Arthur C Nelson’s book “Reshaping Metropolitan America” is a enlightening read that lays bare the facts, trends and demographics that will shape real estate in North America. The data targets the year 2030 and describes in detail how our urban environment is destined to appear in the future and identifies opportunities to leverage positive change to create more vibrant, sustainable urban environments. The take away for me was how much obvious data we have that pretty clearly defines our future environment, how near this future scenario is in relative terms (2030), and that planners, builders and developers are still constructing developments that will be obsolete before the time that these homes requires a new roof (say 15 years). This to me, reeks of opportunity for any astute developer who is willing to change their mind.
If you accept his theory, and its hard to dispute the data, then here’s a synopsis of the opportunities that are presented:
- Developers need to invent new products and financing tools that meet the needs of financially strained households.
- Rising energy costs will drive the demand for locations that provide live-work opportunities.
- Multifamily Development will be transit-centric. Single use commercial centers will be converted to mixed use.
- Boomers will downsize to condos in walk-able neighborhoods.
- Urban redevelopment is shifting to the suburbs where vast supplies of asphalt provide attractive opportunities for re-purposing.
A New Community Planning Paradigm
The large detached homes on large lots, miles from the urban centers that were once highly valued, will become so out of fashion that they may become our next affordable housing supply. Segregated land use has given way to mixed use development. The automobile is no longer the transport of choice and from all of this some major new planning themes emerge:
- Sustainable and Healthier Communities is a topic unto itself focused on increased residential density, integrating transportation and land use, providing car-free areas, locally owned stores, walk-able neighborhoods, and accessibility. Design communities to link humans to nature including open spaces, and constructing high performance buildings and district energy.
- Tearing up the Parking Lots and rebuilding Paradise - the single largest opportunity for developers to participate in rebuilding sustainable, mixed-use communities.
- Transit Oriented Developments are a leverage point for future successful urban centers
- Reforming Land Use Regulation allows developers more latitude to construct mixed use developments and higher density developments where appropriate.
- Make Accessory Dwelling Units (Secondary Suites) Legal
- Eliminate Social Engineering through incentives to home ownership, allowing rentals an equal footing (mostly applicable to the US but a fair warning for Canada)
- Level the Home Purchase Playing Field to eliminate any discrimination in financing condos v/s single family homes (again, fair warning).
- Eliminate Social Engineering through Exclusionary Zoning. Urban areas overly restrict housing types and lot size etc with the effect of steering lower income households into the few jurisdictions that allow high density housing and away from others.
- Instill Permitting Discipline that restricts over-building more than the market can absorb in times of oversupply.
Its is hard to dispute the data which describes how out of sync the current trajectory for our future urban centers is with our future needs. We could gripe about the discord or marvel at the opportunity. Builders and developers need to stop building yesterdays housing in outdated community models and start building energy and space efficient housing in communities with mixed use and walk-able amenities. Make provisions for a secondary suite to house an extended family or allow a senior to house a student or caregiver that would allow them to age in place. And our Civic and Provincial Governments needs to allow this development and remove the barriers that make it illegal to innovate and build new housing models. If not, the home you build today may be obsolete before it’s time to replace your roof.
With national forecasts citing an overheated market in decline and calling for a further correction in real estate values, it’s curious to watch the Calgary Real Estate market out-perform most every other City and region in the country. Much of this performance is due to the hang-over from the recent run of strong net in-migration, due to a buoyant job market in Alberta. The question is when will the hang-over end and will Calgary succumb to the negative national trend despite our favourable geography and oil economy?
Calgary employment growth for 2013 is forecast to decline, yet remain positive at 2.3% with net migration for Calgary expected to slow to just over 15,000 over the next two years. This steady stream of new residents has fueled an increased demand for rental accommodation resulting in an apartment vacancy rate under 1.3%. This all points to a positive, yet somewhat reduced pace of activity that fuels the Calgary real estate market.
With the recent surge in rental activity and subsequent increase in rental rates one could be tempted to purchase rental property based on the recent higher returns, but are these rents sustainable for the long term? We advise that any rental properties are evaluated using conservative rent estimates especially those based on furnished rentals. Also note that vacancy for furnished rentals is similar to that of Hotel properties (in the 20-40% range) so don’t be fooled into using unfurnished vacancy rates and applying these to furnished properties, despite our current hot market. One exception could be buying rental properties that have a high component of land value, especially in inner city communities. These properties could derive good income from the building for many years, yet the land value may surpass its’ income value, if the trend toward inner-city community development continues.
Farmland also has potential as a solid income producing vehicle, but be sure to know what you’re buying. While crop rents have increased dramatically (proportional to crop prices), soil types, local geography, irrigation and overburdened crops all have a profound effect on the return a farmer can extract from a section of land. Again there may be other exit options for farm land such as future development potential or subdivision to smaller parcels. This can yield large returns but not for the faint of heart or uninitiated. If you are not the expert, be certain to obtain expert advice (the cost of which could yield you the best return for your investment).
One of the best strategies today for those who already hold real estate is to optimize your investment. That means reducing your operating costs and improving efficiency of the property. Some of the greatest benefits can be derived from reducing the energy requirements and greening your real estate. This not only reduces your consumption and cost of energy, but also improves the desirability of your property. Green Calgary offers a valuable home audit that provides excellent advice on greening your home and reducing its energy footprint. With the cost of solar electric continuing to decline we are now coming into an age that photo-voltaic systems are becoming cost effective. It won’t be long before you may be asking “how much energy does this property generate and how much income does it produce?” Don’t overlook these possibilities and the potential value of solar exposure when evaluating your next property.
Overall, it appears that the market may reduce from a rolling boil to a slow simmer over the next few years which calls for a return to a more sober, long term view of any real estate investment. Reducing operating costs could help you weather future bumps in the road, and exploring alternate exit strategies can add tremendous value if the need for Return Of Investment becomes more important than the need for Return On Investment.
- Tighter Inventory and a faster moving market: While the rest of the world took a real estate holiday the Calgary real estate market has been chugging along quite well (thank you very much) and steadily chewing up any over supply of inventory left over from the 07 bump. Inventory has been steadily dropping across all categories but most noticeably in the single family mid-range market.
- Gentrification is the new normal: Mature, inner- city communities and those with plenty of walkable amenities are blushing with all the attention they’re getting. Buyers are not shy about knocking down modest homes on good lots or renovating homes that have the bones and adequate floor plate.
- Mortgage rates will remain low: However, banks have not opened up the taps to ease the flow of cash to new buyers. This is keeping the brakes on the market nationally and puts a squeeze on first time buyers or those who need to refinance. This keeps a lid on the entry level market but upper end buyers have capital so expect some cautious expansion in the premium and luxury arenas.
- An ample supply of starter homes and apartments: Condo prices rose the least over any other sector this past year due to a fairly competitive market and a good supply of new developments. Developers are upbeat and many national developers are focusing their effort in Calgary bringing some fresh products and new innovation to this market.
- Price Increases will be moderate for Condos: The condo markets experienced a 3% increase last year. Expect that this steady price increase will continue and likely accelerate this year. Rising construction costs and the depletion of cheaper land will bear on the prices as developers have nowhere to go except pass on these increases to buyers.
- Rental Boom: There, we said the B word, and it applies right now to the rental market. A tighter mortgage market lends to a better rental market. It also appears that many of the new local hires are provided a leased property to supplement their 2 or 3 year employment contracts. As a result, the market for both bare and furnished rentals has boomed over the past couple years. This had the positive effect of absorbing some excess inventory that Buyers purchased in 07, and keeping many properties off the market that otherwise would be currently available for sale. Be cautious to purchase investment property based on inflated rental rates unless you have good reason to believe they are sustainable. Keep an eye on this trend, as it will be interesting to see what our real estate market will look like in 2015-16 when many of these rentals come back to market.
- Bedroom Communities are wide awake: Developers have discovered that it’s cheaper and easier to develop in neighboring communities than more expensive and onerous Calgary subdivisions. With City Hall levying higher taxes on suburban builders to more reflect the real cost of services they tap into, Developers are voting with their feet and developing where they can get the best leverage. This means more focus on these bedroom communities outside the City and that’s where we saw much of the action this past year. Expect this to continue in the short term until these bedroom communities start to realize they face the same challenges as Calgary (and implement similar solutions to pay for infrastructure).
- Infills get better: Attached is the new normal and three storey infills become more common. Accompanying this trend, look for builders to provide (roughed in) elevators as a new standard to accommodate a broader demographic of Buyer. Cottage homes above garages will receive more attention, as well as underground basement access from the home to the detached garage. These tunnels can be used for additional space, storage, wine rooms and such and don’t add to your development footprint.
For more insights into the Calgary real estate market or your Calgary neighborhood contact us
Calgary real estate resembled a more vibrant market in 2012 with a good kick start in the early months of spring and finished the year with strong, yet cautious momentum. This sales trend was most noticed in the Luxury home category which picked up dramatically in the spring and has recently coasted into a bit of a lull. The mid and lower end home market gained traction and has calmed in recent months but remains the bread winner. A drop in the number of available MLS listings in this low/mid category has kept the supply in check and prices relatively firm. Condo apartment prices crept up 3% year to date and the recent influx of new condo builds is maintaining a good supply of product and holding the prices competitive. Read More
The media has been ripe lately with stories of how the real estate market in Canada is over-valued and is now cooling. If you lived in Vancouver of Toronto, you would think that this is a pretty accurate indication of reality. However, if you reside in Alberta or Saskatchewan, you are probably wondering what kind of drug these reporters are on because their world is bustling with jobs and activity. So what is the real story in the local Calgary real estate market?
First, the real estate market is local. Like the weather, listening to a report that the Canadian real estate market is preforming poorly is like hearing that the weather in Canada is bad. Certainly Calgary is influenced by the national economy, just as we are by the global economy (now more than ever). However, real estate is a local story. Calgary is leading the nation in job growth and net in-migration, which leads to demand for residential real estate. While the rest of the nation (even the western world) is struggling to create jobs, we can’t seem to find enough people to fill the posts. So, when you hear that the real estate market is cooling down, its akin to having your head in the freezer and your feet in the fire. On average your temperature is may be moderate or dropping, but it doesn’t accurately reflect what’s happening locally.
Our research indicates that we will continue to have strong demand for residential real estate for the next two years. Price gains should be gradual and moderate, however lately we are concerned about a reduction in available listings, bringing our months of inventory to under 3 months for single family and townhouse listings. If inventory continues to decline, this could cause some pressure on prices to increase. Keep in mind that although prices have been rising, they have been stable for the past quarter.
This local/national example also applies to your local neighbourhood and what is happening in Calgary does not always reflect what is happening in your local community, or your particular street. If you zoom into this level the trends that we’ve witnessed generally are:
- In increase in demand and firming of prices in the inner city
- Increased demand for lifestyle properties and walkable communities
- Increased demand in adjacent, bedroom communities like Airdrie
- Cooling of demand and softening of prices in the outlying suburbs.
- Slowing demand for acreage properties
- A trend to smaller, more practical and energy efficient homes
As well there are the usual seasonal trends, and of course you could discover trends for pockets within your community. An experienced real estate expert can assess all of these variables that affect the value of your property and more. If you would like to stay current on the values in your local neighborhood, we will send you updates of the sales and listing activity monthly in a convenient email report. If you would like a current market evaluation of your property, simply call us and we will be pleased to provide this for you, so can make the best most informed decision on your real estate investment.