think twice before renovating in predominantly infill based r2 communities

Another recent instance of a fully renovated and improved older bungalow sell for zero premium over a condemned teardown was observed today. the lesson, should a person choose to learn it, is that certain parts of inner city calgary are dominated by a type of investment formula that shouldn’t be deviated from. There is no point to renovate an older bungalow unless the owner actually intends to live in the house permanently (thus the resale question is then moot). These properties transact based on land value, not house value. House value does not really enter into the equation, such that quality renovations are not demonstrably accretive to the property value. Sure livability goes way up, but that does not help when it comes time to sell and the renovated house ends up in the bin.

Do realtors know this and advise their clients accordingly? I hope so, but I suspect differently.

176 days on the market and such a terrifyingly low transaction price. This is a good house on a great street, and I would know (lol).

Early presales

The inglewood project, being fairly unique, seems to have put a bullseye on the market demand for larger, well equipped homes on great locations in the inner city. It didn’t take much marketing effort for the houses to sell, indicating that, without any hype, the product needs to speak for itself, and when it does it will attract buyers. Is this a function of pandemic lead cabin fever? Partially, but also could be the start of a long term trend. I am certainly considering acquiring more similar land to do multiple detached builds on large parcels. The advantage of detached home building vs multi family building is really quite profound, it gets a far easier ride at the City permitting level, the disadvantage is the material required to build detached is very expensive. On balance, I think detached home building is much preferred to squeezing four units on a 50 ft lot. 2021 is off to a quick start and we hope to continue the momentum as we launch the parkdale project in a couple months.

Building continues at the Inglewood project now with client involvement.

Failed developers bailing on projects with zero value add

Here is a common scenario in Calgary, I have seen it so often I’ve lost track. A ‘want-to-be’ builder acquires a property, often of dubious development merit. Plans are possibly made, sometimes even approved by the City to a DP pre-release level (but not ‘released’ as that requires an influx of real cash, far more than the DP permit fee). Often the DP has lapsed once the property hits the market, a sign of the duration over which these events unfold. During this multi year process the speculator (let’s not give them too much credit) does some homework and realizes there is no hope he can do what he originally planned. Either he hasn’t got the skills or believed incorrectly he could outsource the build while sitting on the beach. Let me tell you that is a bad strategy for an investor. More like a debacle recipe. So a couple years have gone by and the complete POS house is evidently now un-rentable, to the speculator that is a sell signal I guess. So our ‘Developer’ looks for the easy way out, he tacks on a ‘couple $100k’ above what he purchased for and lists it on mls.

Somehow the lapsed or non existent plans justify a value add of hundreds of thousands of dollars. It seems like the failed developer deserves all of the future profits of the finished project on his way out. A pretty rendering is acquired to fill out the listing, viability of the design be damned. Talk about a ‘whif’ of multi family building potential somehow translating into another builder purchasing a drastically overpriced land deal. I don’t do pretend builder bailouts. The market needs to school these people. They speculate on land they can’t build on and undermine the business model of serious builders by artificially inflating inner city land value. When someone skips town on a project, that is an indicator they wouldn’t have been a good partner anyway. Is flakiness a characteristic you want in a JV or as someone in charge of your investment funds? It shows when things get hard, they dont have what it takes to overcome a challenge. Building is a constant challenge and the best builder overcomes hurdles and eventually becomes adept at avoiding and neutralizing problems.

Terrible land deal. Sub premium location. Permits never even attempted to be submitted. Horrible house on lot. Sold for$492k a couple years ago. At that price maybe it was a workable project. At asking price it is like expecting a builder to come in and hold the land for a year or two and invest $2m with no hope of any financial return later. The rendered units in the mls ad will cost more to build than a semi detached home in the same area but be valued by the market way less. So much cringe here.

Basement development

Started the new year with a basement development south of the city. Not my normal project, drive time, tiny value, new jurisdiction and business licence. I’ve reminded myself how hard it can be to fixed price bid a job. You’ve got to have a degree of omnipotence to get anything right at the planning stage. No budget ever is as accurate as it should be, within say 5% of actual. You could spend days and days estimating work and still overlook some detail. Make sure that contingency line item is in there!

The interface where old meets new at the basement development. A pleasant place to be in January, clean and well lit even. Basement development is a good introduction to home building. I never bothered with learning renovations, instead I jumped into a custom house and then into seven figure budget multi family build. That was hard! A basement is a much easier way to grow a trade network and practice management and budgeting. I generally don’t do any projects with a budget of under $500k, but once in a while I don’t mind a little side hustle.

Lots of closets

Closet planning again for a project. There is no end to the detail that can be introduced into a new home. Seeking out ways to introduce efficiency into the process means a lot of discussions like ‘remember that house on that street we did last year? Ok do that again’. This brings some informality into the process that is efficient for everyone. Until it goes wrong and there isn’t any paper trail on anything. Helps a lot to use the same crews on multiple jobs over the years so mutually agreeable reference cases can be cited in photos.

Details make the job nicer to organize for everyone. But you also need someone to do the legwork of planning.

Detached market madness

Browsing real estate statistics for the last month of 2020 an observer cannot help but identify some major shifts have taken place. First of all, inventory is a lot lower and sales are up. This puts a floor in pricing and perhaps upward pressure. Forget seasonality of pre Christmas delisting, buyer preference changing, and pandemic delays in spring, a 40% year over year increase in sales is a big headline.
It is way too early in the year for a raspberry market update, but is this a blip or is 2021 a totally new market? Now that the government has created an economy where interest rate increases are basically impossible, a lot of money could flow in the direction of class A property. This makes the detached sector a winner, and in the infill market, there isn’t enough good shovel ready land. There isn’t enough places where detached homes can be built and the cost of entry in the r1 communities is really high. Anytime an existing home with some value is demolished and a new larger home is built, the net supply change is zero. If anything it shifts the housing stock drastically upmarket because the new home is built on land worth over $1/2m, and an end of life home, often a suited rental (i.e cheap housing) is demolished.
This market data is really worth watching as we burn through winter (January to March) and get into the prime real estate season (April to June) In calgary. I’ve started 3 new detached homes and have a couple planned for starting later in the year. A little optimism to start the year!

Truly dramatic stats on sales and months of supply for detached homes. This is the entire city, the infill stats are less dramatic with slower but still good sales. Note the benchmark price, at $490,500 a detached home buyer can’t even get a piece of dirt in the inner city. For the cost of a newer turnkey suburban home you may not even be able to acquire a tear down with a large asbestos and demo liability in the high demand areas. In really choice locations Calgary remains very expensive. Not Vancouver prices, but the infill and suburban markets have little relationship. Infill construction costs for everything from excavation to servicing to material costs are a lot higher too.

2021 - the prediction edition

2020 goodbye, can we get back to normal? Here are my predictions for the new year;

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.

2. 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.

3. 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.

4. 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.

5. 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!

LOL thanks nice government helpers for your valuable work.

A new industry association to represent the inner city builders!

2020 year in review - given the circumstances, an 'exceptional' year

Enough chatter has hit the web regarding 2020, a year of infamy, so I will refrain from getting into pointless jabber over masks, anti masks, bizarre enforcement against shinny players on outdoor rinks (while the political elites Jetset), and inept leadership at the highest level in Canada. After all, this is a business post. No politician is ‘responsible’ for what happened, nor is any politician worthy of any ‘credit’ for managing our society. I read somewhere that politicians should be the last people to receive a vaccine, because they, as in professionally, are not scarce or irreplaceable. Literally any educated adult in Canada could be a politician and do as well or better than what we’ve got (and certainly no worse than at the federal level), so I’d subcribe to that notion. Let’s inoculate those who staff senior care homes first, and healthcare front line staff second and then, only then, start widespread vaccinations from the oldest to youngest (with elected officials dead last regardless of age or self importance, lol).

First of all, on a personal note, my family was blessed with good health in 2020 and my business was a winner by happenstance. While other small business owners had their financial lives ruined by diktat, construction was deemed essential. I guess the cult of real estate is that strong here in Canada that it is prioritized over basically all other industries. While the retail/restaurant/tourism operators were crushed, and in my view, unnecessarily given what we know now, I started new homes full speed ahead with bountiful access to the men and materials that make it all happen, until of course that changed too. By the end of the year serious material shortages were noticed, and ridiculous price changes hit builders hard, like 3x pricing on some lumber product. But spring/summer was smooth sailing and a great time to be a home builder, especially compared to the broader society. It wasn’t such a great time to be a home owner, as prices have dropped again, and the NE was hit by a second black swan, just a terrible hail storm that will take years to recover from. The market really rebounded later in the year and right through Christmas break sales have been good and buyer preferences appear to be moving in a parallel direction to my operation, building larger, well equipped homes with plenty of amenities such as offices and gyms.

More specifically about the business year, three homes were finished and turned over to the owners, all very nice clients and great people to work with. A townhouse transformation was completed and sold, despite horrible market conditions, and I built a garage as a side job, which turned out extremely challenging to finish when we couldn’t get any siding product. Two new detached homes were started and are at the lockup stage now, a third bungalow was started and is in limbo right now due to some permit related fiascos (resolved as of years end, yahoo). If that was the worst thing that happened during 2020, then I got off really lucky. I also have a large pipeline to start four new builds next year, so 2021 is planned to be a success. I wont discuss the three that got away because it makes me too annoyed. Given circumstances, I didn’t capitalize on what I saw as tremendous business growth opportunities, and I may be kicking myself as time goes by. What have I learned from this? I’d say nothing, because I am still not positioned to do much different or better in 2021.

On a more macro level, 2020 was pure central bank led insanity. One need only look to the central bank balance sheet ending the year exponentially increasing from $125 billion to $550 billion. This money printing experiment is the equivalent of the central bank purchasing government debt which is then circulated into the economy through program spending. $550 billion divided by 38 million citizens is around $14500 per person in money creation, most of it in 2020. Add this to the out of control deficits and debt at all levels, look at the province of Ontario, its debt per share of population is over $26k, the federal debt is another $26k per person. This will never be paid back, a family of four will simply never have $50k plus to hand over to the governments to reimburse it for its prior bad decisions and management. Yet there is no topic that gets less attention among the general public than this egregious debt burden. Has all that cash been funnelled into real estate, bitcoin, and tech stocks? Seems so, and this bankster behaviour is contributing to the stratification of wealth in society which is the opposite of how it is supposedly intended. What a bizarre year.

Interest rates are at all time lows and can quite possibly go lower, as in negative. Interest rates cannot go up without crushing the consumer and the government debt machine requires interest rates be lower than the growth rate of the economy. One bank was supposedly offering .99% loans, with plenty of strings attached, that is free money. It is hard to argue against accumulating assets as a hedge against bad banker behaviour. If the government is going to defend and protect house values at the expense of any other sector of society (pity those retirees that must eke out subsistence from below inflation fixed income products) then by all means go and buy some property. Where does this end other than continual currency debasement and an eventual currency or sovereign debt crisis, I can’t say.

2020 comes to an end as a conspiracy theorists fantasy come true, construction remains a respite from this madness. Happy new year!

wow ugly!

2020 - the prediction review edition

Thankfully 2020 is nearly over and it is time to do the annual prediction review scorecard post, an opportunity to review my Nostradamus-unlike predictions made each December with some time-machine-like hindsight. So here we go, just four predictions were made during the last few days of 2019;

• the spring 2020 calgary inner city housing market would be better than the spring 2019 market - outcome - WRONG - in spring we were in the midst of a previously unthinkable nationwide pandemic lockdown. A home builder couldn’t even show vacant houses for some lengthy segment of the year and open houses were effectively cancelled all spring. The spring market was a horrible dud, the worst I have ever seen, bar none. I don’t blame myself for this forecast, the first couple months of the year were looking very promising, at least until we ran face first into an enormous black swan called covid.

• my transition into building large single detached homes would be a wise move given overall market forces - CORRECT - this was a really spot on prediction, but I was right for the wrong reasons. It seems that a massive shift took place in home buyer preference due to the shockwave of lockdown induced cabin fever, and the work from home via zoom meeting scenario led to desire for a better web cam backdrop. Unquestionably we saw a reversal of demand for walkability and urbanism in the market in exchange for more space for a home office and gym and privacy, and elevators - ooh icky, condo builders got murdered. My prediction originated because I detested building in an oversupplied segment, the semi-detached infill, given how ruthless the competition was and how margins had compressed to nullify any need to build more product. I wanted to compete on design and quality vs just price, which is a total race to the bottom as the semi-d business is totally commodified. I will have more to say on the villains and consequence behind the ugly semi-d business model in the inner city in another post. I may even be a semi-d hypocrite because, unable to resist my innate building urges, I bought another really nice lot early in the year (Parkdale, 35st NW), and what am I going to be building on it? A semi-d! And I wanted to build four detached homes in 2020, but the result was finishing just one and starting two (really late in the year which was so frustrating and costly due to planning department ineptitude), while deferring two for later in 2021. So my transition wasn’t particularly spectacular and I’ve already had a major relapse into semi-d building.

• Inner city real estate (land and homes) prices would increase slightly - CORRECT AND WRONG - can I be both right and wrong or does this violate the rules of the game? Well, in May, I saw a deal go down at literally 2011 or earlier prices in one of my key neighbourhoods. That was just a horrendous sentiment driven low point of market ugliness, when it appeared that the year would be a total calamity. Yet by the time I published my raspberry market update 1.0 and 2.0, the outlook was pretty good on pricing. Government meddling had imposed a level of pricing support based on cheap lending, and land values did rebound, and, lately, as this post is being written, some high dollar sales have been observed for nearly finished product. Other reports of many builders successfully preselling product has been recorded. It appear that at year end pricing is flat vs 2019, and way higher than what we saw in the first half of the year during the lockout lows. Also, I published a post called ‘same city, multiple markets’ describing unbelievably strong segments within the City. Perhaps government meddling in the financial markets is actually working in favour of the Calgary home builder for once?

• The clueless federal government would fall and be replaced by some ‘better’ entity. WRONG - but how close it seemed we would be to dumping the head virtue signaller. Instead he was able to hide out in his cottage and deliver ridiculously ineffectual drivel to his paid off press gallery. A man so fearful of being labeled ‘racist’ he’d welcome flights departing plague central to all of our major cities still leads us into 2021. We did do away with the out of touch finance minister, but he was replaced with an individual far less qualified and apparently we will suffer months more Pollievre led question period cringeworthy non-answers.

So there you have it, my 2020 prediction score is two wrong, one right, and one sort of even. My record of real estate fortune telling remains a dismal affair. 2021 is a tricky year to make predictions for, however, fear not, as fearlessly I will do so (in a future post). Happy Holidays to everyone!

Quote of the Year - Chrystia Freeland on Canada’s efforts to reduce carbon emissions in perspective, “even if all Canadians ceased producing Carbon it wouldn’t even move the dial” - if we shut down all of Canada’s CO2 emission (1.6% of global total) it would have zero impact on global climate change, yet taking action on climate change is view with a religious fervour and any policy to reduct emissions is viewed as positive, without regard to the consequences or any cost benefit analysis.

Year end progress

As we are about to enter the holiday season we’ve been blessed by some good weather for the framers to make a lot of progress on the two large detached homes. I thought Christmas was canceled and everyone would just work through it like any other week. Sounds like the trades weren’t 100% behind that idea. Regardless of the vacation schedule we are approaching lockup stage on the singles. At least most snow will stay out of the building rather than drift into it.

A lot of work to get here, and a lot more to come. Big houses come with big budgets too!

Relentless cost pressure

I think rising material cost is a recurring theme for 2020 and beyond. Basically the increases the factories pass on is always a multiple of whatever the government claims the inflation rate is. How these suppliers have pricing control isn’t clear, I think the small installers just show up at the order desk and pay whatever the bill is. They don’t have another option to substitute because that would waste a lot of time. Rising costs for new building helps to support the value of older buildings because replacement cost is so much higher that an older property will look more attractive. That may provide some relief to Calgary homeowners who’ve seen pricing flat and down since 2015. Six years is a long era of flat pricing in a market for real estate when other markets have had compounded growth in values.

6% is a tiny increase vs wood, which doubled or more last summer.

Garage building

Last couple of days to pour concrete without a lot of heating and hoarding here in mid December! The weather was really favourable in early winter melting the snow from October and not really having frost build up in the ground on exposed aspects like our south yard. We certainly took advantage of that and put in a new six bay garage at the Inglewood site. This tremendously aids the construction schedule because we don’t need to wait until perhaps May to start the garage. With rear serviced overhead power to the garage we also get off to a better start on the new panels for permanent power, furnaces don’t like to run on ground fault breakers in a temp pole. progress is nice after we lost the entire summer to delays.

Large pad is poured. Great weather for this late in the year.

Why is the tub filling so slowly

Another in a litany of crazy repairs was a recently installed, and expensive, wall mounted tub filler. It seemed the tub filler didn’t want to fill the tub. The usual suspects were investigated. Was it the anti scald valve that has a prescreen and acts as somewhat of a flow restricter? No, totally clear. Was it the aerator on the faucet? Also clean. Was there an obstruction in the roughin valve or spout? No again. Faulty cartridge? it was pulled out and examined and looks good. At this point there are no options left to investigate until the savvy plumber pulls out another internal component with a wrench and finds a third screen with particulate behind it. After reassembly the tub filler now fills.

A piece of sawdust and a tiny scrap of plumbers tape found their way to gum up the inner workings of the tub filler. How did this stuff get in there, nobody knows.

Buying the house nobody, me included, really wanted.

When you buy a terrible house you have paid for someone else’s insoluble problem and made it your own. Perhaps I have a greater threshold for pain than a typical person, or just a deeper war chest that can digest nasty lemons and squeeze out some lemonade. The trade off must be you find that ‘diamond in the rough’ and it is so rough that nobody else can see the diamond part so you can get it at a lower price. Ideally the hardship is just hard enough that the competition doesn’t want it but not too hard it exceeds your personal management capacity. The new build experience certainly lowers the anxiety level when you get deep into a full on disassembly and rebuild scale reno. Maybe even a bit fun despite the horrible stuff.

While not much remains, there was not much good to start from on this one. This is why I felt opportunity was strong enough to deal with a whole lot of hardship to get to this stage.

Thoughts on vaults

Hmmm vaults. I like them. Particularly on a renovation project such as a postwar bungalow with a terrible layout and low ceiling height throughout. Adding a vaulted ceiling is the opposite of a lipstick and mascara job on a tired structure. It represents an investment by the builder into a costly structural component that opens up and radically alters a space. As far as cost we can get into to bills, but so far my math suggests it is worth it. We will know more in a month or so.

This will really add some volume to an old house and eliminate the need for load bearing partition walls. Given lumber prices today this cost a lot more than it should be was overall reasonable to assemble.

Single zone installs

Five heat loops but a single zone. This is a the way to do an economical radiant heat install. I’m a hydronic heat aficionado, the quality of warmth is so preferable to forced air. The key is to do it without making it into some ridiculously costly venture, and we’ve mastered this by tackling the labour intensive part and using a modular kit for the rest. The heat source is then just a slightly costlier model of a tank you need to buy anyway and suddenly you’ve got a system.

Ready to inspect and maybe pour too…

Same city multiple markets

Odd as it appears the ‘correct’ type of land deal is bringing huge money again. Recent transactions have been noted from quick big dollar sales. Of course the condo and townhouse stuff is in the toilet and isn’t showing such signs of life.

Ouch this is pricey.

Quality work

Quality work and materials is readily available in the calgary home building marketplace, but it comes at a serious cost. Occasionally you see a project butting right up against the threshold of the cost benefit ratio. A good case of this is the exceptionally nice wall to wall, floor to ceiling fireplace and built in assembly at the lakeview house. The high end fireplace features a remote, built in fan, upgraded cosmetic kit and a large classic looking face, plus some boutique task lights. The woodwork and especially the final paint work surrounding the fireplace adds up to become a truly stunning piece of craftsmanship and quality. As far as value only the client can decide but I think it is a timeless install that will be a stunning backdrop to daily living for the residents of the home. To me, worth it.

So much work and expense to put this together but really rewarding to see it complete.

Another one in the ground

You get a sense of the pace of work and control over schedule when I have a project in my hands vs relying on others to perform. This is one of the curses of the inner city builder in dealing with permitting issues. At times there is nothing you can do to get a project started. Once allowed to work, I have some really efficient specialty crews that are able to tackle a project and out of the noise and commotion you get progress. The cribbers and framers come to mind as dependable guys that make the biggest impact. After almost 9 months of effort we are into real building.

Almost ready to pour the first basement

Another raspberry market update

The housing market, like the raspberry crop, appears to be undergoing a strange late autumn resurgence. Alarming reports from other markets have been heard where detached home prices are higher than ever and tremendous demand was recorded in terms of home sales. Calgary has only felt a marginal amount of this compared to the bubble markets but we did see a lot of pent up demand and good September numbers (strongest sales since 2014). How much of this is attributed to government money printing and currency debasement I can’t say. If buyers in this market faced 6-8% loans, which is where it could be without market manipulation, we’d have had a total meltdown. So the government and central bank manipulation is helping the housing market stay afloat but for how long and what will happen when the rates normalize? If ever they are allowed to (which they won’t be). Since you can’t fight central bank printing presses, it does seem to make sense to purchase some real estate and other hard assets.

After a late spring we have a second wave of raspberry. These are doomed to be killed by frost, but what will happen to the housing market? Will it suffer the same fate or somehow will Calgary be hit with tremendous upward pressure in housing prices?