Wednesday, January 16, 2013

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.

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