Thursday, December 04, 2008

Ratio of Owners to Renters

I was thinking about the state of the current real estate market in Greater Vancouver and I was wondering where future buyers of real estate are going to come from given the abysmally low current sales levels and the atrociously high prices. Who can afford to buy and how big is that pool of buyers compared to the population.

I had a look at the historic census data on home ownership versus renters in 1991, 1996, 2001, and 2006 and this is what I found. CMA = Census Metro Area.

In 1991, there were 588,590 occupied dwellings in the Vancouver CMA. 334,420 (57%) were owner occupied. 254,170 (43%) were rented.

In 1996, there were 692,720 occupied dwellings in the Vancouver CMA. 411,400 (59%) were owner occupied. 281,320 (41%) were rented.

In 2001, there were 758,390 occupied dwellings in the Vancouver CMA. 462,645 (61%) were owner occupied. 295,745 (39%) were rented.

In 2006, there were 816,770 occupied dwellings in the Vancouver CMA. 531,725 (65%) were owner occupied. 285,045 (35%) were rented.

We can safely assume that the owner occupied percentage has not fallen from the 2006 level. The current housing bubble was born out of a natural predilection towards home ownership and demographic trends, developed rapidly via low interest rates, and grew into a fat, disgusting beast via irrational ownership psychology and greater fool mentality. It is now time to pay for these excesses. Some of the excesses were part of the natural cycle but the bubble developed out of the unnaturally low interest rate environment and the bubble mentality

Given the above data, I just don't see any turnaround soon. Most of the potential buyers are gone. There are no more greater fools. The supply of homes for sale continues to build but there are very few willing buyers at todays prices. I expect that some renters may be convinced to buy if prices came in line with rents but this pool of buyers has shrunk over the past 20 years so there is little opportunity. Add to this the fact that many baby boomers will be looking to downsize from their large suburban homes into smaller dwellings over the next 10 - 15 years and you have a recipe for a very long and deep correction in housing.

Statistics from here.


Anonymous said...


THANK YOU for having the presence of mind to gather these stats. It's the sort of point that seems trivial in hindsight, but it's (another) sterling refutation for anyone who thinks this is a temporary blip.

We gots demographic troubles a-comin'.

jesse said...

We can take it one more step and say that when a renter becomes an owner, it does not affect overall housing supply except in delays in occupancy. Your cited data indicate dwellings once rented are now being owned.

"The current housing bubble was born out of a natural predilection towards home ownership and demographic trends"

The predilection extends far past the 2003-2008 runup (though has accelerated in the past 6 years). It could be a general aging of the population towards a preference and ability to own. I don't know if it indicates a multi-decade bubble. We would have to see price-rent ratios over this time to know more.

mohican said...

Jesse - its funny you should mention price / rent. I am just polishing up some really great data and charts right now on that very topic.

I've got price to rent data - inflation adjusted - from 1979 to present. I wouldn't go so far as to say that we are in a multi decade bubble but certainly my view at this point is that we will likely overshoot to the downside for a large variety of factors - not the least of which are the very same factors that brought us up to this point, except working in reverse on the way down.

The demographics worked for higher housing prices on the way up and it will help it on the way down too. The loose money helped on the way up and tight money will help the way down. Fear and greed helped on the way up and those very emotions will help bring the market down too.

patriotz said...

I wouldn't go so far as to say that we are in a multi decade bubble

I would. Since 1970 we have seen a series of rolling bubbles- early 70's, 80/81, late 80's/early 90's, and now the current bubble. Each of the previous bubbles was followed by a correction to rent equivalence and this one will be no different.

But I think we've run out of air for blowing any more. The boomers are now transitioning to net sellers, real wages have no prospect of reversing their decline since 1982, and consumers are burdened with the highest debt ever. I think the era of RE bubbles is over.

jesse said...

"I think the era of RE bubbles is over."

That would mean, then, that prices fall significantly as cap rates increase. Perhaps mortgage rate spreads need to increase for lending to be sustainable.

patriotz said...

Or maybe the banks could just unload lending risk to the taypayers... oh yeah they already do that.

And our neighbours to the south are eagerly embracing central planning too:

Washington’s New Tack: Helping Homeowners

"At the Treasury Department, meanwhile, top officials continued to work on a plan to bolster the housing market by subsidizing 30-year home mortgages with rates as low as 4.5 percent — a level that home buyers have not seen since the early 1960s."

Who needs a real economy anyway?

mohican said...

"who needs a real economy anyway"

amen - I don't know what to make of all the intervention taking place right now. How do you value anything when the government just steps in a 'revalues' it. What we really need is expedient bankruptcy and foreclosure processes to get this bad debt and overleverage out of the financial system. Let those who fail, fail and the remaining firms will be stronger as well as opening up new areas for innovation and competition - the cornerstones of free market capitalism.

condohype said...

It's disturbing how such simple, relevant observations about price to rent, credit availability, and demographics continue to be absent from the mainstream conversation about real estate.

Thanks for the post, Mohican.

Warren said...

Do ownership stats go further back than 1991? Certainly we have had economic ups and down in those 17 years, yet we have never seen a decrease in owner-occupiers. Is this a permanent shift in the long term average? I don't think we have enough data to predict that.