Tuesday, May 15, 2007

Affordability revisited...

I've a friend working in the engineering industry who recently moved from Australia. He's a sharp guy and has quickly found a job in Edmonton. He is making close to $100k. In Australia, he used to own his own 'little' big place-around 2600 sq ft and he could easily afford that as it cost around AUD$280k or so. He made close to $100k there too, so he effectively paid 2.8 times his gross income.
I sometimes ask him why he moved here. I don't really know why anyone would want to move from sunny beaches and warm weather to Alberta. But, life works upon us in mysterious ways and we can do funny things in life.
So right now he is looking to buy a place. What can he get for $280k in Edmonton? There's quite a lot of stuff available here. Ranging from this one bedroom condo in downtown to this townhouse on the south side.
Oil boom, demands, jobs and all that are all fine. But the fundamental question still remains: Is there a scarcity of any raw materials that go in a house? There is almost a limitless supply of land in Alberta, given our tiny population. There's no scarcity of timber either. The only thing in short supply at the moment is construction labour.
What will happen when this shortage eases? Will our long term prices fall more in line with those of Texas? Will Edmonton and Calgary become as (in) expensive as Houston where average prices are around $200k?

I have another friend that works as an IT recruiter. Last week she said that at least two people declined to move to Edmonton citing higher housing costs. And they were living in Toronto. These are people who make decent wages ($40 to $50/hour) and from a long term perspective should be attracted by Alberta.
The average housing price is now inching towards $400k. That would require at least $100k in annual income for a traditional mortgage with good down payment. Will there be any first time buyers around to buy this stuff?
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