It's been three months since I have posted on the new construction situation in Edmonton. Since then single family home construction has increased and starts have remained high.
Single family home under construction peaked at 6,528 in August 2007 before falling to 1,764 April 2009 and finally rebounding to 3,760. It looks like the weakness in resale market has not yet had an impact on new homes. I expect to see price declines on existing resale inventory to lead a shift away from new homes as they become less competitive.
Total construction has been slower than single family alone. This is because condos took longer to recover with units under construction bottoming at 2,142 this March and have rebounded to 2,759 in May. While there is less oversupply going into this downturn compared to 2007 (10,314 vs. 17,781 in the chart above), weaker interprovincial migration and declining resale market will have a negative impact on new construction going forward.
Single family home under construction peaked at 6,528 in August 2007 before falling to 1,764 April 2009 and finally rebounding to 3,760. It looks like the weakness in resale market has not yet had an impact on new homes. I expect to see price declines on existing resale inventory to lead a shift away from new homes as they become less competitive.
Total construction has been slower than single family alone. This is because condos took longer to recover with units under construction bottoming at 2,142 this March and have rebounded to 2,759 in May. While there is less oversupply going into this downturn compared to 2007 (10,314 vs. 17,781 in the chart above), weaker interprovincial migration and declining resale market will have a negative impact on new construction going forward.
4 comments:
Thanks for placing a good focus on what I think are the biggest factors affecting supply/demand (population growth and construction starts).
As a smaller less important item for discussion, one more thing to think about is the number of houses that are "lost" every year due to a variety of factors. These factors may include infills (i.e.: one house destroyed, two starts created), condemned, and fires. I am not sure the figure is exactly, but I would assume that 0.5% is at the low end, and 2% is at the high end. Another way of looking at say this assumption, is that dwellings are destroyed every 50 to 200 years.
I pulled the following figures from Edmonton:
Number of Dwellings: 318,997
Number of People: 782,439
Dwellings Per Capita: 2.5
Given these numbers, one assumption for the number of dwellings "lost" would be roughly between 1,500 to 6,000 units in Edmonton annually.
Just for comparison's sake, this compares against the 3,567 mortgage arrears in ALL of Alberta in March 2010. (Highlights that attrition is actually probably a bigger factor to overall supply/demand, particularly more acute because these are actually lost dwellings, rather than dwelling that are foreclosed, bank owned, then held be a new person/company).
This also compares against the 10,314 new units that are under construction in Edmonton.
At least I thought some of these comments may be helpful, as the figure mentioned of 2.29 people per start as per the post "Alberta Population Statistics" does not account for the dwelling attrition that happens. There is also the factor of changing demographic demand (dwellings per capita). This is a figure that is apt to change over time, as the needs of society change (i.e.: what housing stock will baby boomers want/need as they retire).
The aspect of attrition is a smaller component of the overall supply/demand picture. But I think it's important considering the maintainenance and upkeep of 318,997 dwellings is a large task in itself.
Radley,
I think for Edmonton the number would be closer to 1,500 or even less. The housing stock is fairly new with large portions being constructed in the two oil booms (late 70s early 80s and the 2000s). Even still its a valid point that some amount of construction is needed even without population growth.
A good measure of supply would be a ratio of housing stock to population over time.
I guess I could be biased, based on my personal experience, I live inner city so my block was originally built in about 1910, and there is only one house in the couple surrounding blocks in my neighbourhood that I can think of that is the original vintage 1910 vintage. That is why I think the average lifespan of a house may be approximately 100 years or less. However, since the bulk of housing supply probably has a mean age of 25 years, the vast majority of houses are in good condition and don't need replacing as you mentioned. 0.5% of housing stock may be a better guess, it's not big enough to be a major factor in supply/demand, but it's big enough to be a consideration.
"Completed Not Absorbed" is high. That's what I would call ominous.
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