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.
Trash. Cheap to dump but expensive to fill
A recent journey to the dump left us 1.5 metric tons lighter and with a clean job site too. In exchange we had a bill for a mere $130 for the pleasure of dropping that hefty load of crap. But what was the true cost of the garbage? It represents the off cuts of perhaps $50,000 of useful raw material, plus the associated packaging and debris. What would be interesting would have been to have weighed all the delivered product to date and then take the 1.5 ton of trash as a % of the total. Have we installed 15 ton of product, or 30? If we spent 50k on stuff, and it weighed 30 ton, that indicates the trash value would have been $2500. The stuff inside the bin, particularly the engineered product off cuts and the wood waste was really valuable. Of course once cut, the bits left over are nothing but pricey trash. Despite the reality that the stuff in the bin is in the bin because it is useless enough that someone wants to pay to get rid of it, it still hurts a lot. Is there some way to reduce wastage, deliver precisely sized material so cuts are eliminated, recycle more, or burn clean wood? Perhaps there is but those tactics will be less satisfying that dropping off a heavy load at the dump and leaving an empty bin behind to refill with trash from the next stages of the build.
1.5 ton of trash slides out the dump trailer. It cost us likely a couple thousand to fill the bin, but only $130 to dump it. Is it worth the time, fuel, effort and cost to have a truck and trailer just to be able to haul around some trash? Bin rental and hauling can add up to be a serious cost by the end of a project if not managed carefully. The builder will end up hauling air to the dump when it is filled poorly, or losing valuable material that should never have been trashed in the first place.
What I would like to build but can’t due to ‘bylaw regs’
First of all I’m in a good place right now, doing the projects I want to, where I want to do them, working with people I like, with a massive pipeline of product in planning. Beyond this, I seem to be continuously stymied by what is possible, given enough energy and battling (which I actually lack the stomach for), and what seems undoable. I’ve also been looking into the past more and more for inspiration of what worked before, endured, and thrives in the calgary climate, which is incredibly harsh and damaging to wood structures. The past contains a practical element of grace and simplicity, and never relied on tech or wonder products to combat the elements. Until such time as a new building bylaw is created that is far more permissible, anything other than the building types we know today (singles, semi, townhouses) is a big costly gamble.
New project
Is it just short attention span or getting bored with the same old thing? So much of a calgary project is driven by compliance and rules and fees and bureaucracy. The city falls short of recognizing that adding process is just layers of busy work that adds zero to project quality. We’ve been looking to do something different for some time. Will the peripheral communities offer a greener grass for us to develop? Or will it be more difficult?
Will Calgary affordability decline along a similar path of the key Canadian cities?
First off, I believe the answer is no. The distinguishing feature between Calgary and the other markets is how much product has been able to be built and how responsive the building industry has been (in the past) to demand. Add in a lesser amount of power and political control via the NIMBY crowd, less natural constraints (like oceans), less foreign money laundering distorting prices, and a municipal government that can actually get projects approved in a reasonable (more or less, some of the time) pace, the Calgary market is just different. Historic wage strength has always been on the side of the buyer, and material cost (in the past), also helped affordability tremendously. The recent trend toward massive construction of permanent rental housing also can act as a pressure relief valve by opening more supply and loosening up vacancy among existing rental stock.
Headwinds to Calgary affordability include the hot 2022 market, rising seller expectations that their home is a gold mine, labour and material shortages, and momentum of being inside a hot market, attracting a lot of out of town investment (Ontario) dollars. This plus rising mortgage rates may temper the amount of building that can be done, but dampen price increases simply because the payment will rise along with bond yields.
All of these factors I believe will nullify ongoing major price gains, particularly rising interest rates. What is a bit of a wildcard is the ambitious asking prices that homes are being listed at. As we are now in the midst of a hot selling season, homes are being listed at very high asking prices, that appear to not reflect fundamental value. Do balanced conditions await the future Calgary market?
Is this a sign of affordability issues to come? Or an outlier?
Craziest home building story ever posted to all major media outlets
It is hard to let this one go without comment. A builder allegedly neglected to take out building permits on a couple projects, then finished and sold most of the units. How this passed through the various responsible entities that process deals I have no idea. The paperwork requirements are significant and hard, at best, or impossible to overcome without agreement from various government departments. The worst case is these homes would have to be torn down because no engineer would be inclined to offer as built drawings of concrete and rebar installations. No inspections can realistically be done for plumbing and electrical in completed homes. The city can get very tough when it is publicly made to look foolish in the media, although how can city inspectors inspect a house they never were invited to attend?
Another bothersome issue with these alleged scammer builders, they buy and build on property which takes away opportunity for legit companies, driving up land value. Do these alleged scammers collect gst on sales and then flee? How cheap can you build if you don’t have to pay for permits, warranty fees, engineers, inspections, and suffer procedural delay? How many corners can be cut when building? This is a story that will spawn a lot of rumours and gossip among the builders for years to come. Hopefully no home buyers are put in awful positions due to the actions of the alleged scammers.
