Building Up in a Downturn
Why do developers keep constructing in a recession?
The most recent population explosion is over. We’ve all felt the sting of the recession. Why, then, do we still see cranes go up, diggers digging down, and the city spreading at its edges?
In a word, the answer is “affordability.” Ask yourself: as we climb out of the recession and attract newcomers, what happens to housing prices if our supply is low? You’ve got it. The law of supply and demand tells us that when demand is higher than supply, prices soar.
The building cycle is lengthy and expensive. Builders and developers are forced, by the nature of their business, to take the long view. Nothing can start or stop on a dime. It doesn’t make sense to pause now, as population projections still call for more housing in the not-too-distant future.
“Think of it like a factory. The factory takes too long to produce the widget for you to sit back and say, well, it’s not a busy time right now, so let’s just stop.”
- Andrew Davidson, Sr. VP sales and marketing, Cardel Homes
In an article in Avenue Magazine, writer Julia Williams talks to more builders, developers, policy-makers and the industry association, BILD Calgary Region. She digs deep to explain all the factors that push continued construction in Calgary, including:
- The project started years ago.
- Policy-driven collaboration with The City takes time, and millions are already invested in a project that looks new to us.
- It’s economical to purchase land while prices are down.
- Labour and materials are often cheaper in a recession.
- People are still buying homes.
- Calgary’s economy relies on construction; it’s not in our collective best interests to stop.
“If it seems odd that City Hall would respond to a downturn by accelerating major development projects, keep in mind that Calgary’s economy depends on construction.”
- Julia Williams, Avenue Magazine
The last time we faced such an economic slump we were very heavily skewed to rely on the business of oil and gas. The recent loss of thousands of oil and gas jobs is devastating for many, but Calgary, on the whole, is more diverse now. Todd Hirsch, chief economist for ATB Financial, says:
“Calgary is a different city than it was 30 years ago. It’s a lifestyle and destination city,” he says. “Developers realize there’s more than just jobs keeping people here.”
It’s critical that developers and builders continue to plan and build in a slow economy, to keep Calgary livable.
For more on housing affordability, see our video “4 Factors in Housing Affordability.”