Presentation to Municipal Government Board and Assessment ... · Presentation to Municipal...

Presentation to Municipal Government Board and Assessment Review Boards

Bob Ascah Ph.D.

Fellow, Institute for Public Economics

Edmonton 14 September 2016

AGENDA

• ALBERTA’S BOOM AND BUST ECONOMY

• KEY DRIVERS OF COMMERCIAL AND RESIDENTIAL REAL ESTATE VALUES

• ECONOMIC DATA

• AREAS TO MONITOR

• ALBERTA’S FUTURE ECONOMIC PROSPECTS

Albertarecessionwatch.com

ALBERTA’S BOOM AND BUST ECONOMY

• “Ancient history”- furs, buffalo, grain, oil & gas

• Boom #1- Grain trade booms 1890-1930

• Great Depression- Bust #1- 1930-1940


Bust #1



• Boom #2- 1947-1981

• Leduc, Road building, and Pipelines

• Lord Keynes comes to Alberta-public investment- universities, schools, and hospitals

• Bust #2- 1981-1995 the consequences of Keynesian, OPEC, and overbuilding



• Boom #3- 1995-2014- Klein, McLellan and Newell- oilsands, markets, and over-investment

• Bust #3- 2014- the consequences of neo-liberalism, over-investment, and Lord Keynes (again)


ECONOMIC DATA Oil Prices- Real 1946-2016


Source: Macrotrends, http://www.macrotrends.net/1369/crude-oil-price-history-chart

ECONOMIC DATA- GDP Major Sector Breakdown


0

5

10

15

20

25

30

35

2011 2012 2013 2014 2015

Energy sector

Agriculture, forestry. Hunting and fishing

Construction

Retail Trade

Real Estate, Rental and Leasing

Public administration

Shares of GDP by Sector

Source: Statistics Canada, Table 379-0028, GDP at basic prices, NAICS classification

ECONOMIC DATA Gross Fixed Capital Formation


0

10000

20000

30000

40000

50000

60000

70000

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Consumption of fixed capital: corporations

Consumption of fixed capital: generalgovernments and non-profit institutionsserving households

Fixed Capital Formation: Corporations and Governments, NGOs

Alberta- 1981-2014

Source: Statistics Canada, CANSIM Table 384-0037- Gross Domestic Product, income based, provincial and territorial

KEY DRIVERS OF COMMERCIAL AND RESIDENTIAL REAL ESTATE VALUES

• Commercial- value determination

• Interest rates/cap rate

• Provincial GDP

• Interprovincial and international migration

• Disposable income

• Construction price inflation

• Leasing and vacancy rates

• Employment and Unemployment rates


KEY DRIVERS OF COMMERCIAL AND RESIDENTIAL REAL ESTATE VALUES

• Residential- value determination

• Interest rates/cap rate

• Provincial GDP

• Interprovincial and international migration

• Disposable income

• Construction price inflation

• Employment and Unemployment rates


ECONOMIC DATA- Interest Rates


0

5

10

15

20

25

Jan

-34

May

-36

Sep

-38

Jan

-41

May

-43

Sep

-45

Jan

-48

May

-50

Sep

-52

Jan

-55

May

-57

Sep

-59

Jan

-62

May

-64

Sep

-66

Jan

-69

May

-71

Sep

-73

Jan

-76

May

-78

Sep

-80

Jan

-83

May

-85

Sep

-87

Jan

-90

May

-92

Sep

-94

Jan

-97

May

-99

Sep

-01

Jan

-04

May

-06

Sep

-08

Jan

-11

May

-13

Sep

-15

Canadian Bank Rate 1935-2016 Monthly

Bank rate

Source: CANSIM Table 176-0043 Financial

ECONOMIC DATA- Interest Rates


0

2

4

6

8

10

12

14

16

18

Jun

-82

Oct

-83

Feb

-85

Jun

-86

Oct

-87

Feb

-89

Jun

-90

Oct

-91

Feb

-93

Jun

-94

Oct

-95

Feb

-97

Jun

-98

Oct

-99

Feb

-01

Jun

-02

Oct

-03

Feb

-05

Jun

-06

Oct

-07

Feb

-09

Jun

-10

Oct

-11

Feb

-13

Jun

-14

Oct

-15

10 year Government of Canada bond yield

10 year Government of Canada bond yield

1982-2016

Source: Table 176-0043

ECONOMIC DATA Capital Investment


ECONOMIC DATA Personal Disposable Income


0

5000

10000

15000

20000

25000

30000

35000

19

26

19

29

19

32

19

35

19

38

19

41

19

44

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

20

13

Real household disposable income per capita (dollars (2002)) Alberta: 1926-2013- Annual

Real household disposable income per capita(dollars (2002)) (5)

Source: CANSIM Table 384-5000- Data on long-run provincial and territorial economic performance

ECONOMIC DATA Average Weekly Earnings


0

200

400

600

800

1000

1200

1400

Jan

-01

Sep

-01

May

-02

Jan

-03

Sep

-03

May

-04

Jan

-05

Sep

-05

May

-06

Jan

-07

Sep

-07

May

-08

Jan

-09

Sep

-09

May

-10

Jan

-11

Sep

-11

May

-12

Jan

-13

Sep

-13

May

-14

Jan

-15

Sep

-15

May

-16

Average weekly earnings including overtime for all employees (dollars)

Alberta 2001-2016 (Monthly)

Average weekly earnings including overtimefor all employees (dollars)

ECONOMIC DATA Population


0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

Q3

19

51

Q4

19

53

Q1

19

56

Q2

19

58

Q3

19

60

Q4

19

62

Q1

19

65

Q2

19

67

Q3

19

69

Q4

19

71

Q1

19

74

Q2

19

76

Q3

19

78

Q4

19

80

Q1

19

83

Q2

19

85

Q3

19

87

Q4

19

89

Q1

19

92

Q2

19

94

Q3

19

96

Q4

19

98

Q1

20

01

Q2

20

03

Q3

20

05

Q4

20

07

Q1

20

10

Q2

20

12

Q3

20

14

Alberta Population Estimates 1951-2016- Quarterly

Alberta population estimates

Linear (Alberta population estimates)

Source: Statistics Canada CANSIM Table 051-0005, Estimates of Population

ECONOMIC DATA Interprovincial Migration


-20000

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

Q1

19

70

Q3

19

71

Q1

19

73

Q3

19

74

Q1

19

76

Q3

19

77

Q1

19

79

Q3

19

80

Q1

19

82

Q3

19

83

Q1

19

85

Q3

19

86

Q1

19

88

Q3

19

89

Q1

19

91

Q3

19

92

Q1

19

94

Q3

19

95

Q1

19

97

Q3

19

98

Q1

20

00

Q3

20

01

Q1

20

03

Q3

20

04

Q1

20

06

Q3

20

07

Q1

20

09

Q3

20

10

Q1

20

12

Q3

20

13

Q1

20

15

Net interprovincial migration- Alberta 1970-2016- Quarterly

Net interprovincial migration

Source: Statistics Canada, CANSIM Table 051-0017, Interprovincial migrants - Canada, provinces and territories

ECONOMIC DATA Employment


0

500000

1000000

1500000

2000000

2500000

Jan

-01

Sep

-01

May

-02

Jan

-03

Sep

-03

May

-04

Jan

-05

Sep

-05

May

-06

Jan

-07

Sep

-07

May

-08

Jan

-09

Sep

-09

May

-10

Jan

-11

Sep

-11

May

-12

Jan

-13

Sep

-13

May

-14

Jan

-15

Sep

-15

May

-16

Employment for all employees (persons) Alberta 2001- 2016 Monthly

Employment for all employees (persons) (13)

Source: Statistics Canada, CANSIM Table 281-0049- Survey of Employment, Payrolls and Hours

ECONOMIC DATA Vacancy Rates


0.0

2.0

4.0

6.0

8.0

10.0

12.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Alberta

Calgary

Edmonton

Vacancy Rates for Rental Accommodation Alberta, Calgary and Edmonton

1992-2015- Annual

Source: CMHC , Canadian Housing Observer, https://www.cmhc-

ECONOMIC DATA Housing Indices


0

20

40

60

80

100

120

140

160

180

200

Mar

-19

99

Sep

-19

99

Mar

-20

00

Sep

-20

00

Mar

-20

01

Sep

-20

01

Mar

-20

02

Sep

-20

02

Mar

-20

03

Sep

-20

03

Mar

-20

04

Sep

-20

04

Mar

-20

05

Sep

-20

05

Mar

-20

06

Sep

-20

06

Mar

-20

07

Sep

-20

07

Mar

-20

08

Sep

-20

08

Mar

-20

09

Sep

-20

09

Mar

-20

10

Sep

-20

10

Mar

-20

11

Sep

-20

11

Mar

-20

12

Sep

-20

12

Mar

-20

13

Sep

-20

13

Mar

-20

14

Sep

-20

14

Mar

-20

15

Sep

-20

15

Mar

-20

16

Calgary Housing Price Index

Edmonton Housing Price Index

Source: Teranet and National Bank of Canada,

Calgary and Edmonton - Housing Indices

Teranet and National Bank March 1999-July 2016

AREAS TO MONITOR


• Bankruptcy statistics- personal and corporate

• Major receiverships- particularly home builders- developers, REITS

• Rising property tax arrears

• Inter-provincial migration

• Fiscal stress at provincial and municipal level

• New motor vehicle sales- vehicle registrations

• Rising stock of unsold homes and condos

AREAS TO MONITOR


• Falling real estate values

• Rise in judicial foreclosures

• Vacancy rates- office, retail, residential

• Delinquencies, provision for credit losses, loan write-offs at SERVUS, CWB, ATB and Canadian banks re. Alberta and oil and gas

• Rising interest rates?

AREAS TO MONITOR


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Jan

-70

Jul-

71

Jan

-73

Jul-

74

Jan

-76

Jul-

77

Jan

-79

Jul-

80

Jan

-82

Jul-

83

Jan

-85

Jul-

86

Jan

-88

Jul-

89

Jan

-91

Jul-

92

Jan

-94

Jul-

95

Jan

-97

Jul-

98

Jan

-00

Jul-

01

Jan

-03

Jul-

04

Jan

-06

Jul-

07

Jan

-09

Jul-

10

Jan

-12

Jul-

13

Jan

-15

Employment Insurance Claims -Alberta 1970-2016

E.I. Claims -Alberta

Source; CANSIM Table 276-0004 Initial and Renewal

AREAS TO MONITOR


0

2

4

6

8

10

12

14

Jan

-76

May

-77

Sep

-78

Jan

-80

May

-81

Sep

-82

Jan

-84

May

-85

Sep

-86

Jan

-88

May

-89

Sep

-90

Jan

-92

May

-93

Sep

-94

Jan

-96

May

-97

Sep

-98

Jan

-00

May

-01

Sep

-02

Jan

-04

May

-05

Sep

-06

Jan

-08

May

-09

Sep

-10

Jan

-12

May

-13

Sep

-14

Jan

-16

Official Unemployment Rate-Alberta 1976- August 2016

Unemployment Rate-Alberta

Source: CANSIM Table 282-0085- Labur Force Survey- Unemployment Rate- 15 years


ALBERTA’S FUTURE ECONOMIC PROSPECTS

• Remains highly dependent on oil and natural gas prices

• Climate change, economics of oil sands development, pipeline development (or lack thereof) will determine economic growth over next 5 years

• Calgary and Edmonton commercial real estate market will continue to weaken

• Residential property values will decline in Calgary and Edmonton

• Too early to tell about rebuilding in Fort McMurray

• Bottom line- dismal outlook


QUESTIONS?


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