Demographics and housing demand

The past decade was certainly a golden one for Alberta’s housing market. Low interest rates, easier credit, strong net migration and impressive employment growth all worked together to fuel the market. Expecting a second golden decade so close after the first is foolhardy though, as there are some important headwinds coming.

The ability of one generation of homeowners to realize on their equity and move up the property ladder is dependent on a steady stream of new entrants into the housing market. Often people think of migration as the key source of new blood, which it is, but domestic demographic dynamics play an equally important role.

Even if we assume all of the other factors influencing housing demand stay healthy, a big drag on housing starts is going to be the lower number of individuals aged 25-34 in the province – individuals who are the most likely to form new households. The golden decade saw the children of the baby boomers entering that stage, but the next generation will be substantially smaller.

To stabilize housing starts at 30,000/annually Alberta will need to draw around 45,000 migrants annually. This is certainly possible with strong energy investment, but it requires even higher migration levels than we saw even during the golden decade.

The point here wasn’t to insinuate a precipitous drop in housing prices, as that’s unlikely, but a drop in construction activity would bring its own issues in a province that’s grown used to a relatively residential construction sector (aside from the past couple years). That said, there’s no reason to assume the worst, just be aware of the potential challenges.

ATB Financial – this column is distributed by Troy Media –