Vancouver's population growth was fairly robust until 1998 when growth plummeted and has never fully recovered to the above 2% rate witnessed for much of the city's recent history.
In light of accurate statistics to the contrary, why are so many locals convinced that our population growth is high? Could it be because so many new homes are being built? Why are the homes being built if population growth is so low?
This raises the important question dealing with the possibility of an oversupply of new homes. Is there an oversupply? Based on the CMHC numbers in the previous post, I believe that builders are currently overbuilding and the consequences will be severe. Severe, meaning a massive amount of construction industry layoffs and possibly widespread developer bankruptcies.
Just how high could our unemployment rate get if there were massive construction industry layoffs? Quite obviously, very high, as in double digits high. Construction / Real Estate employment as a percentage of Vancouver labour force was 7% in 2001 and it now stands at 11%. If we just lost the increase in percentage the local unemployment rate would increase from around 4.5% to 8.5%.
How prepared are individuals for the prospect of increasing unemployment and job loss? Not very prepared. BC has a negative savings rate, which means the residents of BC spend more than they earn and have done so for many years now and do not even consider sustained job loss as a remote possibility as we have not had double digit unemployment rates for quite some time.
I don't really like being negative on the prospects of our region's economic future but I see very few bright spots and many risks for the future. The construction / real estate business is in a bubble, the manufacturing, film and tourism businesses are being negatively impacted by the currency, the forestry sector is in for a long downturn and now mining companies are walking away from projects for cost reasons.
It is my hope that people would use our current boom time to cushion themselves for the financial impacts that will be coming. Save, don't spend. Plan, don't consume. Pay off debt and build a cushion. Good luck.
If I'm reading your charts correctly, there are only 4 to 5,000 units under construction less (23,000+) than our population grew in all of 2006 (28,000). This does not include starts or completions, nor the fact that already, half or more of DT condos are owned by investors.
If this isn't a recipe for over supply, I don't know what is.
Add to that the recent revelations that a large number of those investors are local --- look out YVR.
I think the myth of massive numbers of foreign investors has been destroyed hasn't it?
"I think the myth of massive numbers of foreign investors has been destroyed hasn't it?"
Yes. I think there is evidence that most investors have some local presence. It could be many investors are immigants and could be living abroad for some part of the year or "perceived" as foreigners because they weren't born here.
In Victoria, we are having the same perplexing condition. Rising prices but near stagnate population growth. From my cursory observations it appears that the household size has been decreasing. Which may mean that parents are buying homes for their children and/or buying secondary properties, and then add the investors from other areas who are not living here as their primary residence. Hence, the population is not increasing but the stock of housing is increasing.
My two cents.
Where did these recent revelations come from. Do you have a source, or could someone flesh it out at bit.
martin: this is the article where Cam Muir cites that most investor properties are locally owned.
Why are the homes being built if population growth is so low?
Well because the builders only care about whether someone buys their houses, not whether anyone lives in them.
Like in Florida, Arizona, etc.
Why are the homes being built if population growth is so low?
And equally important, why is the rental market tight, and why are rents still rising.
I wonder how "foreign" investor is defined though. If you invest roughly the equivalent of an SFH in BC you can become a permanent resident. Three years later, a citizen.
>>martin: this is the article where Cam Muir cites that most investor properties are locally owned.<<
To be honest, although I imagine that most Vancouver properties are in fact locally owned, I don't count that article as proof. Cam Muir will say anything to prop up the market. If I don't believe him when his spin goes against what I believe to be true, I don't see why I should believe him just because his spin happens to line up with a bearish argument. There were no real figures for Vancouver cited in that article, just figures for Victoria and a generalization about an old survey -- typical Cam Muir and not worth the bits of bandwidth it was written with.
Looks like a developer did the right thing. Tells you how thin/negative builder margins are these days.
"Looks like a developer did the right thing. "
That looks like big news. The question it raises for me is, why did he have trouble with financing. Could it be that the banks have seen the writing on the wall?
Here is a telling way to display the population growth rates. In this graph I show the pop growth rate over the previous ten year period, graphed from 1970 through 2007.
I think you would have to be quite the optimist to be eagerly loaning money for a new condo development at this time. As it is, I think there will be some anxious times for a lot of local financial institutions as this mania continues to unravel.
"And equally important, why is the rental market tight, and why are rents still rising."
I did this post which shows a strong inverse correlation between rental vacancy rates and home price growth. I am still not ready to draw any conclusions about why this correlation exists but we can speculate! I suspect it is the speculators not renting their places, transactional overhang, and development displacement!
VHB - that is a sick chart - as in really good.
You paint a pretty dire picture. I can't say that I disagree entirely, but I still get calls from recruiters I haven't heard from in 3 years, and keep reading about businesses complaining about the lack of good labour around, etc.
So, are businesses' that short sighted, or are we missing something else? I just look back to when the C$ was 65 cents US and Canada "lost its competitive edge" by being able to sell products for those big US dollars.
Then the dollar rose to 85 cents and "manufacturing was doomed". Yet we're still alive and well.
I don't mean to sound like a bull, but I've heard a lot of chicken little in the past and yet here we are.
A fantastic resource : the stats for EVERY BC property sale are available (price, foreign/local owner's address, etc).
Free data for 2006, looks like $$$ for other, but still worth looking at. Maybe realtors get some better access ?
They definitely have a pro real-estate outlook (pump, pump, rah, rah), however the data looks really good.
E.g. 2005 West End condo sales, foreign ownership 7% by dollar value, 93% local.
So, are businesses' that short sighted, or are we missing something else?
Honestly, I think the former. Businesses extrapolate forward like everybody else. They listen to Pastrick's growth speech and buy into it.
If we look south, it clearly looks as if a bunch of bloggers got the jump on various talking heads from various institutions, ranging from realtors to investment bankers to columnists to Fed bankers. These people are becoming more bearish as we speak (do they have any choice?), but they only accept the bearish news once it is inevitable. Very few connect the dots at all. I don't think it will be much different here.
It will be interesting to see how China handles the slowdown. Base metals took a dive already.
"Honestly, I think the former. Businesses extrapolate forward like everybody else. They listen to Pastrick's growth speech and buy into it."
This is completely the case. I have a great post coming tomorrow that illustrates this phenomena.
Here is sample of what I mean with regards to base metals:
...has done little to halt the flow of smart money from mining stocks, on the back of generally falling commodity and metal prices. In the past seven weeks, the price of copper, the leading base metal, has plummeted by nearly 25%.
"[I] keep reading about businesses complaining about the lack of good labour around, etc.
The key word is "good." I think there are lots of people looking for work but not all you want to hire. With unemployment so low you know there are some duds working that will cause problems than they fix.
Look at Alberta with significant wage and price inflation -- there is money there to fund this and hide the problems arising from bad hiring decisions. In Vancouver I think there is less extra $ around.
Even in a recession, it appears that demographics and low migration might keep unemployment low in Vancouver. I don't think it will be carbon copy of the 80s. The boomers are going to retire just like all previous generations.
The boomers who re-mortgaged to help their kids with the down payment, or traded up, or speculated are not going to be leaving the labor pool any time soon.
Even in a recession, it appears that demographics and low migration might keep unemployment low in Vancouver.
People move where the jobs are, or more precisely where the jobs are that pay enough to have a decent standard of living.
That's why BC has a combination of low unemployment and low migration right now. Migration is not exogenous to the job market.
If low (inward) migration kept unemployment low Canada's East Coast would have the lowest unemployment in the country.
It seems to me that just as much employment in Vancouver is in volatile sectors such as RE and tourism as ever (forestry is already in the dumps of course). And we'll take our lumps in a recession just as badly as before.
In a recession, older, higher-paid employees will be targeted for retirement. Also, government and business cannot afford to lose their younger workers, especially after years of trying like heck to recruit them.
I can see many boomers extending their working years by consulting or starting hobby businesses in their dens and basements or doing a few shifts as Wallyworld greeters. They won't want to be part of the mainstream 9-5 or do the long commutes.
Yeah, their retirements won't be what they planned and many will end up retiring in poverty. But poverty won't make them work full-time 9-5 again, because they physically won't be able to in most cases.
Agreed, it would be a bad idea to start a career in real estate, construction trades, or tourism right now. But there are a lot of relatively recession-proof jobs that will be emptying as the boomers retire (and they will).
I get your point about migration. And the high housing costs which help limit it here will decrease in a recession.
Funny you should mention the East Coast, because from what I hear they are trying to figure out a way to either bring back some of the departed youth or attract a few immigrants. Halifax unemployment is barely above Vancouver.
Depending on the training involved, it might be a good idea to start a 4 year program in one of those industries. But not a 6 week real estate course. :)
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