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Conway Fung Homes addresses many client enquiries about all aspects of the real estate industry and, not surprisingly, issues in real estate pricing often come up. Over the past ten years or so, escalating real estate prices has been a recurring topic for discussion by the media, at the office, at home and in numerous social venues. Unfortunately, media coverage, which rightly brings these important issues to the public’s attention, has at best scratched the surface regarding factors influencing real estate pricing, in residential and commercial markets.
In this Commentary Series, Conway Fung Homes discusses concepts and practices that have and continue to influence real estate pricing in various markets. As with all Conway Fung Homes’ commentaries, our goal is to enhance understanding and dialogue about issues that are important to our clients, friends and colleagues. We will address one or two concepts at a time, briefly introducing them as factors that significantly influence real estate, so check back with us regularly for weekly additions to this series.
Average Size of Homes: The Importance of Viewing Residential Home Pricing in Historical Context
One of the key problems in many discussions about real estate pricing is that the discussion is often ahistorical. By that we mean, it does not take historical changes in the size and technological intensity of homes into account, among other historical factors. Without a grasp of these concepts, it is easy to misunderstand claims in the media and elsewhere that home ownership is taking a larger share of your household income than it used to and that this is somehow “a concern”.
Let’s start by looking at the average size of homes. By that we mean, how much Canadians are buying today in terms of the average square footage of a home as compared to say 30 to 60 years ago when your parents bought their first family home. Obviously, the larger your home is, the more products and services were needed to construct that home. This is no different than any other value added product in the market. For instance, if you were to move out of an economy subcompact car into a luxury full size sedan, you would expect to pay more to buy and maintain the product. I think we can agree that this is common sense and yet in real estate it is rarely discussed rationally.
On the other hand, the Canada Mortgage and Housing Corporation (CMHC) did at least consider the issue in Canada. In their Canadian Housing Observer 2004 report, the CMHC notes that single homes built in 1990 “were on average almost 50 per cent larger than those built between 1946 and 1960, and up to twice the size of homes built before 1945. Even in the decade from 1990 to 2000, the average square footage of Canadian homes increased by four per cent”.
Other data, gathered and assessed by Conway Fung Homes, indicates that the average size of a Canadian house in 1945 was just over 800 square feet. In 1975, it was 1075 square feet. Today, it is about 1800-2000 square feet. In the United States, the average home size is about 2400 square feet reflecting the different cultural, real estate market and financing characteristics in that country.
In the next abstract we will discuss the concept of the technological intensity of homes as a contributor to real estate pricing. Check back with us in a week.
Thomas Conway, Ph.D.
President, RFI Group of Development Consultants
Sales Representative, Conway Fung Homes, Keller Williams Ottawa Realty
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