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Calgary Housing Market Looking Gluttonous – Fight That Flab! May 31, 2008

Posted by DustinRJay in Calgary real estate, residential construction.
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10 comments

A comparison of units under construction in Calgary against population growth can help identify if there is too much residential real estate being developed. The following graph yields some interesting conclusions:

Calgary Housing Market Looking Gluttonous - Fight That Flab!

  • Residential units under construction in Calgary is at unprecedented levels, easily surpassing the residential construction rate during the early 1980’s boom.
  • There are record levels of inventory in the resale market with over 13,000 units for sale in the Calgary and surrounding area. This is coupled with yet another 14,000 units under construction and due to come on the market shortly. This should be very worrying for developers. Total residential units under construction would likely need to correct by more than 30% or to roughly pre-2006 construction levels to stabilize the supply/demand balance. If inventory continues to build and starts do not drop off than the correction will become more severe.
  • In general: as housing starts increase, house prices go up. As housing starts decrease, house prices go down. This graph shows a recent American example.
  • The fact that housing construction has increased relative to population growth is an indicator of a developing supply glut. Residential construction should have a trendline roughly parallel to population growth.
  • Alberta has one of the highest costs of living and some of the poorest housing affordability in the country so it is unclear how population growth can continue at recent high growth rates. Recent Statistics Canada information has shown Alberta as having negative interprovincial migration.
  • Housing production rates are firmly coupled to house prices. The number of residential units under construction has tripled since 2000.
  • There is a better correlation between house prices and units under construction than population growth and units under construction.
  • High carrying costs caused by a combination of high prices and higher interest rates was the primary cause of the 1980’s real estate crash. It resulted in a foreclosure boom and housing construction levels were decimated in only 2 years.
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