experts: real estate column Saturday, November 09, 2002

Demographics? They don't mean a thing

Real estate investors needn't worry about demographics - there will always be more than enough people looking to buy properties

By Ozzie Jurock

This article appeared in The Vancouver Sun on November 9, 2002

During the last few years, the demographers have taken over. Everything is predictable based on the "demographics". Everything? Says David Foot, Canada's best selling demographer in Boom, Bust and Echo 2000: "Two thirds of everything can be explained by demographics." O.k. two thirds of everything. But can it really? While we at JREI make ample use of numbers and while population numbers ARE important, we don't believe that everything is predictable through demographics.

Other noted best-selling demographers argue that based on the "baby boomer" getting older there will not be enough buyers out there for our homes when we want to sell in 10 or so years. Real Estate meltdown they say. Others argue that because of this and that age segment, such and such outcome is predictable. And so, we as real estate investors are left to wonder ... are these guys and gals right? Does it really make a difference that there are fewer 25-44 year olds in the next ten years in Canada (presuming of course that this group buys most of our houses) or that the population overall is aging?

And if it makes a difference, what exactly is the difference? Actually wouldn't it be wonderful if all we needed to do to make our real estate investment decisions was to know how many different age groups there will be in ten years? Bad demographics in Vancouver in 10 years? Move to Toronto in five. Bad demographics in Toronto in 5 years? Move to Calgary.

No longer to worry about lifestyles and life cycles, incomes, lenders criteria, interest rates, consumer confidence, property taxes, replacement and production costs, location, transportation and of course LOCAL consumer confidence. Don't worry, be happy or not.

Yet no one, NO ONE can predict all of these factors which affect real estate markets with confidence, because some of these factors are just not predictable. But all of them play a role in determining your investment in real estate markets.

The criteria of an investment has to be measured as well as its potential based on the number of people in the market place. Dr. Foot argues, for instance, that richer, older people will travel more. Right. They like nice places like Vancouver. Right. Thus more hotel rooms are needed in Vancouver. Right. But then he argues that investment in hotel rooms for that reason is a good thing. Wrong. Or at least not all hotel rooms. You know how I feel about these kinds of investments.

And here is the rub. Demographics give us a framework, a reference and one that we could and should study, but for the average investor in real estate it is the individual investment, the specific product, bought at a specific time and specific place that determines investment value. Hotel unit's investment success depends on the structure of the deal, the contract negotiated by the developer with the Hotel company and a myriad of other things ... not because the market demands more rooms. Does the fact that we can predict that there will be a "more prominent teen culture" in ten years mean that you can predict what they will buy? Is the Newfoundland baby boomer at age 50 exactly the same as some golden boomer in BC? How do you explain/predict country music? The rise of Internet use? Do all age groups separately and collectively buy/like/act the same?

Clearly age is a predictor of behaviour but only in an obvious sense. Golden oldies don't buy Barbie dolls; teenagers don't buy golf clubs. Don't build 4-storey walk up units in a retirement community; don't build 300 sq. foot bungalows in a suburb full of children.

Then of course the aging boomers do not boom and age everywhere at the same time. Vancouver's demographer Prof. David Baxter of the Urban Futures Institute pointed out a while ago: "While it is true that here will be some 306,000 fewer people in the age group of 25-44 in ten years in Canada, there will actually be 100,000 more such aged people in BC. In Vancouver alone that age group will increase by 75,000." Relevant to Canada yes, to BC not.

More importantly, while they represent the prime home buying group, there are other groups still wanting homes. Baxter argued, that in ten years in Canada we will have 1.2 million more 45 to 54 year olds, 1.26 million more 65 to 74 year olds ... in fact all of Canada will have some 3,168,000 more people in other age groups than the decline in the 25-44 year population. Based on that Baxter forecasts Vancouver alone will grow by 450,000 people, BC by more than 750,000.

All of these people need somewhere to live. In Vancouver alone there will be 200,000 more units needed, BC needs 360,000 more and all of Canada will need 1,750,000 more housing units to accommodate the increase. Most of these units will be built and used not along the line of age, but rather place, lifestyle. Vancouver, Toronto, Calgary, Edmonton not Porcupine Plains.

As we collectively also live longer, we are likely to stay longer in our homes. Jurock Real Estate Insider (JREI) statistics show that older people would rather stay in their existing homes than move into a care facility. Even Dr. Foot argues that some 80% will rather stay than switch.

Some Eastern Canadian demographers forecasted in 1990 a decline in the use of minivans (its use is increasing), the decline of Superstores (?), Metro Toronto would stop growing by the end of the decade (it is growing).

Based on demographic compositions they also argued at that time to sell real estate in the big cities (Toronto, Calgary, and Edmonton) and to buy rural real estate predicting prices to fall in the city and rural prices to rise proportionately. In fact the local market conditions always won out. Toronto, Calgary and Edmonton went up, Vancouver went down and as a province's economy performed overall and values in its big cities went down in price so did the out of town same proportion.

So for us that invest in real estate, in prime real estate, and selected out-of town markets: Don't worry be happy. No one can forecast the future with certainty. No one can predict all the factors governing housing prices ... even if the past has been a pretty good indicator. You were always better off owning your home than renting.

Real Estate markets like the stock markets will always offer significant opportunities and challenges. They always have and they always will. As Baxter argues and JREI agrees: As long as people need houses to live in and as long as population is increasing, housing occupancy demand (the number of dwellings needed to accommodate the population) will increase. Supply will not exceed demand. There will be more than enough people to occupy the Baby Boomer's housing.




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