Boom and Bust Economy- Opinion/Research

Originally posted 3 October 2017

On 14 September, I had the privilege to present an economic overview to members of the Municipal Government Board, municipal assessment review boards and the Surface Rights Board. I was given considerable latitude in addressing the current and future economic conditions that assessment appeal boards faced. Ratepayers (commercial, industrial, residential) have the ability to object to annual assessments and significant sums of money can be at stake over disputes about zoning and the use of property, including buildings and machinery.

The presentation-to-municipal-government-board-and-assessment-boards recorded the three boom and busts the province has “endured” over the past century.  These booms and busts were rarely policy induced. Rather external factors- the stunning decline of wheat prices in the 1930s, and oil prices in the 1980s and 2010s- were instrumental in driving the Alberta economy into recession. While I argue that Manning and Lougheed were Keynesians, in my presentation I acknowledged that Lougheed’s fiscal policies were in fact pro-cyclical, making more difficult the adjustments that became necessary after Ralph Klein became Premier. In hindsight both Lougheed, in particular,  and Klein, did not save enough resource revenue to enable succeeding provincial governments to have more flexibility. The saving of resource revenue of course would have affected the size of government (programs and infrastructure) and likely reduced inflation of public goods.

That said, the Sustainability Fund did enable Stelmach, Redford, Prentice and Notley some fiscal flexibility but fiscal rules were amended again and again to avoid making tough fiscal choices.

The presentation also laid out some of the key factors that financial analysts use in considering the value of a property. Key factors include interest rates and the “cap rate” used by analysts to discount future cash flows. Macroeconomic factors such as GDP growth, employment growth, and disposable income are especially important for retail space in malls. On the residential property side, in-migration, interest rates, and disposable income are critical factors in demand for housing. Key charts are found on pages 15- 21.

[Readers are also encouraged to read the comments and view the slide deck supplied by City of Edmonton’s Chief Economist John Rose commenting on this website back in May.]

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