Depressed housing market?
Stagnant population in Atlantic Canada affecting home sales in Newfoundland and Labrador
The housing industry is an important part of the economy, but in Atlantic Canada, it trails behind the rest of the country because population growth has lagged — or, in some cases, stagnated — compared to the rest of the country.
Without real population growth, the demand for new housing is severely restricted.
In Canada, nearly 200,000 new housing units (both single and multi-family) were built in each of the last two years, according to the Canada Mortgage and Housing Corp. (CMHC). A little more than 600 units were built in Newfoundland and Labrador, the lowest number in the last decade. A good part of this continued growth in the housing market can be attributed to increasing levels of new Canadians.
The housing market in Canada has been supported by population growth, averaging one per cent for much of the last 50 years. Since the last census, the growth rate has increased as Canada significantly increased immigration to address impending labour force needs as baby boomers retired. The country expects to attract a million new immigrants between 2019 and 2021, and more than 300,000 new immigrants came to Canada in the last year alone, putting demand for new housing even higher. Population growth is increasingly driven by immigration, as birth rates in Canada have fallen below population replacement rates.
About 68 per cent of households in Canada (77 per cent in Newfoundland and Labrador) own their own homes. Atlantic Canada has the highest percentage of single detached housing ownership in the country (73 per cent in Newfoundland versus 54 per cent in Canada). For a high percentage of those homeowners (especially those without a private pension), much of their personal net worth is tied up in the value of those homes. Unfortunately, for most homeowners in the region, the value of their homes has not kept pace with other parts of the country or even with inflation over many decades.
This helps explain the relative affordability of housing in the region compared to elsewhere in Canada. While affordability is often touted as a key advantage of living in Atlantic Canada, it is equally a disadvantage for those counting on the equity in their homes for retirement. The value of homes is based on simple supply-and-demand market conditions. Put simply, the largely stagnant population growth in most of the region has caused many communities in the region to have too much housing supply and too little demand. In a buyers’ market, this leads to lower housing prices.
The best housing markets in Atlantic Canada currently are in Charlottetown, Halifax and Moncton (especially Dieppe) where population growth is at the highest levels in the region.
Another challenge relates to an aging population. Housing needs change with age, especially after children leave the household. There is a tendency to downsize, especially as individuals approach retirement, to better manage cost-of-living.
Unfortunately, there are not enough potential buyers to replace baby boomer homeowners as they downsize or depart the housing market, as seen in many smaller urban and rural communities that have a combination of a declining population base and an aging population.
In Newfoundland, 41 per cent live in rural communities (with populations of less than 5,000), more than twice the national average (19 per cent), which only compounds the problem. There is literally no market for their homes as a result of declining population, especially for larger homes.
Prince Edward Island is experiencing a housing boom as a result of leading the region (and the country overall this past year) in population growth. In fact, there are more housing units now being built on P.E.I. than in Newfoundland and Labrador, a province with more than three times the population, but with a population in decline.
Unfortunately, in Newfoundland there has been little growth in the population since the 2016 census (up only 0.4 per cent in the last four years).
Even the province’s best housing market, the Avalon Peninsula, has felt the impact of virtually no population growth in terms of housing demand and declining housing prices. Housing demand in other parts of the province is mixed and based on population growth. Urban centres such as Corner Brook, Stephenville, Port aux Basques, Marystown and Labrador City all suffered population declines in the most recent census.
Urban communities in Newfoundland and Labrador (economic hubs) need to have their own population growth strategies to help sustain and expand local economies, including strategies to attract and retain newcomers to their communities, especially immigrants. Newcomers are the drivers for new housing and economic prosperity.
For those with properties outside the areas with population growth, expect the value of those properties to remain low (maybe even below replacement value) or more likely decline as population decline continues. Also, be prepared to wait longer to sell — in the end, the housing market is all about supply and demand.
Don Mills is the former owner of Corporate Research Associates and a recognized expert in data trends in Atlantic Canada. After selling his business recently, he remains passionate about data — and learning the guitar. He can be contacted at dmillshfx@gmail.com or on Twitter at @donmillshfx