Saturday, April 08, 2006

Calgary's Housing Boom Lifts Off

Calgary's housing market is dramatically outpacing the rest of the country, in a price surge not seen since the real estate bubble in Toronto 15 years ago.

The price of new housing in the oil patch capital rose by more than a fifth for the 12 months ended January, 2006 -- triple the rate of the entire country, and far ahead of second-place Edmonton, according to Statistics Canada.

The numbers are impressive, but they do not convey the full extent to which Calgary's real estate market is being transformed. Bidding wars for properties, once a rarity, are now a fixture in nearly half of deals. Developers are poaching construction workers straight from rivals' work sites. There are 10-month waiting lists for new housing. And some builders have simply thrown up their hands in the face of soaring material and labour costs, freezing new construction.

It all adds up to Calgary joining the rarefied ranks of real estate occupied by Toronto and Vancouver. "We're in the big leagues in so many ways," said Alan Tennant, a real estate broker in the Calgary area.

"And now the housing prices are reflecting that," he said.

That is a jolt to out-of-province buyers still expecting to find a comparative bargain in Calgary. Colin Kennedy, an agent for Prudential Toolepeet Real Estate, said one of his clients, a British Columbia woman, arrived in Calgary hoping to find a house comparable to her Vancouver home, but for under $500,000.

He came up dry at that price, and had to persuade her to raise her sights to a $600,000 home. "She was a little bit shocked she had to do it," he said.

Much of the boom in housing is being driven by the redevelopment of older neighbourhoods, where postwar bungalows are being demolished for much pricier homes. Mr. Kennedy is selling such a property in west-central Calgary, where each unit of a duplex is listed for $499,000.

That is a million dollars of real estate in an area where, until recently, bungalows changed hands for well under $300,000.

The growing size of Calgary and the increasing difficulty of developing virgin land have combined to make the inner city much more attractive, and much more expensive. "It's the rise of the infill," Mr. Kennedy said.

The hunger for real estate in the Calgary area even has some industry players sitting on the sidelines. One national commercial real estate executive said small, local buyers are pushing up land prices, making it hard for him to find parcels of land at prices that will generate enough return to make it worthwhile for his business.

And land is just the start of the cost pressures on builders. The oil boom has soaked up skilled tradespeople, reducing the labour pool for residential construction. Similarly, supplies of concrete and structural steel are strained. Those rising costs have been passed on to new-home buyers, Mr. Tennant said, adding that he does not believe the increases are unreasonable.

Those rising costs have overwhelmed some builders, even though sales prices have been soaring. Alanridge Homes, backed by a group of private investors, is winding down its business because it could not find a way to turn a profit from building custom homes for fixed prices.

Costs are rising sharply and suddenly, making it nearly impossible for builders to predict what price they need to charge home buyers. "Chances are, my costs are going to be out of sight," said Don Howie, chief executive officer of Alanridge.

Edmonton, which is actually closer to the bulk of oil production in Alberta, is experiencing a more modest boom in new housing, with prices up 12 per cent from January, 2005, to January, 2006, according to Statscan. Toronto and Vancouver, meanwhile, posted relatively anemic gains of 4.6 per cent and 5.7 per cent, below the national average of 6.6 per cent.


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