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The Whitehorse housing investment thesis

Choose your fighter: bear or bull?

Here’s an investment thesis you can debate around the barbeque: The Yukon’s population is forecast to grow by 3,000 people over the next five years, our housing stock won’t keep up, and housing prices will go up even from their already high levels.

So should you dig up that coffee can of gold hidden at the cabin, dump your bitcoin investments, and plough your money into the Whitehorse housing market?

That’s just a thesis for debate, not a recommendation. If I was convinced of it, instead of writing this column I would be building condos somewhere.

Before we get into the debate, let’s look at some facts. I’m going to focus on what Statistics Canada calls the Whitehorse “census agglomeration” because the data shows this is where the fastest growth is happening. In fact, the census says that between 2011 and 2016 the population of the agglomeration I call home grew by 2,197 people while the population of the rest of the Yukon actually went down.

Let’s start with housing demand. Yukon government economic forecasts predict our population will grow by 3,045 between 2017 and 2022. That’s 608 people per year. At our current 2.4 people per household ratio from the 2016 census, that’s 251 new households needing housing each year.

By the way, a family lawyer I know says our housing crunch is partly caused by more people breaking up to live alone or in smaller households. The census data shows a small trend this way. Our average household size was 2.43 in 2016, down from 2.47 in 2011. If this had not gone down, today we would need about 200 fewer “dwelling units,” as statisticians call them.

Now let’s look at housing supply. According to Yukon Bureau of Statistics charts, about 300 new dwelling units were completed in the year ending March 2018. The year previous saw over 400 completed.

As for building permits, 2017 and 2016 both saw over 1,400 residential building permits issued with a value of just less than $50 million. Keep in mind that these building permits include new homes and also renovations. Building permit values dipped about 25 per cent in 2015, but were also just shy of $50 million in value in 2014.

Investors will also note that the mix of housing in Whitehorse changed from 2011 to 2016. The total number of private dwellings went up 10 per cent, but the number of single detached homes only three per cent. While a majority of the capital city’s residents still live in single detached homes, row houses and apartments now make up a quarter of the housing stock. Movable homes and semi-detached make up less than 10 per cent each.

At first glance, the numbers above suggest supply and demand are well matched. The forecast suggests we’ll need about 250 new dwelling units per year, and our contractors can build at that pace. In fact, if they keep building at a rate of 300-400 units there could be a supply overhang.

What would you need to believe in order for real estate to be a great investment over the next five years? Population could surge faster than forecast, particularly in the near term. The economy already has low unemployment, and the territorial government is running a sizeable cash deficit plus several mining projects are ramping up.

On the supply side, our governments might fail to supply enough lots for contractors to build on. If you look out your Air North window as you land, it’s odd to think we could have a lot shortage here. But if you don’t remember the previous lot shortages, try googling “Yukon News” and “lot shortage.”

On the other hand, what would you need to believe in order for housing to be a terrible investment?

If cash from Ottawa flattens out in future years, population growth will stall. There have already been some minor changes to the transfer payment formula, not necessarily in the Yukon’s interest, and there could be more as the feds run sustained deficits. We could see fewer of those special national programs that dole out extra cash on top of the usual formula. If transfer payment growth converges with inflation, then each year’s increase needs to be spent on the cost-of-living increases for existing staff instead of hiring new civil servants from Outside.

Or there could be downward pressure on prices. Contractors could get ahead of their skis and build too many homes. Or rising interest rates could bite into the purchasing power of home buyers.

Whichever scenario you believe, you also have to think about what happens if you’re wrong. For housing bears who think prices are headed down, if the opposite happens they could miss a major investing opportunity. This isn’t a big worry for people who already own a home and invested their retirement savings conservatively in something other than real estate. But for first-time buyers and people who sold their principal residence to rent, it could be painful.

Housing bulls who believe the market can only go up could end up paying monthly bills on an asset worth less than its mortgage. That’s an extreme case. Unlike prices for most commodities, housing prices are surprisingly resistant to downward corrections. And the high costs of new lots and home construction makes it less likely cheap new supply will undercut you.

Of course, this discussion is looking at the Whitehorse housing market overall. Underneath the averages there may be very different stories. It could easily turn out to be the case that aging family homes in Riverdale underperform single-level condos for our greying population or fancy downtown condos for professional couples.

As for me, I’m confident enough to be readying a few columns on a housing shortage this summer. But whether I think you should dig up your coffee can of gold from its undisclosed location to buy real estate, I haven’t decided yet.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.