the peak 1978 levels. 2. The volume of- mortgage loans closed fell by 21.5% between December, 1978 and January, 1979. 3.The annual rates of housing starts have fallen off since late 1978. MONTHLY U.S. HOUSING STARTS (Annual Rates) January, 1979 February, 1979 Single-family 1.148 million .964 million Multifamily .520 million .447 million Total ~ 1.668 million 1.411 million The total starts for January and February, 1979 represent the first time they have dropped below an annual rate of 2 million starts since April, 1978. By the same token, the single-family rate is substantially below the 1.55 million annual rate of starts generated during December, 1978. In January, 1979 only about 0.1 million, or 100,000, of the decline in total starts was caused by severe winter weather. The remaining 300,000 represents an actual decline in the annual rate of housing starts which has been caused by the factors discussed above. 4. The annual rates of building permits have also declined substantially since December of 1978. In most com- munities a building permit must be obtained before it is legal for a builder to begin construction of a new home. Building per- mits do provide a rough indication of the annual rates of hous- ing starts which will take place 3 or 4 months later. MONTHLY U.S. BUILDING PERMITS (Annual Rates) January, 1979 February, 1979 1.32 million 1.36 million HOUSING AND THE 1979 NEGOTIATIONS. Although there is no question that the U.S. housing industry will experience a significant decline in housing starts during 1979, it is extremely important for the IWA negotiations to put these numbers into perspective. 1. The 1979 downturn will be one of the most shallow declines since World War II. Between 1973 and 1975, for example, starts fell by 45% (2.1 million to 1.2 million units). The decline from 2.02 million units in 1978 to 1.5 million in 1979 equals a 25% reduction in total starts. 2. The “mix” of single- family and multifamily units has improved considerably since the early 1970’s. During the early years of this decade singles accounted for only 55% of total housing starts, but during 1979 the proportion will have risen to 73%, or a one-third increase. Since singles consume 3 times as much wood as apartment units this is an encouraging develop- ment. 3. Since 1970 the size of the average piniele teadily house has increased by 15%. 4. In view of the larger proportion and size of single units itis obvious that the 1.5 million starts for 1979 will consume far more wood than the 1.5 million units which were started in 1970. In terms of the amount of wood which will be con- sumed the 1979 starts level is equivalent to 2.1 million units when compared to 1970 starts.’ 5. The duration of the 1979 downturn will be much shorter than the decline which took place between 1973 and 1975. There should be a gradual dropoff in housing starts during the early months of 1979, and the lowest point in the cycle will probably be reached during the late summer or early fall. The aie’ rate of starts will recover gradually during the next few months and 1980 should be an excellent year. In fact, during the 1980’s we are forecasting an average See “FOREST INDUSTRY” — page 14 Total