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Economic Impact of MLS

Home Sales and Purchases inCanada (2002-2004)


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Preface

This is the third study The Canadian Real Estate Association initiated to show the economicimpact of existing home sales and purchases. Clayton Research Associates of Toronto preparedthe studies as initiatives of CREA's Federal Affairs Committee. The latest report from ClaytonResearch Associates is enclosed, covering transactions between 2002 and 2004. A comparison

of the latest study with each of the previous two studies published in 1994 and 2003 shows thefollowing:

Consumer Expenditures per transaction:Change: Change:

2000-2002 2002-2004

1991-1992 2000-2002 vs.1991-1992 2002-2004 vs. 2000-2002

Moving costs $385 $490 27% $714 46%

General household purchases $880 $1,315 49% $1,409 7%

Furniture/Appliances $1,830 $3,385 85% $3,433 1%

Renovations $2,575 $3,550 38% $4,449 25%

Professional services* $9,765 $9,485 -3% $13,144 39%

Taxes (excluding GST) n/a n/a - $1,548 -

Total $16,200 $19,760 22% $24,697 25%*Includes financial, legal, real estate appraisal, survey and other professional services.

The current report shows the overall economic consumer spending spin-offs from MLS transactionsat $10.8 billion per year. A total of 120,000 jobs were generated by average annual MLShome sales over the period 2002-2004. These charts show how the overall economic impacthas changed:

Average annual direct & indirect jobs created:For the Years Between:1

1990 - 1992 2000 - 2002 2002-2004

Direct 35,700 66,900 75,900

Indirect 21,500 34,700 44,100

Total 57,200 101,600 120,000

Average annual jobs creation by industry2:

Manufacturing 7,300 9,000 78,354

Construction 6,800 10,900 13,845

Trade 8,300 16,500 18,305

Finance, insurance & real estate 22,100 34,400 41,580

Other services 8,400 22,600 21,170

Other** 4,200 8,300 17,2601 Expenditures are based on an annual average of 295,000 MLS home sales for the period from 1990 to 1993, an annualaverage of 381,900 MLS home sales for the period from 2000 to 2002, and an average of 438,500 MLS home sales for theperiod from 2002 to 2004.2 May not add to total due to rounding.

** Includes primary industries, communication, & other utilities.


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Economic Impacts of MLSHome Sales and Purchases in Canada and the Provinces

2002-2004

Prepared for:The Canadian Real Estate Association

Prepared by:Clayton Research Associates Limited

1580 Kingston Road Toronto Ontario M1N 1S2Phone: (416) 699-5645 Fax: (416) [email protected]

www.clayton-research.com

August 10, 2005


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Clayton ResearchPage iv

EXECUTIVE SUMMARY

Resale housing transactions across Canada generate significant economic activity. Thepurchase and sale of homes via the Multiple Listing Service (MLS)1 generates fees toprofessionals such as lawyers, appraisers, real estate agents, surveyors, etc. as well as

taxes and fees to government. And when Canadians move house, they typically purchasenew appliances or furnishing, as well as undertaking renovations that tailor the newhome to specific household requirements.

During the period between 2002 and 2004, for example, it is estimated that a totalof $24,700 in ancillary spending (i.e., spending by purchasers on items other than theactual house and land) was generated by the average housing transaction in Canada.Per transaction ancillary spending varied somewhat by region, ranging from $16,900in Atlantic Canada to $27,900 in B.C.

Considering the average of 438,500 home sales processed annually through MLSduring that period, ancillary spending attributable to moving house totalled over $10.8

billion per year across Canada a significant contribution to the total Canadian economy.Nearly half of these spin off benefits were generated in Ontario alone where homebuyerscontributed $5.1 billion to the economy.

Direct and indirect employment resulting from housing sales is also significant. Some120,000 jobs are estimated to have been generated by average annual MLS resalehousing activity in Canada over the period between 2002 and 2004. Canada-widejust over one-third of the jobs were generated in the finance, insurance and real estatesectors. This sector benefited the most in B.C., accounting for 40 percent of jobs generatedby home sales and purchases in that province, and the least in New Brunswick, accountingfor 20 percent.

1 Multiple Listing Service and MLS are registered certification marks owned by The Canadian Real EstateAssociation.


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Clayton ResearchPage v

TABLE OF CONTENTS

Page

EXECUTIVE SUMMARY ...................................................................................... i

ECONOMIC IMPACT OF MLS HOME SALES AND PURCHASES ...................... 1

Introduction ........................................................................................................ 1Housing Transactions Generate Significant Spending in the EconomySpin-off Benefits of MLS Activity Average 10.8 Billion AnnuallyFrom 2002 to 2004 .......................................................................................... 3An Average of 120,000 Direct and Indirect Jobs Generated byHome Sales and Purchases Through MLS ............................................................ 4Main Impacts from Housing Transactions are in Finance andReal Estate but Many Other Industries also Benefit .................................................. 7

MLS Sales and Purchases Have a Major Impact on JobCreation in Every Province .................................................................................. 9

APPENDIX ...................................................................................................... 11

Estimates of the Economic Impacts of Housing Sales ............................................ 11Estimating the Expenditures Generated as a Result of Housing Transactions ............ 11Estimating the Economic Impacts of Expenditures Generated as aResult of Home Purchases .................................................................................. 12


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Clayton ResearchPage 1

ECONOMIC IMPACT OF MLS HOME SALES AND PURCHASES

Introduction

Resale housing transactions across Canada generate significant economic activity. The

purchase and sale of homes generates fees to professionals such as lawyers, appraisers,real estate agents, surveyors, etc. as well as taxes and fees to government. In addition,purchasers of homes often purchase new appliances or furnishings and typicallyundertake renovations that tailor the new home to specific household requirements.

To quantify these effects, The Canadian Real Estate Association (CREA) commissionedClayton Research to prepare estimates of the economic impacts resulting from MLShome sales & purchases in Canada and the 10 provinces. At the Canada level, thisreport provides an update to similar efforts undertaken by Clayton Research on behalfof CREA examining the 1990-1992 and the 2000-2002 periods. At the provincial level,this report presents the first comprehensive set of economic impact estimates for MLShome sales and purchases based on an integrated interprovincial inputoutput model.

Three measures of economic impact are assessed in this report:

Average ancillary spending per housing transaction (by region); Annual average spin off benefits based on all MLS sales and

purchases over the past three years; and Annual average direct and indirect employment by sector generated

through all MLS sales and purchases over the past three years This report presentsa review of these national and provincial estimates. The methodology used in itspreparation is presented in the Appendix.

Housing Transactions Generate Significant Spending in the Economy2

Purchases and sales of homes trigger additional expenditures that have broad economicimpact.

It is estimated that a total of $24,700 in ancillary expenditure is generated by theaverage housing transaction in Canada over a period of three years from the date ofpurchase.

2 For purposes of this paper, a transaction is defined as the sale of a home by a vendor to a purchaser andall ancillary expenditures typically associated with the change of ownership.


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Figure 1 indicates the distribution of these expenditures among the various services andgoods typically associated with housing transactions, for Canada and five regions3.Although the analysis was based on spending in 2003, the returns capture typicalspending by household in the first, second and third year after purchase. A number of

professional fees are involved, including legal and real estate fees, mortgage insurancepremiums, fees for appraisals, surveys and other services involved in the purchase andsale of a home.

The analysis reflects the importance of renovation work associated with moving house a figure that includes repairs and alterations to both the structure itself and the surrounding

yard. Canada-wide, owners of recently purchased homes spent an incremental (overand above typical spending) $4,450 on renovations over the first three years after thepurchase. Across Canada, this value varies from $3,425 in Atlantic Canada to $4,875in Ontario.

In addition, there are significant expenditures for furniture and appliances and generalhousehold purchases such as bedding, towels, lighting fixtures, tools, blinds etc. Movingcosts and taxes such as land transfer taxes especially in Ontario and B.C. also enterthe picture.

Total expenditure of $24,700 relates only to the costs of moving from one home toanother. It does not include any renovation expenditures by the sellers of homes in orderto prepare their properties for sale (or, in the case of new housing, the constructionexpenditures involved in building the home).

Estimated Expenditures Generated by the Average Housing Transaction Canada

and Regions, 2003

Canada Atlantic QC ON Prairies BC

Dollars

General Household Purchases 1,409 1,236 1,341 1,464 1,408 1,417

Furniture and Appliances 3,433 2,622 3,604 ,588 3,193 3,396

Moving Costs 714 711 728 800 556 629

Renovations 4,449 3,434 4,507 4,876 3,840 4,426Services: financial, legal,

real estate appraisal,

survey, other professionals 13,144 8,003 10,159 14,287 8,679 16,123

Taxes (excluding GST) 1,548 889 993 2,022 542 1,881

Total 24,697 16,896 21,331 27,037 18,218 27,873

Source: Estimates by Clayton Research based on special tabulations from Statistics

Canada 2003 Survey of Household Spending

3 These data are based on an analysis from the Survey of Household Spending, and due to sample sizesin that survey, the analysis has had to be completed at the regional level rather than the provincial level.

Figure 1


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Spin-off Benefits of MLS Activity Average 10.8 Billion Annually From 2002 to 2004

There are a large number of resale housing transactions in Canada every year. Between2002 and 2004 an average of 438,500 homes changed hands annually through theMultiple Listing Service (MLS)4 of real estate boards across Canada.

Considering the average of $24,700 additional expenditure per transaction, it is clearthat home purchases and sales generate very significant volumes of spending and majorspin-offs to other industries. For the average of 438,500 homes processed annuallythrough MLS during the period between 2002- 2004, spending attributable to movinghouse totalled over $10.8 billion per year a significant contribution to the totalCanadian economy.

Spin-off benefits from MLS home sales and purchases were significant in all provinces.Figure 2 illustrates the total ancillary spending by province. A majority of the spendingnation-wide is found in Canadas largest four provinces, Quebec, Ontario, Alberta andB.C., but all provinces experienced millions of dollars of annual spin-off benefits fromhome sales through this period.

An Average of 120,000 Direct and Indirect Jobs Generated by Home Sales andPurchases Through MLS

Expenditures on activities such as purchasing a home result in three distinct roundsof impacts on the economy:

4 The Multiple Listing Service (MLS) is a co-operative listing system operated by real estate boards toprovide maximum exposure to properties for sale. MLS is a registered certification marked owned by TheCanadian Real Estate Association.

Figure 2


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Direct impacts economic activity in the industries supplying the products andservices to the home buyers. Examples include the jobs generated in the appliance,construction and real estate sectors involved in producing and providing the specificgoods and services require by the purchaser.

Indirect impacts economic activity in industries providing goods and services tothe industries involved in the direct round. Examples include the raw materials andcomponents used in producing appliances purchased by home buyers; the wood andother industries involved in providing inputs to the manufacture of building products usedin home renovations; and the computers and other goods used by financial and realestate service firms involved in the sale of financing of the home. The chain reactionspreads across the economy and provides employment in a wide range of industrieswhich supply those directly involved in providing goods and services to the home buyer.

Spin-off impacts the so-called Keynesian multiplier effect resulting from theexpenditure of incomes generated in the first two rounds. The wages, salaries andother income which accrue to households as a result of the direct and indirect rounds

will, in turn, generate economic activity as these households spend their incomes inthe general economy. The relationship between these spin-off impacts and the initialexpenditure resulting from the purchase of a home is less clear than for the directand indirect rounds much household spending would occur regardless of whetherit is financed by wages and salaries or through unemployment insurance, othergovernment transfers or savings if the direct and indirect employment did not occur.

Direct and indirect employment resulting from housing sales in Canada is significant.A total of 120,000 jobs are estimated to have been generated by average annualMLS homes sales in Canada over the period 2002-2004.

Most of these jobs (75,900) were generated in the direct round the jobs required to

produce the goods and services purchased by home buyers. The remaining 44,100 jobswere generated to provide inputs necessary to produce the goods and services whichwere purchased directly by home buyers.Average Annual Direct and Indirect Employment.


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Figure 4 illustrates the distribution of direct and indirect jobs generated by home salesand purchases, by province.

All told, jobs generated directly and indirectly through the sale and purchase of MLShomes accounts for about 1 in 120 full-time equivalent jobs across the entire economy.

Figure 3


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Main Impacts from Housing Transactions are in Finance and Real Estate but ManyOther Industries also Benefit.

The finance, insurance and real estate industry accounts for some 35 percent of thetotal direct and indirect employment generated by home sales (see Figure 5).

A total of about 41,600 jobs have been created in these sectors as a result of theaverage number of MLS home sales annually during the period 2002-2004.

A significant number of jobs are also created in a variety of other industries trade,manufacturing, construction and other services all have jobs which rely on economicactivity generated by the sale and purchase of MLS homes in Canada.

Figure 4


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Most of the jobs in the finance, insurance and real estate industry are generated in thedirect round (see Figure 6). Lawyers, real estate agents, appraisers, surveyors, etc. allplay a significant role in the sale of a home. About 82 percent of the jobs generated inthis industry are in the direct round.

In the construction industry, most of the impacts are also in the direct round over 94percent. This reflects large renovation expenditures which typically occur when someonemoves into a home.

For the other industries, (e.g. manufacturing, trade and services) most of the employmentimpacts are in the indirect round supplying goods and services to industries involved inthe direct round.

Figure 5


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MLS Sales and Purchases Have a Major Impact on Job Creation in Every Province

Figure 7 illustrates the employment impacts from ancillary spending related to sales andpurchases of homes through MLS by province. Some notable observations include:

Atlantic Canada is the region with the lowest relative economic impact from existinghome sales. The total jobs generated by sales and purchases of MLS homes in AtlanticCanada about 4,150 jobs accounts for about 1 in 225 full-time equivalent jobsacross that economy, compared with 1 in 120 jobs Canada wide.

In Quebec, there is a particularly strong impact from home sales on jobs in the manu-facturing sector, accounting for 13 percent of jobs generated from home sales, com-pared to 7 percent nation-wide; The profile of jobs generated in Ontario as a result ofMLS housing sales is very similar to the national average;

In the Prairies, although the proportion of jobs generated in finance, insurance andreal estate industries is similar to the national average, the proportion of those jobswhich are direct, as opposed to indirect, is higher;

B.C. experiences the highest relative job impact of any province. Sales and purchases ofMLS homes in B.C. generate almost 28,000 direct and indirect jobs nearly 1 in 60 jobsacross the entire B.C. economy. Nation-wide, the jobs impact from home sales 120,000jobs accounts for about 1 in full-time equivalent 120 jobs across the entire economy.

Average Annual Direct & Indirect Employment by Industry Generated by MLS HomeSales and Purchases, Canada, 2002-2004

Directas %

Direct Indirect Total Distribution of Total

Manufacturing 2,165 5,670 7,835 7 28Construction 13,005 840 13,845 12 94

Trade 12,205 6,095 18,305 15 67

FIRE* 34,065 7,515 41,580 35 82

Professional Services** 10,055 11,115 21,170 18 47

Other 4,420 12,840 17,260 14 26

Total 75,915 44,075 120,000 100 63

* Finance, Insurance and Real Estate; ** Includes Government Source: Clayton Researchbased on Statistics Canada Input-Output Model Jobs %

Figure 6


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Average Annual Direct & Indirect Employment By Industry, Generated by MLS HomeSales and Purchases, by Province, 2002-2004

NL PEI NS NB QC ON MB SK AB BC

Direct Jobs

Manufacturing 0 0 25 45 890 600 125 15 205 285

Construction 65 50 215 120 1,685 6,670 245 160 1,215 2,570

Trade 75 35 240 130 2,030 5,290 335 230 1,205 2,645

FIRE* 210 70 545 185 3,810 14,550 670 390 4,035 9,550

Professional Services** 60 30 230 150 1,220 4,875 265 135 1,050 2,040

Other 30 15 100 75 715 1,865 110 75 475 960

Total 440 200 1,355 705 10,350 33,850 1,750 1,005 8,185 18,050

Indirect Jobs

Manufacturing 15 10 100 90 1,425 2,400 240 65 485 860

Construction 5 5 15 10 120 395 25 10 105 155

Trade 35 20 130 60 1,180 2,590 170 75 555 1,295

FIRE 30 15 100 55 905 3,585 170 70 720 1,855

Professional Services 45 15 125 90 1,790 5,145 215 105 1,045 2,535

Other 90 30 245 190 2,080 5,085 410 240 1,500 2,970

Total 220 95 715 495 7,500 19,200 1,230 565 4,410 9,670

Total (Direct and Indirect) Jobs

Manufacturing 15 10 125 135 2,315 3,000 365 80 690 1,145

Construction 70 55 230 130 1,805 7,065 270 170 1,320 2,725

Trade 110 55 370 190 3,210 7,880 505 305 1,760 3,940

FIRE 240 85 645 240 4,715 18,135 840 460 4,755 11,405

Professional Services 105 45 355 240 3,010 10,020 480 240 2,095 4,575

Other 120 45 345 265 2,795 6,950 520 315 1,975 3,930Total 660 295 2,070 1,200 17,850 53,050 2,980 1,570 12,595 27,720

* Finance, Insurance and Real Estate; ** Includes GovernmentSource: Clayton Research based on Statistics Canada Input-Output Model

Figure 7


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APPENDIX

Estimates of the Economic Impacts of Housing Sales

This appendix reviews the methodology used to generate estimates of the economic

impacts resulting from purchases of homes in Canada. The methodology can be broadlydivided into two sections:

Estimating the expenditures generated as a result of home purchases; and Estimating the economic impacts of these expenditures

A summary of the methodology used by Clayton Research to generate each of theseestimates is provided below.

Estimating the Expenditures Generated as a Result of Housing Transactions

To provide estimates of the amount spent by families who moved house, special tabula-tions were obtained from Statistics Canadas 2003 Survey of Household Spending.

These tabulations provided estimates of the expenditures of families during the first, sec-ond and third years after the purchase a house versus all other owner households. Theaverage expenditures of families who had moved in either of 2003, 2002 or 2001 ver-sus those who had not moved were then compared for a variety of expenditures cate-gories which were considered likely to be affected by moving to a different home. Fromthese data and additional analysis, estimates of the average expenditures generated byfamilies who move to a different dwelling were prepared.

This analysis was conducted at the Canada-wide level, and then indexed to the regionallevel based on the average spending per reporting owner household for any givenspending category compared with spending Canada-wide. Due to the suppression ofdata from the Survey of Household Spending due to small sample sizes in some

provinces, this analysis was conducted at the regional level.It should be noted here that these estimates include only the expenditures incurred by thefamily which moved to a dwelling. This included items such as moving costs, new appliancesor equipment to be used in the home, renovation expenditures, fees paid to lawyers, survey-ors, and mortgage lenders, etc. The only exception is a calculation included in the analysisto August 10, 2005 Economic Impacts of MLS Clayton Research Home Sales andPurchases in Canada and the Provinces Page 12 account for real estate brokerage fees gen-erated from MLS transactions, which in most cases are borne by the property vendor.

The analysis did not distinguish between those moving into a new home versus a resalehome, and it did not include the additional economic impacts which would have beengenerated through the construction of new homes.


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Estimating the Economic Impacts of Expenditures Generated as a Result of Home Purchases

Estimates for the economic impact of additional expenditures generated by moving to adifferent home were derived through the use of Statistics Canada Interprovincial Input-Output Model. The current model relates to the year 2001. An input-output model is used

to estimate the impacts of various types of economic activities. It is an accounting frame-work of an economys production system. It shows the interconnections that exist betweenthe various sectors of the economy when goods and services are produced. Using aninput-output model, it is possible to determine which goods and services are required toachieve a certain production level in a particular industry or the economy as whole.

The model can take an estimate of expenditures on a given economic activity (in thiscase, moving to a different home) and translate it into the impacts on various industries and ultimately, the amount of income and jobs created. A key component of an input-out-put model is the set of input structures for each economic activity covered by themodel. An input structure literally splits the original expenditure among all the differentinputs which are used in that economy activity. For example, in purchasing a home,

expenditures are incurred in a variety of industries appliances, construction, variousservice industries, etc. Each of theses industries has an input structure of its own whichinvolves inputs from a variety of other industries plus labour and owners of firms in thatindustry.

An input-output model includes a full array of input structures which have been estimatedfor all industries in the economy. Use of the model in this analysis involves estimating theimpacts of spending incurred by those who move to a different dwelling. To generatethese estimates, it was necessary first to provide an input structure for households thatmove to a different dwelling. To formulate this input structure, the estimates of averageexpenditures generated by families who move to a different dwelling derived from theanalysis of the Survey of Household Spending were converted into the input categories

used by the Statistics Canada Interprovincial Input.-Output model. Specifically, estimatedspending per mover by region in each of the affected expenditure categories is reflectedin the table summarized in the report (Figure 1).

This input structure was used by Statistics Canada to simulate the impacts on spendingby movers using the Interprovincial Input-Output model. In generating the estimates,Statistics Canada grossed the expenditures up to $245.9 million (i.e. to cover the esti-mated spending of 10,000 movers), then distributed among the 10 provinces via anindex of average MLS transactions over the study period. The results were re-estimatedby Clayton Research based on the average annual MLS sales over the 2002-2004period and are presented in the main body of the report.

The findings are presented in terms of jobs generated. This is the term used by theInput-Output Division of Statistics Canada in its estimates of employment generated. Theterm jobs is close to but not the same as person-years of employment. The estimate ofjobs provides the number of workers which would be employed for a full-year; however,the estimate includes both full and permanent part-time jobs at the ratios appropriate foreach of the industries involved.


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The Interprovincial Input-Output model was run as one single simulation for all 10provinces. Thus the impacts of trade flows between provinces are imbedded in theestimates. In this way, the jobs generated by province presented in Figure 7 of thereport reflect the impact of home sales in all provinces. Although in reality, most jobs

are generated from sales in the same province, some cross-provincial effects are present.For example, if a homebuyer in B.C. purchases a washing machine manufactured inQuebec, that ancillary spending will help create manufacturing jobs in Quebec.Conversely if a homebuyer in P.E.I. engages the services of a moving company thatuses gasoline mined and refined in Alberta as an input, that ancillary spending activitywill help generate oil and gas related jobs in Alberta.

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CREATHE CANADIAN REAL ESTATE ASSOCIATION

344 SLATER STREET, SUITE 1600, OTTAWA, ONTARIO, K1R 7Y3, TEL: (613) 237-7111, FAX: (613) 234-2567

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