Key factors to consider in the analysis of local housing markets

President , Bullpen Consulting
  • Oct. 30, 2014

Ben MyersWhen I started at Fortress Real Developments in 2013, CEO Jawad Rathore and I sat down to discuss the company’s risk-mitigation strategies, and one of the major initiatives was geographic diversification.

The problem that can inevitably arise from such a plan is that we are Toronto-based, we believe we have expert knowledge of the planning and financing environment in the metropolitan area here, as well as a deep understanding of the market dynamics and builder/developer competency levels.

So in reducing your risk by locational diversity, are you then offsetting that risk reduction by operating in a market that you have less expertise in?

So I’ve been tasked with getting a better understanding of the housing market in each of the major metropolitan areas in Canada. The first three things I always look at when evaluating any housing market whether on a national, metropolitan, municipal or neighbourhood level is CMHC starts and completions data, and Statistics Canada data on changes in employment and population. I wanted to determine if there is any major differences in the relationships between these data sets over the long term.

Five Census Metropolitan Areas

I looked at five Census Metropolitan Areas (CMAs) that we are active in, Calgary, Edmonton, Winnipeg, Toronto and Ottawa, and determined that on average over the past 10 years, every net new job created results in the need for approximately 0.68 new homes on average for these combined CMAs – this is based off the 10-year relationship between employment growth and housing starts.

Population growth is less influential than employment growth, a net new resident results in the need for about 0.41 new housing units on average for the five CMAs.

In Winnipeg, the relationships are higher, a net new job equals 0.76 new units and a net new resident equals 0.48 new units. There are many potential reasons for this, perhaps there are less new second home purchases in Winnipeg, perhaps less people are living with roommates, or perhaps less investor activity which can overinflate demand?

It’s good to know that when the economic data in Winnipeg is good, it’s directly translating into more demand for new homes. In Ottawa the relationships is the lowest for starts/jobs at 0.57 and second lowest to Calgary for starts/population at 0.38. My hypothesis is that Ottawa has a lot of government contract workers that don’t intend to stay long term and choose not to buy, or a second idea would be that Ottawa developers are conservative and don’t overbuild when economic data is rosy.

Look at housing starts, employment, population forecasts

With these longer-term relationships in mind, we can look at housing starts, employment and population forecasts for 2014 and 2015, to ascertain if the market can accommodate more supply, or if there is a potential for overbuilding.

Based on forecasts from CMHC and the Altus Group, it appears that the Toronto CMA market in the best shape going into 2015, followed surprisingly by Ottawa (which has seen less than favourable sales and pricing data this year), and Edmonton.  Calgary appears to be building exactly what they need based off this analysis, and Winnipeg may be over shooting.

Taking averages over averages for a metropolitan area is not an exact science, and may have no predictive power, but I’m going to continue to keep an eye on these relationships when evaluating the next Fortress deal.

Fortress Real Developments is a diversified real estate development and investment company that partners with established builders and developers across the country. Fortress sources equity capital for the partnership, in addition to providing value-add services such as market research, structuring of debt, marketing, and other realty services.

Ben Meyers assists in evaluating both the market conditions and projects in which Fortress is active. Follow his blog posts and commentary on the Canadian Housing Market at or follow him on twitter at @BenMyers29

Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with land owners, developers, and lenders to better inform them of the current…

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Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with land owners, developers, and lenders to better inform them of the current…

Read more

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