2022 supply chain fiasco likely to continue

A published report says the Lowes, Rona and dicks chain in canada is being dumped by the American parent and purchased by what seems to be a private equity fund. Further detail appear to show the value at 10 cents on the dollar from what Lowes bought into the business for, or average store value is barely one million each. Just the inventory in these stores is worth way more than the value of the business. If these stores were not making any money this year when prices for everything is now so high, that is not good at all. A lot of the builders were blaming the lumber yard when a piece of osb 3/8 hit 70$. Maybe it was someone else robbing us. If these suppliers are not viable then it seems the supply chain is worse than what we had thought.

Peak nimbys looking to create nimby superpowers

The temperature, and tempers, of the arch nimbys is rising like the bubbling cauldron of negativity and small mindedness representative of this faction. The weapon they desire is creating the restrictive covenant on entire regions to block all development except what they deem acceptable (mansions ok, just not too tall). Ideal use of the covenant is to lock in legally their prejudice and exclusivity. I’m not a fan of this type of planning that persists from beyond the grave, as these covenants have been a huge hassle, many are so out dated they retain restrictions on raising fur bearing animals, others worse. Some of the land being camped out on with worn out housing stock in currently detached only hoods needs to be receptive to redevelopment otherwise the redevelopment industry will have nothing to do, except I guess build more identical semis in Killarney. The nimby is such a selfish and greedy entitlement it needs to be better called out in public at the highest level of city leadership, most on council aren’t able to do that, and worse, quite a few join among the nimbys as a showing of populism to gain support next election, and vote against city policy. https://apple.news/A3_DosIStSCKtk0GmTBt1cA

Property tax calculations that fail to accrue the benefit of vast redevelopment assessment changes to the inner city

The way property tax is collected is a strange and confusing system. It even confuses the sitting Councillors so they requested a report from administration, which was recently published at https://pub-calgary.escribemeetings.com/Meeting.aspx?Id=5a7f8362-c877-43d0-857e-5cad07c94d4b&Agenda=Agenda&lang=English&Item=72&Tab=attachments

Essentially the key take away is that yes, new building in the infill communities vastly increases the amount of tax collected on the new houses (report claims this to be about $30 million additional revenue over the next couple of years). However, the benefit of this tax growth is used to dilute tax increases for existing taxpayers. This means that large sums of increased tax collected simply subsidize the pre-existing group of land owners to buffer them from the typical increase in tax needed to run the city. There are many problems with this system, primarily, it means the type of new building that requires the least amount of public infrastructure (or none potentially) raises quite a bit of money, but that money doesnt stick to the community in which it is generated. Typically, all residential houses are not taxed at a high enough rate to ‘pay’ for themselves, it is the much higher business rate that really generates the tax base. However, if any properties do generate sustainable tax amount (cost recovery), those are likely in the big dollar areas, and most of that is found in the inner city. I would argue a typical 50 ft 70 year old bungalow lot (annual tax $4k) rebuilt into an expensive double semi detached, assessed at $900k per side, would generate $12k per year for the city. In the distant sprawl area, on a 50 ft lot, assessed at at $500k for one home, would generate about $4k per year for the city. The situation created is the two inner city properties occupy the same space as a single sprawl home, but generate 3x the tax, permanently. Even if all residential taxpayers are subsidized by the business community, the sprawl areas are far more expensive to operate and service, and simply pay way less tax, and this system of collection really perpetuates this unfortunate circumstance. As assessed values grow over time the inner city homes can gap further upward vs the sprawl areas as well.

One of the key cries we hear against redevelopment is lack of benefits from new growth, and the typical nimby tropes about parking and bin management. If more of the tax growth was actually kept where it was created, perhaps some of those complaints could be assuaged, somewhat. Inner city living creates very high tax bills for new home buyers, who are likely living in much smaller and potentially inferior home than what they’d be able to purchase in sprawl areas with the same budget. I think the way the tax is collected and distributed certainly penalizes infill development, particularly the type that slides in nicely among the grid areas with very little impact on bus routes, paving schedule, school construction requirement, and highway overpass building, not to mention police and fire service is already operating. All of this is costly stuff the city must pay for collectively. Another issue is the provincial portion of the tax funds the school budget, so you have families living in smaller houses, possibly with less kids, paying more school taxes than those in new communities where the schools have not been built yet (which is a massive cost).

This is a politically fraught topic, because it is in the established areas we see the worst of the clannish, classist, exclusionary mentality at its most awful, normally when debating redevelopment issues. But to layer on how the more expensive areas are mined for tax to support the grotesque deplorables living in flyover neighbourhoods would serve to further polarize the debate. The bottom line is you've got to really want to live in the inner city to pay way more for the house itself, and to operate it too. That first donut around the core is a massive tax generator, and it is used to keep a lid on tax rates outside the donut. To create the more desirable, amenity rich walkable communities, we need more tax money to stay closer to home, rather than export it to new growth outside the ring road.

This is a key excerpt from the report. The infill development money goes to offset the increased cost of providing services to the population, reducing the share paid by existing property owners. The communities experiencing the growing pains of plenty of infill building dont really get rewarded with the type of amenities that make inner city living worth it. Whether that is better policing of the vagrants stealing bikes, or building bike lanes themselves, more of the redevelopment windfall needs to stay in the established areas. A lot of these areas do not even have paved alleys, after 50,60,70 years or more!


Townhouse progress

The framing crew decided the weather was too good not to work and showed up Saturday to make an attempt to joist the second floor of one of the townhouses. This is a nice little bonus because typically he’s reluctant to do anything on the second floor without having the machine on site. These guys can perform productivity miracles especially with the machine there to make all the heavy stuff effortless. With all the difficulty staying on any sort of schedule this year the townhouse progress main floor walls up is a rewarding experience for the builder. So much time and expense to get out of the ground and it can take its final skeletal shape so quick.

2022 is a continuous construction fiasco

We could make a list of any builder that actually finished a project in 2022 but you’d not find me on it. Every facet of the work to date has been a series of ongoing fiascos. Finishing a custom build is now so painful and brain damaging one wonders if there should be a daily issuance of alcohol to neutralize the chronic beating one must endure. Assuming my level of perseverance is greater than most, and the immunity to jobsite tribulations and calamity substantial, I do wonder how anyone else is experiencing any sort of success in 2022. I may need to hire a builder if 2022 conditions extend into next year.

Exterior transition

I had the brilliant idea of making a smooth transition from indoor to outdoor living at the townhouse project. The result was some costly details to execute this work as having a patio slab poured higher than the foundation wall means only one thing. Pouring a 10 ft tall wall to support the edge of the patio and hard to form perimeter walls as well. All of this likely added 50% to the foundation bill but is a win from many other perspectives. Among the positives is we can use the patios for safe access and also supporting the second floor cantilever. Will the patio last 100 years? We will find out slowly.

Labour

Labour has significant leverage in the calgary market. There is simply a shortage of willing skilled manpower. Why is this? Theories include the millennial just wants to stay home and trade crypto from his moms basement. Is this factual? All of the small business owner operators tell me the same thing and share the same complaints, that wage expectations are crazy and often even those who agree to work don’t show up. Then they wonder how the absentee staff they have can afford to live, given the high cost of living encountered by everyone, particularly those that aren’t earning enough. What this means is that for those with some skills, like framing carpentry can make an impressive wage by freelancing from one small contract to the next. Easily 100$ per hour can be earned by good workers with minimal overhead, a car, and some tools. This must have some appeal to people working dead end low wage jobs, if they can get used to the physicality of construction work. Self employment will have its drawbacks but surely the earning potential has to be massively better than working at a coffee shop, or in retail.

masonry

Is good to see a substantive tradecraft of masonry is alive and well in the city. Masonry is hard work and not everyone is up to the challenge. I think in our climate no exterior product is likely to hold up as well as full bed brick. The options all have significant downside. Vinyl is flimsy, fades, and is destroyed easily. Wood product is high maintenance and expensive. Metal is costly and needs lots of premium fittings and factory paint work. Stucco has issues with moisture retention and while robust, low maintenance and durable, is a challenge from a building science perspective. Hardie style cement siding is good and also requires a lot of expertise but at least is factory painted, it is also more fragile than I’d prefer and is nasty to cut, also tends to fade and need painted. That leaves you with brick which is super heavy and highly labour intensive. Which of the above will last 100 years? I’d say the brick four story structures that have historic designations in the inner city are the definitive proof of what holds up to UV, rain, hail, snow, freeze thaw, derelict owners, chinooks and regular abuse.

raspberry market update - worship the bankster gods for salvation

Here is another post dedicated to the banksters, the shadowy cabal that acts in concert, globally, as if part of a hive mind, to screw with us, the common working folk. When we decided to adbicate the sovereignty over the most important factor in our economy, the price of money, to these unelected people, I don’t know, pretty sure we didn’t have an attendee at Jekyll Island. These banksters, are dishonest, accident prone, rarely get it right, and charged with the task of fixing the problem of their own creation using the same tools that screwed it all up to unwind it. They are unlikely to unwind anything without the severe stress fractures. We have the Yen, Euro, Pound, Rupee and Asian basket all in the trash. Worse are the bad actors like Argentina, Turkey and others experiencing crazy interest rates (75%), and matching inflationary spiral. Among this backdrop we are supposed to carry on making decisions, working, building assets, financing businesses (and houses), as if these headwinds don’t exist. Looking back just a few short months to Q1 2022, the absurdity of the exuberant market, its participants and the biggest cheerleader group, the realtors, deserve the greatest scorn. Buyer beware, and do your own diligence is realtor double speak for ‘we are not accountable for anything’, but this should be rephrased to ‘don’t believe anything I say’.

My part in all this mess, is I have been so conditioned to the banksters showing cowardice and political motivation first, and having the government aid them in downplaying real inflation, I never believed they’d actually do it (raise rates enough to create a recession). Who would ever authorize a small group of people to impose a recession on the global population? Just like who would ever authorize a small group of people to create an asset bubble and pretend not to see it until it was too late to manufacture a soft landing? The solution has to be to allow the market to set rates, the natural mechanism of the market would have feedback loops that temper the boom bust cycle. Instead we get what we are facing now, punishingly high rates that are going to utterly rugpull the early 2022 home buyers in the bubble markets.

What is the Calgary market like? I am hearing flat, lots of buyers on the sidelines waiting to see what happens. This is less than ideal for the spec builder. Imagine building diligently all year long, paying absurdly inflated wages and material prices, and then you finish the house and try to sell it when interest rates, which started out at 1.5%, are now at 6%. That has to impact value. Fortunately I am not building any spec homes right now, but I do have a few planned to start. Rental market does seem strong, with in-migration, and lots of jobs available. Past cycle experience tells me to start building houses when market sentiment is at its worst, as the market tends to rebound well from low points. This time seems different?

The current year crop has yellowed, while the growth that started in spring is thriving and will produce a great crop of berries next summer. The raspberry patch seasonality unfolds similarly to the bankster manipulation of the market into highs and lows, should we worship the bankster elite like the sun god?

Breaking all the rules on foundation building

If I’m going to dramatically overspend on a project fundamental, there must be a good reason. Too often in building, particularly at the higher end market, significant overspending is done just because the budget is there to do so. Or design mistakes are made necessitating taller walls and lateral stability details that go unnoticed when the building is complete (as in nobody sees or benefits where the additional cost was incurred. I’ve done that plenty of times as well). The key budget killer is extra deep footings, stepped footings and walls, 10 foot walls, and concrete supported elevated patio details. Most of these element are shown in my townhouse project, except the over digging part. Most evident is use of technique to support the top of the concrete patio slab at 4 inches below the plywood subfloor. This means the patio is higher than the concrete walls of the basement by a significant sum. The engineer doesn’t like a concrete slab being poured against a wood joist structure so the work around is to make the front wall of the townhouse 10 ft, while the rest is 9 ft. The walls supporting the yet to be poured patio slab are then set at 9 inches below the subfloor, the slab is poured 5 inches thick, and the effect is a minor 4 inch drop at the transition from inside to outside space. In this case the outside space is a 3 sided south facing patio overlooking the the ice cream store. Is it with it? We will find out soon.

How much does it cost to plan a project?

I often have chats with aspiring developers. What I have not done previously is really break out the time and effort to show what it takes to launch a project. I posted somewhere recently that I spent $92000 on pre construction related services. This is the design, engineering, fees, levies, improvements, consultants, and everything else that goes into a townhouse project. The $92000 is a significant sum, yes, and hurt me deeply to pay it, despite my apparently deep pockets and relative immunity and lack of surprise at all the little bits and what they add up to. What was truly agonizing was the time and energy amounting to a serious level of brain damage to get it done. The opportunity cost is a real factor. I could have invested $92000 elsewhere into a dividend paying stock, or spent it on the family and took a year off to travel around the world. I won’t even pay myself $92000 this year, yet I somehow can find a way to pay that large sum into the economy to the benefit of everyone else on the receiving end. The townhouse project is a fairly risky endeavour, if you know how to do it. If you don’t, you are really taking on something that could cause a lot of harm. I also estimated about 250 hours of my time deployed into the project, this is uncompensated expertise that is needed. Everyone else involved in the project has their hand out for significant wages or tolls, and they set their rates. My rate continues to be zero. Had I needed more help, that 92000 would have been far more, or the outcome of what we permitted, far worse. I think the cost of these small townhouse projects is really quite a burden relative to the lack of scale. It is not going to be viable to pursue the townhouse project with such a small number of units for many builders, unless they can swallow a year of planning work and a year of project management without the possibility to draw a wage. Despite all of this whining, I like the townhouse model of development, but a new developer is going to really want to do it it badly to find any success. Typically I tell new developers not to do it. Just find a small lot and build a single house, or do a renovation. That is plenty complex and risky without getting in deep in a multi family project.

Fall start

Getting going on the Bridgeland project after months of pre project planning is a relief. An autumn start isn’t ideal but it is much better than a winter start. A few warmish months left will allow us to get a bunch of concrete work done. If we can get to some sort of advanced lockup stage in November I will consider that a success.

City proposes a new ‘zone’ called ‘hgo’

The planning department is responding to criticism that it created a rowhouse zone that only works on corners by suggesting yet another new zone. Hgo will be ‘housing grade oriented’ which allows mid block parcels to be structured in two rows with a centre courtyard and permits suites. This is an advantageous development for allowing more affordable housing to be created. In my view this type of building is the only way to make market rate new building cost less. It also does away with some of the stricter parking requirements that were related to unit size caps. Basically it will be way easier to get new creative projects permitted with little risk of appeal by the usual gatekeepers. The nimbys are really going to take it on the chin if this is approved by council. Hgo will have some clear location specific criteria where permits will be impossible to appeal and the regulatory privilege given to single and semi development is to be leveled somewhat. All of this goes hand in hand with local area planning updates. This looks to be a major zoning bylaw update which is coming later than it should have, but still is on the cusp of being implemented. I think the impetus here is the council wants to run from the divisive wars the nimbys launch against site specific one off projects that were taking major time and resources to referee. If the hgo zone is created and Rcg mid block updates pass, a lot of the battles will be won before they start.

Subdividing rc2 land

Took a long time and was painful. That is my post. I actually had something longer written out but it got lost. Lesson learned do it over the winter when you don’t want to build anything and let the process unfold when you aren’t paying attention. The survey company carries much of the load just pay the fees quick or it grinds to a halt.

European folly

Are we destined to follow in the wake of the woke policy makers over there in the UK and Europe? While we are blessed to live in Alberta our quality of life is in jeopardy. Our opportunity to fund our vast bloated public sector and welfare state is also being squandered. How long will it be before we can get a better federal government?

The massive differential in price between the good stuff and the regular stuff

Shopping around for decorative elements for a house to complete it and once again the old issue of dramatic difference in price is showing up. A smart builder can select nice items that offer a good performance/design/value balance, but more typical is being seduced by the ‘good’ stuff. And the good stuff will cost 3-4x the standard items. The failure here is the huge upgrade charges don’t build the house they tend to me more cosmetic than anything structural. It is just too easy to blow a suitable budget by tossing in the 10’s of thousands of upgrade items and look back later and wonder why the house cost 50$ per square foot more to build than planned.

Saskatoon berry update - strange times

With not much to report from the raspberry market, we can turn to the Saskatoon berry crop for a little market insight. What is strange is the reports of total market disaster from our former champions over in Vancouver and the GTA. Houses down 25% in a few months? Well, never should have been happening was drab townhouses selling outside of Toronto for $1.25 million. Those would be under $400k in Calgary. So why does the head banker feel the need to smash the market with a 0.75% interest rate increase? Trashing the housing market won’t make wheat grow, natural gas liquify and arrive in Europe, or the Japanese yen to appreciate vs the USD. And we also have the Prime Minister jetting around incessantly flipping pancakes, while back room machinations give Russia back key components to further screw with the Europe gas supply. So giving the nasty bully back a cudgel by the dumbest and most cowardly group of feckless politicians is the state of affairs. Given the macro backdrop, we should all focus again on our Saskatoon crop.

Prefab is fabulous

The qualifier here is ‘sometimes’. The long lead times, need to have over sized excavation, and access issues can harm the precast project. I think the value is good and the window wells in particular are great.

raspberry market update #1 - risk happens quick

The raspberry canes are thriving now, after a slow start to spring ’22.

the canes are thriving, expectations of a bumper crop are growing.

This contrasts with the real estate market of late winter, which, by any metric, was on fire. Housing became so hot thanks to the central bank, cheap money fed fire that it created and was too slow to recognize (despite it being obvious to any casual observer) required downside meddling. To me, February was the borderline mania peak on infill development property which has declined in May.

Neighbourhoods I traffic in saw rapid escalation during the exuberance phase, such that I felt the math on project no longer penciled at the new ‘market’ land value. Despite urging from those close to us, we heavily pushed back on ‘deals’ despite the temptation of the hype, scarcity, and FOMO. Projects were clearly being bought at prices that required further increase in new home values into 2023 when those completed units would be brought to market. This is not a business model, it is one step removed from gambling. No business can buy key input at a loss then ‘hope’ values increase soon enough to wipe away the zero margin math into some meager margin. The realtors are definitely on board with this math, but those who pay a price in the effort and struggle to build have to measure the risk. And the risk has now happened. Just in the blink of an eye, we have seen labour pricing escalate dramatically, with land value already way up, and the interest rate effect has only partly showed up, with plenty more to come. Those February land deals now appear that the ‘winning’ bidder has lost his shirt. Here is a current land deal where it came to market at $750k, already $50k lower than recent comparable (actually some inferior street locations sold at $800k in February). And it didn’t sell, and took a cut to $735k. Maybe this one transacts at $725k, or lower, resetting the bar downward for the neighbourhood. Those earlier builders that overpaid by $75k, or more, now have $100k in additional labour and commodity increases to absorb. Worse, is the potential hit that rising rates into 2023 will impact the high end market for luxury spec homes more than lower end product. This $175k of bad math is likely to crush a typical infill business case given the headwinds of monthly carrying cost for buyers it could get worse.

The fundamental disconnect is the end value that these overly optimistic builders place on their finished houses 12-24 months out. They inflate the end value, then work back to today and willingly overpay for land deals when the supply tightens. The realtor whispers in their ear to buy now or face higher land cost tomorrow, and reinforces the escalating value assumption of new builds for next year. The cycle plays out on repeat. The problem is the land and input values do not translate to higher house values next year in proportional or predictable way. More likely is cyclical volatility. Lots of builders go broke and this is a big reason.

In February, this price and direction would be unthinkable. I bought into the hype myself as I was conducting mental gymnastics to justify the price of the time. Reality has once again intruded into the fantasy.