Alberta: Can't Build Fast Enough
By Randy Threndyle
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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.
Renovation
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. HB