Sunday, May 09, 2010

Where's that population boom?

We have all heard from the pumpers that one of the reasons for the great boom in housing prices in the 2000s was the population explosion in BC.

Those who remember my old blog will recall that booming population growth was shown to be nothing more than a myth. Population growth has indeed been positive. But it is very small relative to what was seen previously in BC.

The house price boom has been around about 10 years now. So, let's look at the 10-year population growth rate for BC.

See that little hook at the far right of the chart? That's as good as it gets. No boom.

To make this more stark, let's rank the decades.

Ouch. The 2000s are last among the previous 5 decades. The worst decade for population growth in 50 years. Nice population boom.

Now let's break that down even further into 5-year time periods.


There you have it. The last two 5 year periods are the worst two in the last 45 years. And 1995-1999 is in 3rd last place, to boot.

We had unprecedented construction levels and paltry population growth. I wonder who will be living in all those houses?

24 comments:

mohican said...

Thanks for revisiting this VHB. I think population growth is an oft quoted reason for high prices. I personally think the ratio of square feet of living space per person has grown. This can be in the form of smaller household size or multiple / recreational property ownership.

For example, I know a couple just down the street who co-own a small condo in Yaletown (where hubby sleeps during the week to avoid commuting) and they own a large house for their family here in the Fraser Valley - close the wife's work.

another value investor said...

Thanks for the stats. So it looks like the BC population growth for the past decade is 1% per year, give or take. How does this compared to the net growth in housing stock? That would be helpful in showing whether and how much we are overbuilding.

another value investor said...

And by "growth" I meant growth rate in percentage terms. I know that completion for past 12 months is 18390 per your link, but I don't know how to convert this value into percentage.

Charlemagne said...
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mohican said...

We've had a look at this before.

http://housing-analysis.blogspot.com/2008/05/cmhc-data-vhb-makes-appearance.html

The number of starts, completions per new person is at a historically high level. Vancouver developers have built more houses than necessary over the past few years.

JimTan said...

"The number of starts, completions per new person is at a historically high level. Vancouver developers have built more houses than necessary over the past few years."

There may be a difference of opinion about this. Fact: metro Vancouver rental vacancy is just 2% (3rd Qtr 2009) compared with 5.5% Calgary and 16% Vegas.

Of course, Surrey and Abbotsford have the highest rate of 6% among the metro Vancouver districts.

RentingSucks said...

That's been one of the only valid provable bull conundrums. Where is all the inventory if it isn't up for rent. One thought is that it is sitting empty. This seems a waste of money but maybe the hassle of renters and the damage they might do and the fact that you are "earning" 15 percent a year on your money is enough to make you not bother renting.

This did happen in the states where the rental market was tight during the boom and then there was a glut after the slump. I read an article where they said it was people doing flipping sucked up the extra supply. Don't think that is happening here as much though but I could be wrong. Maybe speculators in aggregate cause enough of a time lag between when they purchase and finally sell to a person who is going to live in a place that supply is reduced significantly.

digimarkus said...

It would be interesting to see data on migration patterns within BC. Is a decline in one part of BC offsetting the stats for population growth in another area? I suspect there is a general rural to urban trend.

Charlemagne said...
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玄雨 said...
This comment has been removed by a blog administrator.
Dave said...

Percentage growth in population doesn't tell the whole story. You also have to look at the total number per year, which has been more steady. From 1950 to 1970, we gained 1 million people. From 1970 to 1990 we gained 1.1 million. From 1990 to 2010, we gained 1.2 million.

Comparing population growth rate to total construction is to compare apples and oranges. If you want to use percentages, the total construction number should be a percentage as well. Our population is four times larger than it was in 1950. It is more than double what is was in 1970.

If we add about 60,000 people per year that translates into 24,000 new units required. This doesn't account for replacement housing or removed inventory, which is also a significant factor. Let's assume a house lasts 100 years. That would mean 1% of housing needs to be replaced each year. With 1.9 million properties, that would be about 20,000 units per year. So conservatively, I would guess that 40,000 units per year is sustainable. What was the recent peak? 25,000. Not enough.

Unprecedented construction? Let's compare 1958 to our recent construction peak in 2008. Population went from 1.5million to 4.5million. Construction starts in 1958 were 13,000. To compare, we need to triple that number, which gives us 39,000. What was our recent peak in 2008? 22,000. Doing the same for 1969 and 1990 and the comparable amount would be 38,000 and 30,000, respectively.

Hardly unprecedented.

another value investor said...

Dave,

I think you have a valid point. In fact, this is what I was trying to get at in my first comment, namely the number of net move-ins vs. the number of net new units. However, your numbers don't seem correct either.

Your number shows a net 3 million people coming in over the past 50 years. If we built 22,000 houses for EVERY year in these past 50 years and multiply by 2.5 person per unit, we would still lack housing for 250,000 people (3000000-2.5*50*22000) .... and that's not including 1% of houses being replaced each year. I know we have a thriving homeless neighborhood in the DT eastside, but don't think they have 250k ppl there..

So, there must be something that your numbers didn't account for which result in an apple-to-orange comparison.

vibe said...

Dave, come on buddy. Housing starts need to be proportional to population size? So if the population were dropping we would still need the same number of housing starts? If the population triples you need three times as many units, not starts.

Dave said...

Vibe, I said housing starts are proportional to TWO things:

1. Population growth (absolute numbers);
2. Replacement housing (proportional to the total number of housing units).

A lot of buildings and facilities are designed with lives of less than 70 years. I used 100 to make a point conservatively. Some homes get torn down after 20 years, others last more than 100 (like mine), but let's agree that I am in the ballpark.

RE Declining Populations... It would depend on the rate of the decline. If faster than 1% (if you accept the 100 year life), then no replacement needed. If slower than 1%, then you would need to fill the difference with new starts. Isn't math fun? But that's being conservative. I can guarantee you that those with money would rather build a new house than occupy some dump from the 50's.

Your final sentence in nonsensical. This isn't complicated. You would have needed to build enough units to house those people.

Dave said...

Value investor, mea culpa, I think I used Lower Mainland starts rather than BC starts. Looking at the BC starts, we were adding about 35,000 units per year during the peak.

So my point still stands regarding prior peaks. It's par for the course. We have been building less than 35,000 for a couple years now.

Taking your math and flipping it, the past population growth rate would require 24,000 units per year. We would then have to add in replacement housing. 11,000 units per year would replacement of 0.6% of inventory per year. That might not be a bad estimate anyways because the average life of a housing unit is not evenly distributed (i.e. skewed to newer units). In other words, we typically replace older units and there are fewer older units.

In short, I think 35k to 40k starts per year is sustainable.

Dave said...

I like JinTan's approach of just using common sense. If too much housing was built, then vacancy rates would be much higher than 2%. The market is more efficient than many would give it credit for.

Van Housing Blogger said...

The CMHC rental vacancies numbers miss out on a large part of the rental market in Vancouver. They only count apartment buildings. A huge chunk of rentals in Vancouver are in condos. CMHC numbers miss that chunk and therefore are not terribly reliable for vacancies or for rental payments either

first_time_buyer said...

The CMHC rental vacancies numbers miss out on a large part of the rental market in Vancouver. They only count apartment buildings. A huge chunk of rentals in Vancouver are in condos. CMHC numbers miss that chunk and therefore are not terribly reliable for vacancies or for rental payments either

IMO, people generally like to rent apartment building because of structured management. Atleast they dont have to worry about showing it to prospect buyers / vacating it as and when the owner feels like selling. That was my concern for picking an apartment.

Dave said...

Van Housing Blogger, CMHC also has a secondary market survey that goes beyond purpose built rental buildings. They produce that once per year for Vancouver. It's an interesting read.

another value investor said...

Dave, I would be really skeptical of the usefulness of those secondary market surveys. There are tons of unauthorized suites around the city. In fact, it seems nowadays the most popular new-built SFH are those in which the house is essentially divided into three units: one in the upper floor for the owner and two at the ground level for rentals, with each unit having its own kitchen / bathroom etc.

Dave said...

Value Investor, I believe they survey those as well.

another value investor said...

Dave,

That would be like asking "who owns a grow-op?"... who would raise their hands?

JimTan said...

“The CMHC rental vacancies numbers miss out on a large part of the rental market in Vancouver. They only count apartment buildings. A huge chunk of rentals in Vancouver are in condos. CMHC numbers miss that chunk and therefore are not terribly reliable for vacancies or for rental payments either”

Oh Dear!

I am shocked that VHB isn't aware that CMHC does give the rental vacancy rate for condo.

In the CMHC Rental Market Report Fall 2009, rental condo vacancy was 1.7%, and below the apartment vacancy rate of 2.1% (Figure 2). Figure 3 lists the apartment vacancy rate by districts. Please read the report from cover to cover before launching your opinion.

http://www.cmhc-schl.gc.ca/odpub/esub/64467/64467_2009_A01.pdf

Rob said...

Even though overall growth is decelerating, is it possible or plausible that there might be micro-trends within certain neighbourhoods which could be a factor in pricing?

I'm thinking of the example of a British physician I know who purchased in Pt Grey and claimed (anecdotally, of course), that there seemed to be a bit of a British enclave in his local neighbourhood which was having an effect of upwardly distorting prices.