Supply of land ‘fly in ointment’
With buyer demand to remain strong in 2014, industry looking at prices and serviced lots
Land is on the minds of builders, developers and city administration alike.
While Calgary’s new home sales were strong in 2013 — and are expected to continue to be so in the new year — it’s the effect of the serviced land situation that has most in the development and homebuilding industry talking.
“I don’t think we noticed one community stronger than another, so much as it seemed to be robust throughout the whole city,” says Glynn Hendry, regional vice-president southern Alberta for Qualico.
“We also build in other developers’ areas and they were good. It was steady throughout. That’s good to see. That means there’s lots of choice and lots of competition, which serves the consumer well.”
Hendry expects the market to continue to be strong this year.
Looming on the horizon, however, is the question of the serviced land supply.
“The fly in the ointment will be the approval process that we experience at the city,” he says.
“I know that we’ve had this bandied about for a long time, whether there’s adequate supply of lots available to us,” says Hendry.
“Frankly, I think unless we get this going, we’re facing some struggles. And I would suggest that this won’t necessarily happen in 2014, but it could come sooner than people think, like 2015 or 2016.
“Everyone now is starting to focus on the same thing, and that’s lot supply.”
With robust predictions about in-migration, strong job creation and competitive pay, Canada Mortgage and Housing Corp., a federal agency, expects Calgary’s demand for new housing to remain strong.
“Employment growth, rising incomes and strong net migration, combined with relatively low inventories in the new home market, will support an increase in total housing starts in 2014,” says Richard Cho, senior market analyst for CMHC.
As demand stays high, prices will likely continue to climb. CMHC predicts the price of a new single-family house to average $598,000 this year, up 2.6 per cent from $583,000 in 2013.
Construction starts of single-family homes will continue to grow, with about 6,200 starts in 2014, though that is slower than the peak year of starts in 2006, when about 10,500 single-family homes had shovels in the ground.
“What you begin to test now is the elasticity and inelasticity of demand. In other words, how high will the prices go before someone says, ‘I’m not buying that.’ I’m seeing that in the marketplace already,” says Hendry.
Instead, the economics lesson becomes one of substitution, he says.
When buyers can’t afford a single-family house, they start looking at duplexes or town houses. The argument isn’t about dictating to people what they should live in, it’s about offering affordable choice, he says.
“You start pushing people out of a market, that they may really wish to live in, is worrisome. We’re seeing more people not qualifying for mortgages at a time when mortgage rates are at their ab- solute lowest,” says Hendry.
If more land was approved to bring on by the city, he says, then there would be more choice, more competition and people could buy more in line with what they want and can afford.
Rising city prices encourage people to seek homes in surrounding communities where similar sized homes are more affordable.
“We’ve noticed a resurgence of that already in Ravenswood in Airdrie, and that community’s doing well,” says Hendry.
Currently, there are about 47,000 serviced lots available to be registered and built on in Calgary. Of those, about 32,000 are multi-family units and 15,000 single-family units, says Rollin Stanley, general manager of planning development and assessment at the City of Calgary.
It’s about a three- to fiveyear supply at current absorption rates, he says.
A part of the puzzle for how Calgary grows in the future will be established this year as administration establishes the budget for the next four years, which includes infrastructure spending.
Infrastructure brings city services, like sewer and water, and major roads to the edge of new developments, where land development companies then complete the task to bring services and access to each individual home site.
“That growth management planning will enable us to decide where we think we should be growing and spending the money,” says Stanley. Recommendations will be made to city council, which will then make decisions.
This year, city administration is taking a close look at 24 major neighbourhood activity corridors in the city to see where redevelopment could be encouraged by changing land-use rules.
“That will possibly act as an incentive to get more people interested in developing the TransCanada corridors, the Edmonton Trails, the Centre Streets, to get more housing and services along these corridors,” says Stanley.
“I see it as a real opportunity to open up the housing market more and get more housing onto the marketplace — which we need — and more services into our established areas.”
When it comes to inner-city redevelopment, members of the Canadian Home Builders’ Association-Calgary Region are concerned about affordability and have some suggestions to make, says president Doug Whitney.
“We intend to advocate for different parking restrictions, allowing for tandem parking and lowering minimum parking for inner city projects,” he says.
“I think that’s in keeping with what we’re being told that the inner city is about — that people walk more and drive less, and fewer people own cars. Let’s plan for that and make it a little more affordable for people to live downtown.”
CHBA-Calgary Region says the cause of densification would be greatly helped by creating a comprehensive secondary suite policy.
“We think that more permitted users will provide more ground-orientated multi-family units as well. That can help with affordabil- ity and certainly with housing easing the pain people are experiencing in the rental market. There’s a shortage of it,” says Whitney.
Inner-city redevelopment has been on the increase, Stanley reports, and there is more to come.
“Since 2006, we’ve been averaging close to about 300 subdivision applications each year, which balances out to about just over 2,000 new residential lots in established neighbourhoods, meaning infill housing,” he says.
“We’re getting that balance between greenfield (new building on previously undeveloped land) and established communities. We’re not quite where we’d like to be.”
The city is aiming for a 50/50 split between greenfield development and redevelopment of established areas of the city.
In keeping Calgary a desirable and competitively priced market for people choose to make their home, or to continue to live in, housing choice and affordability are the key ingredients for a successful 2014, says Whitney.
“We’d like to provide people with what they want and make it affordable for them,” he says.