Home Month and Year February 2017 Impacting Housing Starts

Impacting Housing Starts

The downturn and then some

Allan Klassen, senior vice president, Calgary Housing with Brookfield Residential and chair of Building Industry Land Development (BILD)-Calgary Region.

In most ways—from retail, new home building, construction and commercial real estate to restaurants, car dealers and the gamut of oilfield services—-the domino effects of the downturn have challenged the focus and the long and short term strategy of most Calgary businesses.

The new normal has yet to be defined but, particularly the dynamic business of new home building and development in the Calgary area is a vital barometer for solidly managing challenges and focusing on growth and success.

“Over the past year or so we’ve certainly seen consumer confidence take a significant hit due to the economic climate caused by the declining energy industry and subsequent layoffs,” explains Allan Klassen, senior vice president, Calgary Housing with Brookfield Residential and chair of Building Industry Land Development (BILD)-Calgary Region. “The impact on the housing industry has been significant with an approximately a 30% decline in housing starts. The ripple effect on immigration, supply, and pricing have all impacted the industry in numerous product and market segments.”

He adds that Calgary unpredictable business speedbumps continue to demand adjusted business focus and approach, especially for Calgary developers and builders. “With this kind of environment, it’s been imperative for Calgary home builders’ strategies to be focused on affordability and focused on a very changing and diverse market.”

Klassen points out that while most of the concerns and Calgary business crisis-management is understandably targeted on oil prices and the consequences of the downturn, area builders and developers have additional issues and their possible impact on the business of home building and housing starts.

“We believe the first part of 2017 will continue to be a challenge, as we get a strong indication of supply on the MLS market. Once we work through the supply and demand situation, and if we can see a steady improvement in terms of employment, it’s likely that the latter part of 2017 and more into 2018 will show signs of recovery.”

Calgary area builders and developers also deal with other, non-downturn related issues. Alberta’s new building code rules, announced last fall, are spiking builder and developer construction costs for aspects like new energy efficiency requirements for windows, lighting, insulation, heating, ventilation and air-conditioning.

In the business of home building, higher costs of construction may not necessarily play out to higher new home prices. “Although there have been some adjustments in terms of pricing there has not been a significant drop in costs,” Klassen says. “In fact, with the strong US dollar and new energy building codes, costs are on the rise.

“Pre sales particularity have not gone down in price, though builders have added more value or provided more discounts in the current environment. When the market comes back to balance, prices will increase pending supply and demand.”

Some things never change. Another constant and significant competition for Calgary housing starts is re-sale real estate. The Calgary Real Estate Board (CREB) agrees that Calgary continue a buyer’s market, driven by lower prices in many (not all) Calgary re-sale areas, the availability of lower-priced homes and, according to some realtors, consumers strategizing to find re-sale homes before the economy turns around, boosting prices higher.

New home builders and CREB realtors also mention the Calgary impact of last year’s new mortgage rules. “The effect of the changes is still being understood but we believe the impact is likely more to be reflected in terms of what housing type buyers choose rather than whether or not they choose to buy,” BILD’s Klassen suggests. “People may need to opt to a town home or apartment product versus a single family home, or something smaller.”

Despite the 30 per cent slump in housing starts, new home construction is an encouraging outlook. “There have been many pockets of the market in the Calgary region that have done well,” he emphasizes. “From the northeast projects like Cornerstone to lake communities like Auburn Bay.

“The bottom line is that if the value is there, then people are still actively purchasing new homes.”

He is upbeat and positive about the 2017 indicators for Calgary area builders and developers. “In terms of signs of recovery, we will need to see a declining trend in terms of unemployment. People need to feel secure about their jobs. Once this trend starts to reverse, consistently, over a few quarters, Calgary’s consumer confidence will strengthen.

“Obviously a steady price in terms of a barrel of oil will be also be imperative, both for the oil and gas industry as they initiate new projects and again for the psyche of the consumer.”

And he underscores that Calgary area builders and developers are adjusting business plans and strategies and they are prepared and ready to grow the business. “Our priorities will be to continue to work with both the municipal and provincial governments to ensure we manage housing affordability and make the right decisions both in the short and long term for our province and our city. The Municipal Government Act and the city charters remain front and centre in all that we do.”