Why Vancouver Island is Recession Resistant.

The next recession is always on the way. I'm not a glass half empty kind of guy but I also want to protect myself and strategize for an inevitable downturn. The next downturn could be tomorrow, or in five years, and it could last for a couple of months, or years, and it might see the market flatten off, or crash. We don't know for sure, but I'd like to limit my exposure and minimize risks through any downturns we will see in the future. Step one for me is to always make sure my properties cashflow which hopefully enables me to weather any storms but I think it's also important to choose your locations carefully.

It's hard to predict what will cause a downturn and it might be a number of factors combined, but it will effect jobs. It might effect blue collar jobs in the oil, logging and construction industry or it might hit white collar jobs in major urban centres, or it might effect all jobs across the board. Job loss or decreased wages means reduction in real estate values and possibly rental income as well. What if you could invest in a location that's economy isn't based on employment or resources?

I believe Vancouver Island to be such a place for one reason, retirees. Vancouver Island has three of the top four highest median ages in Canada. Qualicum's median age is 65! Parksville is 63 and Sydney is 60. The median average in Canada is 44, and the number of retirees moving to the island is increasing. Hopefully you have heard of the "Grey Tsunami". It's going to be the largest mass exodus from the working force that North America has ever seen. It's something we should all be working into our calculations when investing in real estate. Some investors are catering to millennials and figuring out what appeals the most to that demographic as far as housing goes, but retirees are another great demographic to consider.

What do the baby boomers want? 

1: Warm weather. If they plan on staying in Canada and want to avoid cold winters they can choose the Greater Vancouver area or Vancouver Island. Sorry the rest of Canada, your winters suck!

2: Affordability. Some baby boomers are very wealthy (probably real estate investors!) and they might choose a place like Vancouver, or head South for the winters, but a lot will need to stretch their funds out a bit further. Vancouver Island is still very affordable when compared to Vancouver. You can find decent houses in communities such as Port Alberni for $250,000-$300,000 or Nanaimo for $450,000-$500,000. Compare that to Great Vancouver Area where the average detached home is North of $1,000,000. 

3: A quieter town. Not all baby boomers want to leave major urban centres, but some do want to leave the hustle and bustle and live somewhere that has a slower pace. Vancouver Island has cities of all sizes. Victoria and Nanaimo are in the 90,000-110,000 range all the way down to Parksville with about 12,000 people, or if you want to get really rural there are small towns like Gold River with a population of only 1,300. 

4: Not jobs. Don't get confused looking at statistics. The average median income and employment rate might not look good on paper for a lot of places on Vancouver Island and if you base your investment strategies solely on high incomes and low unemployment rates, you will miss a very important fact, retirees don't work! The median income of a city doesn't always reflect property prices. Yes, Vancouver has high paying jobs, but only 2.5% of Vancouverites can afford a detached home. Why is that number so low? Outside money. International buyers funnelled billions of dollars into the Vancouver real estate market pushing values higher than the median income would suggest. The same is and will be true on Vancouver Island. Jobs might not be the highest paying, but it doesn't really matter. Baby boomers are buying with cash and don't need jobs.

So putting it all together. The looming recession will more than likely decrease incomes, which decreases real estate prices and sometimes rental income to some degree. If you invest in a town that is far less dependant on employment, you will be far less effected by any increase in unemployment or reduced median incomes. In a place like Qualicum, where the median age is 65, there will always be employment opportunities due to the fact that such a large percentage of the population no longer chooses to work.

As a real estate agent, I am seeing it first hand. A very large percentage of my clients are retirees and have recently moved from, or plan to move from elsewhere in Canada. I also see it as a landlord with my best tenants being retirees. Many retirees sell their homes and choose to invest their money in stocks or bonds and rent instead of purchasing another property.

The slow migration of retirees over the next 10 or so years to Vancouver Island will bring a constant flow of capital into the real estate market and a demand for rental units. As the population grows from the migration, restaurants and stores will do well, and the trades will be busy with new construction to accommodate the growth. Hopefully this will create a micro economy that is exempt from any recession that might be looming.

Obviously Vancouver Island isn't the only location that will benefit from the aging population. If Vancouver Island isn't right for you, where else are retirees going to be headed in the next 10 years?  

P.S. Please ignore my poor spelling and grammar. I am not an English major. If you have a hard time focussing on the points I am trying to make because of the typos, I apologize, writing has never been my strong point.