Vancouver housing market overview - July 2021

This post presents some graphs that demonstrate the overall status of the Greater Vancouver housing market (specifically REBGV but the basic analysis extends to FVREB as well)

Housing transactions:

There is a dearth of new listings, for whatever reason, and this is likely leading to some additional competition among buyers. Months of inventory remains very low and this is unlikely to lead to a condition where prices will be soft in the fall. Sales remain quite strong. I don't see the current market as soft. Interest rates are low -- I am hearing near 2% for a five year fixed term. This allows a significant amount of monthly principal to be carried. This is almost certainly affecting demand, as is, I am guessing, some additional perceived cash flow due to travel restrictions and such. I don't know for how long such factors will persist. Any predictions are statistical.

Vancouver housing market overview - April 2021

This post presents some graphs that demonstrate the overall status of the Greater Vancouver housing market (specifically REBGV but the basic analysis extends to FVREB as well)

First, housing transactions:

Sales are very strong, but interestingly so too are new listings. This has led to months of inventory being higher than it would be otherwise. There is a fair amount of supply that is available for sale and owners are finding the impetus to have it placed on the market. New listings have been trending above average since late summer of last year (partially making up for lost ground earlier in the year, but they have remained robust.

Second: prices relative to inventory:

Over the past 14 years the relationship that mohican developed has been validated time and time again. It is pretty "obvious" that more supply for sale means relatively lower prices (and conversely less supply for sale means relatively higher prices), but the remarkable aspect is how predictable this is. More supply for sale is the only way price growth can moderate. There are a few ways this can happen, but a significant contributor will be new construction.

Speaking of new supply:

Housing construction activity over the past five years has been sustained and significant. There are significant numbers of units being built and now completing. There is no doubt in my mind these new units are part (though by no means all) of the reason we are seeing new listings trending higher.

Population growth:

International components of population growth have been very low due to travel restrictions. This will not last forever, but has led to significant easing of pressure on the rental market. (Anecdotally there is a lot more choice available and rent rates are not under upwards pressure, for those fortunate enough to be in a position where they aren't discriminated against in our private markets). Natural increase is near zero. Population growth from here on out will be primarily from interprovincial migration (Alberta mostly, and unless their economic underpinnings improve I think we will see movement to Alberta dwindle in the years ahead), and international migration (slated to increase over the coming years). Looking at the paltry and dwindling natural increases fully explains why immigration numbers are being ramped up.

Taking a longer view, Vancouver is going to remain a region increasing in population and it will need housing to accommodate this growth. This will mean significant pressures on infill in existing lands, and this invariably manifests as speculation. Lower density properties (i.e. single detached homes) are only becoming more scarce but are still coveted for lifestyle and status reasons. I do not see this pressure abating anytime soon, and I can assure you we don't need offshore money to lock this in.

Anyways, get vaccinated. If BC doesn't get sufficiently vaccinated, life is going to be very hard for a lot of people.

BC Interprovincial and International Migration

As I await the annual census metropolitan area population data from mid-2013 I have updated my series on tracking interprovincial and international migration to and from BC through 2012 (source). BC interprovincial migration is primarily to and from Alberta, Ontario, and spread between the other provinces and territories. I have not broken down international migration into countries of origin, but the majority are from Asia, and about one in four are non-permanent residents.

Here is net international and interprovincial migration:

Here is the change of each of the categories year-on-year:

Here is the total interprovincial "volume" (ie in-migrants plus out-migrants). This indicates how many bodies are passing the border. If there is zero net migration in a category that means as many are leaving as are arriving.

The next graph is the net interprovincial migration as a percentage of total migration in a category. This gives a sense of the magnitude of the "vector" of migration. The larger the deviation from zero, the more "biased" the migration is.

I looked at Alberta-BC migration in more detail, by quarter through Q3 2013:

A few observations:

• Net international migration has remained steady since 2010. (As mentioned about one in four net international are nonpermanent residents)
• Migration to and from Alberta has been the most volatile over the past 30 years, which makes some sense as, one assumes, the threshold one overcomes to move to Alberta is lower than to other parts of the country.
• Negative net interprovincial migration from Alberta was a major contributor to lower population growth in 2012. So far in 2013 this number has seen an improvement, meaning this component's headwinds that persisted through the late 1990s and early 2000s are not re-appearing.

Note these values are for BC, not Vancouver; there are intraprovincial migration components, as well as the natural increase, that contribute to a region's overall population growth. I eagerly await the major cities annual population growth data to ascertain how much of the population growth of 2013 has been in the Vancouver area.

BC Population Growth to Q2 2013

BC Stats released its quarterly population estimates yesterday. Population growth consists of the following bulk components:

• Natural increase (births - deaths)
• Net interprovincial migration
• Net international migration (including permanent and non-permanent residents (NPRs))

So let's look at how recent quarters look in a historical context, here graphed since 1961 to show longer-term trends (there is seasonality so quarters are best compared to each other, also do not integrate these graphs, the total population is periodically adjusted during census counts). 4 quarter rolling averages are shown.

Since 2008, net NPRs have been contributing a level of population growth approaching that of the natural increase. From datasets "Total entries of foreign workers by province or territory and urban area" and "Total entries of foreign students by province or territory and urban area", the following data on foreign worker student, and humanitarian components of NPR entries in BC:

2012 Temporary Foreign Workers (TFW), Student, and Humanitarian Entries in Vancouver and BC

	Vancouver	BC	% Vancouver of BC
TFW	19315	49511	39%
Student	14677	26647	55%
Humanitarian	394	1175	34%
Total In	34386	77333	44%
Total Out*	-	69491	-
Net	-	7842	-
% net of total in	-	10%	-

* estimate by subtracting Net from Total In.

The influx of NPRs to BC was around 77,000 in 2012, however the outflux was around 69,000. According to CANSIM 051-0020 there were 151,637 NPRs in BC as of January 1, 2013, which approximately aligns with integrating historical net NPRs from the population growth estimates. NPRs have comprised 19% of the province's total population growth since the beginning of 2008.

Vancouver CMA Population and Dwelling Distributions 2006 to 2011

Statscan released their 2011 National Housing Survey results earlier this week. I found a couple of datasets that are broadly comparable to the previous 2006 census data. Below are graphs looking at overall population growth and dwelling composition based on structural type (defined here). Here is a brief summary of some structural type definitions:

• single detached: one dwelling with no walls adjoining another structure
• apartment, duplex: detached housing with suites (for example)
• row house: dwellings in a group with shared walls
• apartment >= 5 stories: condo towers
• apratment < 5 stories: low to mid-rise condos

The first graph looks at the average household size by structural type with the change since 2006. Notice that "apartment, duplex" and apartments with >= 5 stories saw increasing household size. Row and single detached were unchanged, and low-rise apartments saw lower household size. Overall the household size was unchanged since 2006. (Click on image to enlarge.)

Next is looking at the distribution of dwelling growth based on structural type. On a per-dwelling basis apartments were the most significant contributor to dwelling formation however on a population growth basis the at-grade structures (single detached, apartment duplex, and row house) housed the majority of the region's population growth.

As to why this is, we can look at the distribution based on household size to see that while apartments contribute more on a per-dwelling basis their household sizes are smaller so will have a lower impact on population absorption on a per-unit basis. This is obvious but for posterity here are the distributions:

The most interesting thing for me is the stagnation of the household size number since 2006. A few other notes:

• 67% of the metro's population growth was absorbed in single detached, apartment duplex, and row housing.
• Households of 3 or more people made up 39% of dwelling formation but 62% of population growth.

Household size could be bottoming earlier than predicted. There are, however, some plausible reasons why household size has only temporarily plateaued instead of continuing a downwards trend since the 1970s:

• The 2006-2011 period encompassed a severe recession and slow recovery with elevated unemployment. This could cause an increase in household size, for example an unemployed worker moves in with parents, or a student decides to live at home instead of moving out of the family home.
• The NHS has collected on a voluntary basis so there may be errors that skew the 2011 data.
• Rents increased above inflation over the 2006-2011 period and that could cause some increase in household size.

On another interesting note, laneway houses are likely counted as "single detached" dwellings. There were about 200 such dwellings build in the City of Vancouver before the 2011 NHS. Assuming laneway starts average 40 per month for the next three years, this could add about 1800 additional "single detached" dwellings to the dwelling count for the 2016 NHS.

Population Growth and Residential Construction Activity in BC Part 3

(Warning this is an analysis post; if you want the conclusion skip to the last paragraph. The two of you who actually care about this stuff, please read on.)

This is a third post on population growth and construction activity in BC. This one attempts to round out the core numbers of household formation versus housing supply.

The first post highlighted an empirical relationship between housing starts and population growth and noted that population growth is cyclical.
The second post highlighted that, based on said empirical relationship and household size data, decreases in average household size has accounted for about 25% of residential construction activity (based on units produced) in the past 13 years.

An important point is that there can be additional dwelling formation beyond completions minus demolitions: dwellings can be formed by re-purposing a set of existing dwellings to be a larger or smaller set of dwellings, or by failing to include dwellings in the completions data (for example a "single family" dwelling is actually a 2 or 3 unit dwelling but not reported as such).

Another point is that dwelling completions need not necessarily be occupied. (Dwelling counts include actual dwelling counts as well as those "occupied by usual residents") They can remain vacant (so goes the rumour) or they can be used as vacation or second homes. It should be noted such homes can be either rented or occupied; to wit imagine someone living in Vancouver renting a suite in the Peace region for work reasons. There can be many reasons why dwellings can grow faster than household formation would suggest, and can be either sustainable or unsustainable.

This post analyses household formation, population, (estimated) demolitions and housing completions. Attempts are made to measure how accurately completions align with household formation.

The data are as follows (source: BC Stats and CANSIM 027-0008)

Year   Population Households Completions Net Completions*
2000   4039230    1572086    -           -
2012   4615096    1876404    -           -
Change  575866    304318     334599      301139

* "Net Completions" assume 10% demolition rate

This is broadly consistent with analysis performed by CMHC on the household formation/completions discrepancy in their spring 2013 housing market outlook publication (PDF). Based on this cursory analysis, once accounting for demolitions (about 2500/year) and assuming completions are the sole source of dwelling formation, completions align well with household formation.

Another dataset is the semi-decennial census dwelling and population counts (source Statistics Canada Census data):

Year   Population Dwellings Dwellings** Completions Net Completions*
2001   3908000    1643969   1534335     -           -
2011   4400000    1945365   1764637     -           -
Change  492000     301396    230302     291837      262653

** Occupied by usual residents

Here we can see that net completions are broadly in line, though slightly ahead of, "usual resident" dwelling formation. Census collection methods will do actual on-the-ground dwelling counts so would tend to capture all forms of dwelling formation. Given the uncertainty in demolition rates we don't have enough evidence to support overbuilding, however the change in the total number of dwellings indicates another source of dwelling formation beyond summing completions minus estimated demolitions.

Percentage of dwellings occupied by usual residents dropped from 93.3% in 2001 to 90.7% in 2011; this drop has added about 51,000 dwellings over the 2001-2011 census interval.

As mentioned, there are other forms of dwelling formation not included in CMHC completions data, namely unit conversions and unreported dwellings (e.g. basement suites). It is unclear how significant including these adds to dwelling supply. If such modes of dwelling formation is on the order of net thousands, that would indicate dwelling supply has outpaced household formation.

In conclusion, should CMHC-reported completions have been the sole means of dwelling formation in the province, and demolitions are accounted for, dwelling growth has been broadly consistent with household formation over the past 13 years. Census data indicate diverging dwelling units compared to those occupied by usual residents of approximately 55,000 over the period of 2001-2011, or about 19% of construction activity on a per unit measure. Once other sources of dwelling formation, such as unregistered basement suites or unit conversions, are considered and assumed a significant contributor, that would indicate that there are now relatively more dwellings in BC than there are households than was the case 13 years ago. For reasons discussed this does not necessarily mean an oversupply of dwellings.

Population Growth and Residential Construction Activity in BC Part 2

A followup to yesterday's post on population growth and residential construction activity in BC is in order when thinking about the future path of household formation, household size, and construction activity. We have the basic function of construction activity versus population growth over the past decade:

Since 2000, every person growth in population has resulted in an additional 0.33 dwelling completions. If population were to remain fixed, annual completions would be 9,500.

More interesting is to dig a bit deeper into this "baseline" 9,500 completions. Based on historical demolitions data (CANSIM 026-0012 1965-1999 **terminated**), demolitions are about (10±2)% of housing starts (and completions). What this means is that even with no population growth there is a net 8,500 annual increase in dwellings, which can only mean that household size is shrinking and/or there is oversupply.

Indeed household size has been shrinking since 2000, with average household size falling from 2.580 to 2.473. If we account for the base population's change in household size in a year, this results in a net demand averaging 6,200 per year, which is on the same order, albeit slightly smaller than the estimate of 8,500.

There are reasonable error bars on the estimates, so we can state that, after accounting for demolitions and more importantly changing household size that housing completions have broadly aligned with population growth over the past decade.

More interesting, though, is looking forward to the next 13 years (and longer). The important takeaway from this post should be that shrinking household size has added approximately 6,200 additional residential construction units per year, or about 25% of total residential construction activity, since 2000. If household size were to plateau that would mean a 23% drop in average construction activity compared to the past 13 years (or significant oversupply). BC Stats projects household size to drop from 2.53 in 2006 to 2.37 in 2035. Under this scenario, using BC stats population projections, this would mean the projected decreasing household size will add 3,400 additional residential construction units per year, which would mean, all else equal, a 13% decrease in average construction activity from the previous decade.

Another factor to consider is the utilization of existing dwellings as the household size has dropped. While I don't have data to support one way or another, it may be true that existing dwellings are not being utilized to their full capacity (think empty nesters who haven't downsized yet). If this is true that means, once turned over, these dwellings will act as "phantom" supply that would further decrease residential construction demand.

Population Growth and Residential Construction Activity in BC

(This is the first in a three part series analysing population growth and construction activity in BC. See the second and third parts.)

There is an obvious correlation between housing activity and population growth. Since the 1980s one can see the ebbs and flows of population growth, alongside housing starts and completions, have been a normal occurrence in BC's history. The second graph puts population growth in a longer historical perspective for posterity.

 

The best correlation is between housing completions and population growth, however there are two behaviours, one pre-2000 and another post-2000. Pre-2000 there were approximately 0.22 completions per person of growth, with a 1 quarter lag (ie population growth rises and falls one quarter before completions). Post-2000 there were approximately 0.33 completions per person of growth with a 3 quarter lead (ie population growth rises and falls three quarters after completions).

Some clues as to why there is a difference should be evident by observing the fraction of detached completions of the total has been dropping since the early 1990s in Vancouver that makes up the majority of residential construction activity in the province.

Notes:

• Though it's not immediately evident from the data, by visual inspection, there is arguably a "baseline" 10,000 units built each year to maintain the existing stock of housing for the existing population. That is, if population growth were zero there would still be a turnover demand of around 10,000 units per year.
• The number of completions per person of growth after 2000 corresponds to 0.33, or about 3 people per completion. Before 2000 this was 4.5 people per completion. It looks as if the shift to multi-unit construction at least partially accounts for this difference.
• As a rough rule of thumb, if population growth is 30,000 this results in annual housing demand of 20,000. Over the course of BC's history since the 1960s, 30,000 is a typical nadir. Most recent population growth has been around 40,000, which corresponds to a demand of about 22,000-25,000 units. Current completion rate is near the high end of this range but the number of starts suggests the number of completions will not markedly deviate from current population growth.
• Population projections typically do not account for the variability in year-to-year population growth but concentrate on averages. Population growth has averaged 60,000 and completions have averaged 28,000 since 1965. Growth projections are about 55,000–60,000 until 2035 based on BC Stats analysis. Population growth cycles with a period of about 10–15 years.

I track population growth closely as it aligns with residential construction activity, GDP growth, and new and used housing sales and for-sale inventory.

Vancouver CMA Intraprovincial and Interprovincial Migration

Refrains I have heard, as long as I can remember, is families migrating away from expensive cities into other regions due to high housing costs. This would make sense simply from a "diffusion" perspective where areas of growing population will invoke migration to less populated areas. To capture this effect I have plotted intraprovincial (to other parts of the province) and interprovincial (to other provinces) migration by lumped population cohorts:

In terms of migration due to high housing prices, while there may be some effect, out migration in the early 2000s was heavily negative even with prices and affordability lower than today's. Other observations:

• There has been smaller intraprovincial out-migration of the 30-44 cohort since the recession. This meant that from 2009 through 2011 there would have been additional housing demand for this cohort
• The older cohorts, including those with school-age children, tend to have net migration out of Vancouver CMA.
• The fundamental mode of interprovincial migration patterns, regardless of cohort, is on the order of 15–20 years.

International migration graphs are below, with an interesting decomposition of the 15-29 year cohort:

BC Population Growth to Q1 2013

BC Stats released its quarterly population estimates and BC continues sluggish growth through Q1 2013.

Population growth consists of the following bulk components:

• Natural increase (births - deaths)
• Net interprovincial migration
• Net international migration (including permanent and non-permanent residents (NPRs))

So let's look at how recent quarters look in a historical context, here graphed since 1961 to show longer-term trends (there is seasonality so quarters are best compared to each other, also do not integrate these graphs, the total population is periodically adjusted during census counts). 4 quarter rolling averages are additionally shown for the aforementioned components and total population growth.

The most recent Q1-2013 data indicate continued negative net interprovincial migration (1611 net out of the province).

Population growth through first quarter of 2013 is below its peak of late last decade, due in most part to net out-migration to other provinces and below-average net international migration, though in the broader historical context immigration is still high compared to past decades, partially offsetting declining natural increases. Annual growth has dropped 50% since its recent local peak in 2007. This will have a direct and negative impact on provincial housing demand in the coming quarters. Interprovincial out-migration is of continued concern, with more people leaving the province for others than arriving.

BC Population Growth to Q4 2012

BC Stats released its quarterly population estimates and BC continues sluggish growth through Q4 2012.

Population growth consists of the following bulk components:

• Natural increase (births - deaths)
• Net interprovincial migration
• Net international migration (including permanent and non-permanent residents (NPRs))

So let's look at how recent quarters look in a historical context, here graphed since 1961 to show longer-term trends (there is seasonality so quarters are best compared to each other, also do not integrate these graphs, the total population is periodically adjusted during census counts):

The most recent Q4-2012 data indicate continued negative net interprovincial migration (2234 net out of the province). The low international component was in big part due to a large net negative NPR component of -5597

Here is the annual graph:

Population growth through fourth quarter of 2012 is below its peak of late last decade, due in most part to net out-migration to other provinces and below-average net international migration. Annual growth has dropped 50% since its recent local peak in 2007, meaning annual population growth in 2012 was about 38,000 fewer than 2007. This will have a direct and negative impact on housing demand in the coming quarters. Interprovincial out-migration is of continued concern, with more people leaving the province for others than arriving.

Under Construction and Population Growth

I have highlighted declining population growth (second derivative of population) as a bearish indicator for real estate in the short term however provincial population growth does not exemplify intraprovincial growth differences and how construction activity is related. To highlight this relationship I have graphed under construction in major BC centres and have similarly graphed annualized population growth in these centres

The points of interest are the most recent population growth statistics and how they align with population growth differentials in other provincial centres. As under construction activity for a city increases, population growth in that city will tend to be more robust than other cities in the province with lacklustre construction activity.

Recently Vancouver under construction has been trending higher. It looks to be peaking in the next few quarters unless housing starts continue to increase. If housing starts decrease we can expect under construction to decrease. That will have implications for population growth into the Vancouver area in the coming year. 

Note also how far population growth fell in the early 2000s. 2012 real estate activity in Vancouver was on the weak side already even with population growth not too far off its highs of the last decade. There was an uptick in population growth in 2012. All else equal this would lead to more robust real estate activity in 2013 than in 2012.

Another interesting chart is overlaying population growth and housing starts and completions. Using data extending back to 1980 there is a relationship between housing starts and completions and population growth (graphs not set set to zero to show correlation):

The relationship showing completions lagging starts is evident, less certain is a causal relationship between population growth and housing construction. Some clues can be garnered by cross-correlating on the time scale pre-2000 and since the turn of the century:

The correlation seems strongest, in the two decades preceding the 2000s, when completions are lagged by 2 quarters relative to population growth. More recently completions are leading population growth. This may well be noise however it may also be an increasing dependence on construction activity is leading to different population growth dynamics than in previous decades.

The key takeaways I garner from this analysis are that under construction activity is related to population growth. If under construction activity subsides again due to a combination of falling starts and rising completions (as I expect) this will have further negative implications for real-estate-related activity in Vancouver.