In the effort to provide excellent analysis here I purchased data on Vancouver CMHC Housing Starts, Completions, and Under Construction. I wanted to see what relationships exist in our local housing market between these different data sets.
As one would expect, starts lead, under construction follows and finally completions follow approximately 6 months later. Some interesting observations here are that the number of units under construction has never exceeded either the number of starts or completions but we find ourselves in a situation now where the number of units under construction is far exceeding the number of starts and completions. This could be due to a variety of factors such as a skills shortage or the nature of the projects under construction. The result of so many units under construction is that it is taking longer than in the past to see supply in reaction to demand thus giving the illusion of a hotter real estate market than perhaps is warranted by fundamental supply and demand.
An interesting note on this graph is the uptick in housing starts I notice in 2001. The question I have is how did developers make money with your average single family home selling for under $400,000. What was motivating them to build more starting in 2001 and sell homes for under $400,000? What has changed over the past 6 years? Have materials (lumber, steel, concrete, fixtures) costs risen that much? Has labour become doubly expensive in the past 6 years?
The number of persons per household in the GVRD has remained fairly stable at 2.6 persons over the past 20 years. When starts / completions exceed the number demanded by population growth one would expect it to be in reaction to previous undersupply or an expectation of further population growth. During our most recent construction boom we have seen no such growth in population and population is not expected to grow at a faster rate than currently evidenced. The question here being - who is living in all of the new homes being built?
The answer to this question could be complicated and no statistics exist (to my knowledge) that quantifies who is buying new or existing homes. I have heard myths about rich foreign buyers and the illegal drug trade but neither of those explanations should account for such a dramatic change in prices which are set by the typical home buyer who buys their home by qualifying for a mortgage which they intend to pay off over a number of years.