Friday, August 30, 2013

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.

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