Home builders were busy in Evergreen subdivision on Monday. 2022 looks like it could be a solid year but supply-chain issues are expected to be an ongoing challenge for new home builders. (Photo by Paul Cowley/Advocate staff)

Home builders were busy in Evergreen subdivision on Monday. 2022 looks like it could be a solid year but supply-chain issues are expected to be an ongoing challenge for new home builders. (Photo by Paul Cowley/Advocate staff)

Positive signs for central Alberta economy

Home sales hot but new home builders facing supply-chain challenges

Realtors, developers and home builders are generally bullish on 2022.

However, supply-chain issues will pose an ongoing challenge, especially in the new home market.

As 2021 closed, many key indicators were trending in the right direction.

Brett Salomons, of Salomons Commercial, said they recently finished their fourth quarter vacancy report and the results are encouraging with vacancy rates dropping a percentage point over the last three months of 2021.

“Over two quarters, it’s dropped two per cent, which is good,” said Solomons. “It’s been yo-yoing around 10 per cent for the last couple of years and it’s now under 10 per cent with this last quarter.”

“I’m fully expecting it to continue. We’ve got oil at $85 a barrel. I very much believe we’re going to see lease rate increases and sale price increases because of that spread between new and existing.”

With the cost of building new commercial and industrial buildings high, the market for existing spaces has been getting stronger.

“It’s almost twice as expensive to build something new rather than buy an existing building,” he said.

“Nobody is really looking to build. Unless you’ve got a very special use type of building you need, it just doesn’t really make sense.”

On the residential side, the number of new homes being built was up over 2020. Last year, City of Red Deer issued 684 residential permits worth $32.7 million, compared with 599 worth $23.5 million in 2020. In 2019, 633 residential permits worth $27.4 million were issued.

Realtors are also coming off the strongest year in many years.

In central Alberta, there were 6,562 residential properties sold in the region last year, up 51 per cent from the 4,345 properties that changed hands in 2020.

Red Deer had the strongest year since 2012, with 1,924 units sold, compared with 1,262 in 2020 — a 52 per cent jump.

Guy Pelletier, of Melcor Developments, said 2022 is shaping up to be a solid year.

“On the residential side, we saw a nice improvement in activity through 2021. I would say as a city we’re still below where we should be in terms of a typical building permit number, but the trend is certainly going in the right direction,” said Pelletier, Melcor’s vice-president for the Red Deer region.

“Probably the bottom of the market was 2019 in terms of building permit numbers and we’ve seen a nice improvement through 2020 and 2021 and we’re hoping to see that trend continue through 2022.”

Melcor’s Evergreen neighbourhood east of the 30th Avenue and 67th Street roundabout has been a success story for the developer.

If the city’s hot real estate market leads to the tightening of supply, as expected, that could lead more people to decide to build, which would help the new home market and the builders, sellers and contractors involved.

On the commercial side, Melcor’s Clearview Ridge development has also been active. A large car wash is under construction and two other buildings are leased out and will go forward this year. Tenants will be announced later this spring.

“That project has gone well. Our vacancy is similar to what it was prior to the pandemic, so we’re comfortable where we’re at up there.”

Laebon Developments Ltd. managing partner Steve Bontje said while the strong used home market and rising oil and natural gas prices are positive signs, those building new homes will face challenges this year.

“It’s certainly great to see some excitement and some renewed activity (in used home sales). The reality for new construction is that there are some supply chain issues and price increases for basically every input we use in a new home and that’s going to continue to be a struggle for 2022, for sure,” said Bontje.

“There’s kind of no end in sight at this point. Everything from flooring to doors to hot water tanks and microwaves, there’s just kind of an upward pressure on pricing that is going to make it challenging for new home sales for the next little while anyways.”

The storms in B.C., which closed down major trucking routes for a time added to supply-chain issues and pushed up lumber prices.

“There’s certainly been a little bit more activity, but if you look historically at housing starts in Red Deer we’re still off from where we’d like to be.

“Hopefully, as things calm down with everything else that’s crazy in the world we’ll get some of these supply-chain issues back to normal but it’s going to make things interesting, for this year anyways.”

Red Deer Construction Association executive director Gary Gies said municipal and provincial projects have been the big money makers for the construction industry in recent years and that is not expected to change.

While the commercial sector has been mostly flat — $51.7 million in permits in Red Deer last year, compared with $54.6 million in 2020 — there are some significant public projects coming up and others that may materialize to keep the industry working.

A new high school in Blackfalds is expected to cost $40 million and a new Catholic middle school in Kentwood is expected to cost around $25 million. Prior to that, the new Justice Centre and G.H. Dawe Community Centre expansion were big projects.

Some other projects are also in the pipeline that give the construction industry a major boost, including the expansion of the Red Deer Regional Hospital Centre and the twinning of Highway 11 from Sylvan Lake to Rocky Mountain House.

Municipal jobs, such as roads and utilities, is expected to a big source of work for many companies.

In the private sector, much of the construction work is expected to involve renovations and improvements rather than new buildings.

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