By Tom Albrecht | Feb 16, 2019 | Buyers
Do you live in camp? Are you wondering how long that might last? Or, do you own a home and have been concerned about its value over the last few years? Or, are you tired of renting and are thinking of buying a place of your own?
If any of these are at least somewhat true (or if you are just interested in the housing market), this blog is for YOU.
One of the main stated goals of the proposed moratorium is to get the economy going by pumping up home prices. For example, here’s a quote from Mayor Scott from January 15th in the Fort McMurray Today:
“The more commuters we get to permanently relocate to the region, it’ll strengthen house prices, it’ll strengthen businesses and it’ll strengthen the entire region,” said Scott. “As need grows, there might need to be more houses built, and that’s a great and aspiring goal we should hope to reach.” Via fortmcmurraytoday.comSo let’s take a little boo at the subject!
There are some important exceptions, and no moratorium is currently in place. To gain a full understanding of the process ahead, it is recommended to read this Mix103.7fm article.
Public opinion is divided, and industry is in opposition (it could drive up business costs), but the purpose of this article is not to comment on the sensibility of such a policy, but instead to think through some of the possible outcomes for our local real estate market.
To summarize the situation: There is a possibility/probability that camp usage is going to be restricted in the coming years. Any curtailment is unlikely to come into force before fall 2019 because there is a legislative procedure. In addition to the timing being unknown, the speed at which camp usage might be limited is a huge unknown and the number of people affected is dependent on decisions yet to be made (or made public).
World 2: A Compromise Solution. Council votes to negotiate with FIFO employers with the threat to not renew leases in hand. Plans are drawn up with individual employers to transition parts (or all) of their workforces out of camps over an extended period (say, a decade) according to the larger development goals of the municipality.
World 3: No Change from Today. Public support for a ban doesn’t materialize, council changes its stance, and/or industry mounts a successful legal challenge. No change occurs to camp usage.
Anyone reading this thinking “what are real estate prices going to do?” should recognize that we really have no clue which of the three scenarios (or any in between) is likely to transpire.
That’s a huge take-home point.
We. Really. Don’t. Know.
a) Would demand be impacted positively? b) How sensitive is the market to changes in sales? c) What type of properties would be most affected? d) Have we noticed an effect, yet?
Okay, here we go...
But I don’t think it’s predicting the future[efn_note]We're not permitted to attempt to predict the future. It's also a good time to mention that the interpretations of any MLS® data used are my own and don’t reflect the opinions of the Fort McMurray Real Estate Board or its members. There is plenty of my opinion here, but the data we are using is super accurate.[/efn_note] to say that we do know the direction which demand would be impacted (at least in the short-run): More local housing would be demanded (all other things being held equal) if camp usage was curtailed. The reason is that camp accommodation and in-town accommodation are substitutes.
[caption id="attachment_29902" align="aligncenter" width="839"] Chart 1: Fort McMurray MLS®️ Sales (2009-2019)[/caption]
I won’t bore you with the corresponding chart of inventory (if that's what you're after, though, our recent blog has lots of awesome charts). I will say, though, that the huge correction which our local housing market has experienced (25% or so decline in prices) was not caused by a glut of listings for sale. At least, in my opinion, it was caused entirely by the volume of sales falling from around 1,700 units a year to about 1,000 a year which is evidenced in chart 1 above.
That is, our recent house price change was caused by only 2,800 sales not happening in the period 2015 to 2018. Numbers of workers larger than 2,800 are being referenced by policymakers.
It’s worth pointing out that home prices are deeply connected to rental rates, as real estate investors invest when returns pass certain thresholds (rents are a huge factor in the calculation). Investors can be early (speculators) or late.
Then, of course, if home prices (and living costs) were to rise, you might also see families choosing not to live in Fort McMurray (as in the past) as they are crowded out by former FIFO workers.
It’s important to look at the market as a whole, however. For example, curtailing camp development is positive for demand, but we’ll be keeping an eye on other factors, too; factors from the past and new ones that we don’t even know about yet.
"A moratorium on camps is essentially a moratorium on oil sands development and really doesn't encourage collaboration between industry and the RMWB," Karim Zariffa, executive director the Oil Sands Community Alliance, said Tuesday on CBC Radio's Edmonton AM.It really is just a thought experiment, but let’s try to think of some consequences that might be overlooked and add them to the list of Oil Sands Community Alliance (OSCA) concerns:
"Any moratorium is a roadblock and our sector is already grappling and competing for capital," he said. "We feel it's not a good move."
More than 27,000 workers in 61 camps will be affected by the moratorium, which does not apply to camps inaccessible by road or camps needed for construction and maintenance. Read more...
If local policymakers want to affect home values in the region, they have identified a powerful tool that could let them do that (in the short-run).
How much, how soon and how rapidly local housing demand might be impacted will depend greatly on the details of whatever policy path is chosen.
The parts of the market that would be mostly affected depends on the choices that former FIFO workers would make.
There is more uncertainty than ever.
We’ll be observing and learning over the coming months so that we can best inform our clients of what the heck (if anything) is going on.
If you want to hire us, we’re looking forward to serving you!