Has Saskatoon Overbuilt?

Ben at the Economic Analyst has a great post "Revisiting the "population growth drives house prices" argument: Still leaking like a sieve".  I highly recommend taking a look at his post.

I found a couple of interesting stats in that post in regards to Saskatoon population and housing start growth over the last decade. As we know that in Canada the average household size in 2006 was around 2.5 persons per house.

Here are how household sizes break down for the Prairie City CMA's in 2006 from Stats Can

Household size, by census metropolitan area (2006 Census) (Winnipeg, Regina, Saskatoon, Calgary, Edmonton)

	2006
	Winnipeg (Man.)	Regina (Sask.)	Saskatoon (Sask.)	Calgary (Alta.)	Edmonton (Alta.)
	number
Total households1	281,760	80,320	95,275	415,605	405,270
1-person households	85,020	23,605	27,480	103,545	107,130
2-person households	90,310	27,265	32,520	136,270	134,670
3-person households	42,740	12,275	14,045	69,245	64,275
4-person households	41,045	11,370	13,450	67,860	62,300
5-person households	15,870	4,140	5,600	26,225	25,115
6-or-more person households	6,770	1,660	2,170	12,455	11,780
Total persons in households	682,065	191,885	230,300	1,067,665	1,021,000
Average number of persons in household	2.4	2.4	2.4	2.6	2.5

Here is the population and housing start growth for Saskatoon in the last decade from Ben

Over the last decade, housing starts have clearly satisfied household formation if household formation continued at the average of 2.5.  Actually it looks like there are too many housing starts for the growth in population over the last decade.  Some may say that 2008,09 and 10 did not have enough housing starts for population growth.  But that did not lead to house price growth as seen here.

The big run up in house prices was from 2006 to 2008, but population growth did not lead to higher prices.  It was always easy and cheap debt and the emotions of greed and fear for the launch of house prices in 2006 to 2008.   If population growth and under supply of homes leads to home prices, there should have been a big run up in house prices in the last three years.  At best, prices are about even in the last three years.  But we also know with a bigger run up in population growth in the mid 80's compared to now, inflation adjusted house prices actually dropped!

Before we get side tracked too much, we need to answer the question, has Saskatoon overbuilt?
It would appear by looking at housing starts and population growth over the last decade it would appear that Saskatoon has indeed overbuilt.  But there are a few variables that need to be addressed that do not have any answers right now.
1.  What type of household formation has Saskatoon experienced in the last half decade?  If Saskatoon has experienced a lowering of the household size, that may explain part of it.  During the global housing boom, household sizes across the globe ended up being lowered.  But in some places that have busted, household sizes have reversed and have started to get bigger for a number of reasons.

2.  Was? Is, Saskatoon's population under estimated?  How many illegal suites are in Saskatoon?  How many people go unaccounted for when there is a census?

3.  The funny thing is that many real estate associated associations are saying that there is a housing crunch, a housing shortage, blah blah.  And they are right, as long as demand is continually juiced with real estate fever, cheap credit, lax lending " for people that just need a break" and those free down payment mortgages. There is the possibility, Saskatoon has had too many 1 person households getting mortgages.  How many parents have bought houses for their child(ren)?

Any more questions that need answering?
  
To think that Saskatoon is the only city with the possibility of overbuilding, this is what supply/demand looks like over the last 30 years in Canada.

In many of the countries that had their housing bubbles burst, many real estate associations were complaining of housing shortages right at the peak.  Many of these koolaid drinkers said their was a housing shortage in the US in 2004 and 2005. Now what? And just as recently as last year in Australia, there were calls of housing shortages.  In 2011, the Australia market has done a complete reversal with many places experiencing oversupply and a housing bust now firmly in full view.

As long as the bubble keeps chugging along, it will not seem like any Canadian city has overbuilt, but once the bubble pops, overbuilt cities will pop up all over the country.  Saskatoon is not immune.

Other links worth looking at:
Has Canada Overbuilt?
TD Bank 2009: Overbuilt and Overpriced, Canadian Real Estate Returns to Fundamentals