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Alberta: Can't Build Fast Enough

By Randy Threndyle

New home construction in Alberta hit a record breaking 40,847 starts in 2005 and another 40,000 starts are expected in 2006. The plus-40,000 figure for 2005 was the highest total recorded by CMHC in the past 20 years. "It was a tremendous year," says CMCH Regional Economist Richard Corriveau, adding that Alberta led the nation in starts per capita.
Although forecasters are predicting a slight decline to 40,000 total starts in the province this year, any decline will likely be due to lack of capacity, rather than lack of demand. Across Canada, the pace of home building is expected to moderate slightly in 2006. A recent Pulse Survey reported that new home builders are forecasting about 207,400 starts in Canada in 2006, down from both the 225,481 recorded in 2005 and the 17-year high of 233,431 in 2004.

Shortage of skilled labour
Allan Klassen, president of CHBA-Alberta, says the total of 40,847 homes the industry built in 2005 would have been higher if there had been the capacity to build more homes. He says the record start level has created its own set of problems, most notably a shortage of skilled labour and an increase in the cost of the available labour. The Pulse Survey found that 49 per cent of Alberta builders cited a shortage of labour as a critical problem and 40 per cent cited rising labour costs as a critical problem.
Klassen, who is also president of Albi Homes in Calgary, says: "I think labour shortage is going to continue to be a major issue over the next number of years. It's creating longer build times; it's creating a situation where some builders, like myself, are putting actual caps on monthly sales to manage and control the process better. The difference today," he adds, "is that we're not looking for the sale; we're looking to build [the homes]. That's a tremendous burden on the capacity in the province. I would probably say we are over capacity right now, demand to supply."
Speaking to the shortage of labour in the Alberta market, Corriveau says Alberta's red hot job market has created an interesting statistical anomaly as 2005 actually saw the weakest job performance in 12 years. The weakness is due to the fact that, while there are many unfilled labour positions, they are vacant because there just aren't enough people to fill them.
In fact, Alberta has the lowest unemployment rate in the country and it recently reached record lows. Added to that, the province has the highest rate of labour force participation in Canada, so it can't draw much capacity out of the current labour force.
While Alberta is still a strong draw for workers from other provinces and other countries, it is in stiff competition with its neighbours, British Columbia and Saskatchewan, which also have robust economies, for that limited pool of skilled trades people. Competition for labour is also coming from the commercial sector. In Calgary, commercial building permits doubled in 2005 and, with the provincial government in a surplus position, spending on construction for new health care and education facilities is up. As well, there is competition from the Alberta's oil patch, which is also running at top speed.
With increased demand and 13,667 starts in 2005, Calgary builders saw the largest increase in new home prices in the past 12 years. The average new home price rose to $315,796 in 2005 and is expected to increase another 8.5 per cent this year to $342,000. Given the demand, prices increases could well go higher than predicted.
By comparison, Edmonton saw 13,294 starts in 2005 and 12,400 starts are predicted for 2006. Prices in Edmonton also rose, with 2005 seeing an11 per cent increase in house prices to $268,252. A 12 per cent gain to $300,000 is expected in 2006.

The province's renovation industry is also operating at record levels. Two-thirds of Alberta renovators responding to the Pulse survey reported higher renovation activity in the past year. None reported lower activity and 71 per cent expect further increases over the next 12 months. The increase is being led by record-level resale activity. Alberta saw 64,500 existing homes change hands in 2005, a year-over-year increase of 12 per cent. That compared to a five per cent increase in all of Canada.
CMHC is forecasting 62,000 existing homes will be sold in 2006, or a 3.9 per cent decline. The decline can be attributed to higher mortgage rates and higher house prices, but in Alberta another factor has been added to the mix: a shortage of listings.
In Calgary, active listings are down by about 33 per cent from the total listings of one year ago. "That will hold back sales to some extent," says Corriveau, but 62,000 is still well above 2004 number of 57,500 sales.
Resale prices have also kept pace, with 2005 seeing an average existing home price of $218,000 - a 12 per cent increase over 2004. A 10 per cent increase to $240,000 is expected in 2006.

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