Once again it is the year end, or close enough to it that the prediction overview edition can commence. Looking back, the 2021 predictions were sandbagged a little to give me a better score, a couple of the predictions were basically ‘gimme’ level. Regardless here we go.
Inflation of building inputs and easy money loans bumps up the Calgary inner city house price - verdict - TRUE. This was a fairly easy call, however, I didnt get the actual magnitude of the change of how busted the supply chain was, and how much scarce goods can ramp up. I complained about OSB prices tripling, but the actual top of market price was more like 7x. Lumber could have added 20-30k per house for a typical home, and a lot more for large homes in 2021. The yards can’t even guarantee timely delivery and windows were months delayed creating so many hardships on site.
Another issue was the continued availability of super cheap variable loans, below 1.5% all year long. With 5% inflation (calculated by the feds, really?) negative real interest rates, a 1.5% loan is like borrowing at a -3.5% real rate for hard assets and that proved irresistible to the market. Every HGTV subscriber became an aspiring flipper making any junk house be bid up to the max price (or higher) and this showed how volatile to the upside detached homes could be, while condos continue to languish.
The municipal election is a dud - verdict - TRUE - Unfortunately I picked this one too. The mayoral campaign in particular was poorly contested and the winner, conveniently enough, was sworn and then apparently just went full NDP. We knew the mayor would be unable to play nice with the provincial gov, but to jump into the big chair, declare a climate emergency, meddle in dirty Quebec affairs, and screw up the arena deal on twitter in the first weeks is a bit beyond what anyone could have predicted. It seems the election played out that the wokiest candidate slate would win. Despite this, I have some optimism on the inner city development side, because oddly enough, the industry and woke urban politics seem to be allied.
The planning department lacks courage on inner city development policy - verdict - TRUE. This was a really wise call. I saw all the precursor of this during my limited interaction with planning staff during the local area planning exercise. The planners themselves, they are good trained people. No business understanding perhaps, and used to those regular paycheques regardless of outcomes, but are principled on planning policy. But the department is a political beast, the planners take direction from above that they dont personally support, and they present it as the public face (while privately cringing, must be tough to do). The guidebook fiasco is worthy of a dissertation on public engagement and NIMBYism, but I wont be the one to tackle that beast. The vilification of elbow park community as racist NIMBY’s was certainly a low point. However, I do agree that this R1 cage match brings out ugly character traits of the classist Calgarian rhetoric, and classism remains a singular force in segregation within the city. I’ve come to see the planning policy process as too flawed by being done before the land use bylaw can be updated. The bylaw is what needs changed first, and I don’t understand why the bylaw renewal process is languishing. A society can tear itself apart and crumble while fighting over policy that could be better laid out in a concise and contemporary land use bylaw. Do we need this policy stuff?
The inner city builders association is effective - verdict - TRUE. Definitely on a roll this year. What a great group of business owners. Early wins and low hanging fruit were tackled. One example was making it much easier to get a demo permit by removing the $4250 water disconnect refund process. This is a clear example of a smart regulator, willing to adapt, that simply ‘cuts’ a rule that was of no value, saving the city massive staff time too. This is an administrative win and wouldn’t have been done unless the CICBA pushed it. Next up is how to speed the more complex development permits through the process. Bizarrely, projects that do not reflect the municipal development plan get fast tracked to approval given the current rules, but projects that do reflect the municipal development plan face a lot of business unfriendly obstacles. How can this be tackled, or even reversed? This is all politics of course, and some of the levers are in place to change it. I think we can see some progress made at the highest levels with the new Council and an industry partnership approach.
My shift to building more detached homes continues - verdict - TRUE. Three of five finished homes in 2021 were detached, and for 2022, three more detached are planned. The downside is these detached homes are quite expensive, and as of year end, getting a lot more labour pricing updates from builder friends, we are looking at massive price increases. Will the market support higher prices for land, labour, and commodities? I don’t know, but I assume yes. Every time you launch a project you get a new understanding of how much better it is to invest in single homes vs multi family and how risky the city makes building. Any tactic to take some risk (and costly time) out of the process is a huge incentive.
So there we have it, five predictions, and I am five for five. This is a very rare outcome. For 2022 perhaps I need to make some bolder calls. I am thinking of what topics to even make predictions on. Market direction, yes, political stuff is not clear, input prices for sure, and maybe something a little crazier. Stay tuned.
THE TEXT OF THE 2021 PREDICTIONS PASTED BELOW:
1.inflation of building inputs and easy money loans bump up the Calgary inner city house market transaction price - We’ve all complained long and loud about a piece of OSB increasing in price from $13 to $34 in a couple months. The government may pretend that its basket of goods only increased annually by one point something percent, but that does not really tell a true story of cost pressure on housing, the single greatest component of a household budget. I have no idea about the broader Calgary market, or what the MLS stats show, my gut instinct here is a significant price increase in new infill prices. Will this be a byproduct of a debased currency, I can’t say. Maybe it will have a placebo effect and make everyone who bought a house in 2020 feel better about their decision. I’ve come to see no rational limit to what the government might due to prop up the market if it feels threatened in an election year.
the municipal election is a dud (and sub prediction - a fair bit of change of membership this time) this may be my easiest prediction yet. Somehow, we will have another election where you don’t really know the policy position of the newly elected council on any issue, or if the group as a leadership entity reflects your personal values. As an example, City leadership regularly asserts that if you dont agree with it, you simply dont know enough, or worse, that you are spreading disinformation. On issues like certain highly paid admin staff taking three pensions, the public is wrong to question this, because, there really is only ‘one’ pension. How does the communication staff not gag on its own tongue when speaking like this I cannot say. I’d assert 2020 was a bizarre year on many levels, but the home-grown virtue signalling among our political elites (conspicuous communication of woke-isms while the virtue signal utterer evades paying any personal price, eg. this institution I have overseen for the past eight years is irredeemably ‘ist’ or ‘phobic’, lets flagellate ourselves (but I wont be resigning in shame, instead I will cash that publicly paid cheque while sitting on the beach). I’d prefer a new group of accomplished individuals join council, and the incumbents find other work. Culture change definitely needed.
the planning department lacks courage on the new developed areas guidebook and when drafting local area plans for the inner city - I’d like to be wrong here, but I don’t see a lot of business friendly streamlining of how to go about rebuilding the city from the inside out. Instead, much of the best areas to redevelop, the choicest locations and largest lots will remain off limits to any sort of reconstruction other than replacing smaller older expensive homes with newer extremely expensive larger homes. Other issues like lack of infrastructure re-investment and inability to capture the tax uplift from development remain unchanged. While this all plays out in a multi year process, I can continue to operate with plenty of opportunity, so don’t feel particularly impacted. I do view the high cost of the inner city does drive out investment to the periphery, which I find undesirable. By end 2021, I may have some real insight into how this plays out.
The new inner city builder association mobilizes itself against delays, fees, red tape and anti-business policies of ‘big’ municipal government, and is highly effective. This is a fantastic development, while in its infancy, a united voice to advocate and defend the interest of the home builders (you know, those guys that hire everyone and take tremendous personal risk to build houses) is needed. I’ve met some really capable business owners in this industry, their culture is fast moving, decisive, innovating and creative, risk taking and impatient. This clashes with a bureaucracy that prioritizes its own internal struggle for increased wages and benefits while operating in a slow and cumbersome manner, and lacks a mission of service for the builders that pay dearly in time losses, fees and taxation. I am a member and hope to contribute in some small way. I fully support making it easier for builders to do what they do best, create house, and as a byproduct spinoff so much in wages and benefits back to Calgary.
My shift to building detached homes continues - this trend is ongoing, but I still keep one foot in the semi detached business with the 2021 Parkdale build. I have had some interesting options in the purpose built rental market as well, and will pursue that too. It looks like I will be all over the place building in 2021!
