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Presentation to Municipal Government Board and Assessment Review Boards Bob Ascah Ph.D. Fellow, Institute for Public Economics Edmonton 14 September 2016 AGENDA ALBERTAS BOOM AND BUST ECONOMY KEY DRIVERS OF COMMERCIAL AND

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Presentation to Municipal Government Board and Assessment Review Boards

Bob Ascah Ph.D. Fellow, Institute for Public Economics Edmonton 14 September 2016

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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

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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

Albertarecessionwatch.com

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Bust #1

Albertarecessionwatch.com

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ALBERTA’S BOOM AND BUST ECONOMY

  • 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

Albertarecessionwatch.com

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ALBERTA’S BOOM AND BUST ECONOMY

  • 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)

Albertarecessionwatch.com

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ECONOMIC DATA Oil Prices- Real 1946-2016

Albertarecessionwatch.com

Source: Macrotrends, http://www.macrotrends.net/136 9/crude-oil-price-history-chart

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ECONOMIC DATA- GDP Major Sector Breakdown

Albertarecessionwatch.com

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

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ECONOMIC DATA Gross Fixed Capital Formation

Albertarecessionwatch.com

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: general governments and non-profit institutions serving 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

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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

Albertarecessionwatch.com

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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

Albertarecessionwatch.com

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ECONOMIC DATA- Interest Rates

Albertarecessionwatch.com

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

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ECONOMIC DATA- Interest Rates

Albertarecessionwatch.com

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

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ECONOMIC DATA Capital Investment

Albertarecessionwatch.com

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ECONOMIC DATA Personal Disposable Income

Albertarecessionwatch.com

5000 10000 15000 20000 25000 30000 35000 1926 1929 1932 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

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

  • n long-run provincial and territorial

economic performance

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ECONOMIC DATA Average Weekly Earnings

Albertarecessionwatch.com

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 overtime for all employees (dollars)

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ECONOMIC DATA Population

Albertarecessionwatch.com

500000 1000000 1500000 2000000 2500000 3000000 3500000 4000000 4500000 Q3 1951 Q4 1953 Q1 1956 Q2 1958 Q3 1960 Q4 1962 Q1 1965 Q2 1967 Q3 1969 Q4 1971 Q1 1974 Q2 1976 Q3 1978 Q4 1980 Q1 1983 Q2 1985 Q3 1987 Q4 1989 Q1 1992 Q2 1994 Q3 1996 Q4 1998 Q1 2001 Q2 2003 Q3 2005 Q4 2007 Q1 2010 Q2 2012 Q3 2014

Alberta Population Estimates 1951-2016- Quarterly

Alberta population estimates Linear (Alberta population estimates) Source: Statistics Canada CANSIM Table 051-0005, Estimates of Population

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ECONOMIC DATA Interprovincial Migration

Albertarecessionwatch.com

  • 20000
  • 15000
  • 10000
  • 5000

5000 10000 15000 20000 25000 Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001 Q1 2003 Q3 2004 Q1 2006 Q3 2007 Q1 2009 Q3 2010 Q1 2012 Q3 2013 Q1 2015

Net interprovincial migration- Alberta 1970-2016- Quarterly

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

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ECONOMIC DATA Employment

Albertarecessionwatch.com

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

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ECONOMIC DATA Vacancy Rates

Albertarecessionwatch.com

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-

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ECONOMIC DATA Housing Indices

Albertarecessionwatch.com

20 40 60 80 100 120 140 160 180 200 Mar-1999 Sep-1999 Mar-2000 Sep-2000 Mar-2001 Sep-2001 Mar-2002 Sep-2002 Mar-2003 Sep-2003 Mar-2004 Sep-2004 Mar-2005 Sep-2005 Mar-2006 Sep-2006 Mar-2007 Sep-2007 Mar-2008 Sep-2008 Mar-2009 Sep-2009 Mar-2010 Sep-2010 Mar-2011 Sep-2011 Mar-2012 Sep-2012 Mar-2013 Sep-2013 Mar-2014 Sep-2014 Mar-2015 Sep-2015 Mar-2016 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

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AREAS TO MONITOR

Albertarecessionwatch.com

  • 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
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AREAS TO MONITOR

Albertarecessionwatch.com

  • 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?
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AREAS TO MONITOR

Albertarecessionwatch.com

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

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AREAS TO MONITOR

Albertarecessionwatch.com

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

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SLIDE 26

Albertarecessionwatch.com

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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

Albertarecessionwatch.com

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QUESTIONS?

Albertarecessionwatch.com