“To effectively use oil, Canada’s only economic hard power, Carney needs to get not just one, but two pipelines built,” said Adam Waterous, chief executive of Calgary’s Waterous Energy Fund, a major oil sands investor.
It's hard to imagine a more strategically important investment for Canada. Right now, virtually all of Canada's oil exports go to the US. That gives us zero leverage. We are price takers! To correct this, we need to diversify our customer base. And the only way we do that is by building pipelines to our coastlines and then selling to the rest of the world.
But beyond shoring up our economy, I'd argue that this is also the way we accelerate decarbonization. Here's the plan: We get rich, and then reinvest the profits into renewable energy, the world's largest sovereign wealth fund, and critical nation-building infrastructure like housing, transport, and education.
Oil and gas profits won't last forever. This is about building for that future.
Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:
Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.
“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.
This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.
Rents and values coming down also doesn't help:
Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”
Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.
What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.
The median age of all US homebuyers is now 59 years old
Yesterday morning, my dad sent me the above chart from Apollo and said, "frightening, do you have one for Canada?" In 2010, the median age (not mean) of all US homebuyers was 39 years old. Today, it is 59 years old. And it has jumped significantly since the start of the pandemic.
The obvious explanation, and long-term trend line, is that housing continues to become more expensive relative to incomes, so it is taking longer for people to save up and afford to buy.
But "first-time buyers waiting longer" can't be the only reason, because homeownership is typically a life-cycle behavior. If you're in your 60s and you still haven't made the decision to buy a home, the probability is low that you will then become a first-time buyer.
As of this month, the share of first-time homebuyers in the US dropped to a record low of 21% and the median age was 40. What this suggests is that the above chart must also be the result of a compositional change in buyers.
Wealthy older people must be buying vacation homes, retirement homes, and/or relocating (maybe for better weather and maybe for lower taxes). Combine this with fewer first-time buyers (and I'm sure some other factors), and you get the above chart.
As of 2021, first-time buyers still accounted for roughly half of all home purchases in Canada. The rest were repeat buyers, and the smallest percentage were investors, which includes people buying a property as an investment or buying a property to live in while at the same time converting an existing residence into an investment property.
The median age for a first-time buyer was 36 years and the average age for all other buyers was 50 years. If we assume that this split is roughly 50/50, based on the above chart, then we get to an average homebuyer age somewhere around 43 years old. Intuitively, this seems at least directionally right.
(Note, this data is from 2021, which misses most of the pandemic period.)
Canada has a much higher percentage of first-time buyers driving the market. Canada does not have the same wealth inequality as the US. The 55+ age group in the US owns somewhere around 71% of all housing wealth and 69% of all stocks/equity funds.
And, Canadians tend to be less mobile than the US population within the country. Canada doesn't have warm, low-tax provinces attracting older rich people (though I would support us having one or two somehow).
In summary: You're right, dad, it is a frightening trend line.
