April 16, 2010
By Todd Hirsch
Alberta Business Columnist
CALGARY, AB, Apr. 16, 2010/ Troy Media/ — Anyone who’s driven into downtown Calgary or Edmonton in the last couple of years would be struck with the number of construction cranes dotting the skyline.
With Calgary, big commercial office projects like The Bow, Centennial Place, and Eighth Avenue Place dominated the activity. In Edmonton, it was high-rise condos on the west side of downtown and the Epcor tower north of city hall.
Unfortunately, as these projects near completion in 2010, the construction crane may give the Whooping Crane some competition for rarest crane in the province. Particularly in Calgary, the market is now somewhat overbuilt. The office vacancy rate will edge close to 15 per cent. There won’t be another major office tower complex going up in the city for years.
On the surface, that seems to spell bad news for the construction sector in the province. But fortunately, the timing of the government stimulus spending on big infrastructure projects may actually save the day (or save the year, more accurately).
What Statistics Canada calls “institutional” spending includes construction on university and college campuses, hospitals, schools, and infrastructure projects. All told, spending on institutional construction projects increased by 59.4 per cent between the first quarter of 2008 and the first quarter of 2009. Commercial and industrial spending, on the other hand, both slumped by 33 per cent.
Back in the deepest, darkest days of the recession, there was a lot of criticism heaped on governments (especially the federal government) over the speed at which the infrastructure spending was crawling out the door. Despite the urgent talk of quickly spending billions of dollars on “shovel-ready” projects, it inevitably took much longer to get those dollars working. The delays imposed by levels of bureaucracy, land zoning permits, and other procedural hurdles at the municipal levels were just too much. Governments just can’t spend that much money that quickly – and arguably, that’s a good thing.
The timing of the boost in government infrastructure and other institutional spending is proving to be rather fortuitous. Just as the big commercial and industrial projects are winding down for the time being (especially here in Alberta), the public spending is kicking in to provide a nice offset.
What’s more, the balanced construction sector activity is showing up where many Albertans care about it the most: in the labour force. Along with manufacturing and energy, the construction sector was hit the hardest among major areas of employment during the 2008 downturn.
But now, construction jobs are returning. Over the last twelve months, there have been 12,000 new construction jobs (or a return of jobs that had been cut previously). This is in contrast to the overall provincial trend, which has seen total employment in the province fall by 16,900 jobs over the past twelve months.
Residential construction, for its part, appears to be mounting a bit of a come-back in 2010. Total housing starts in March hit 31,200 (at an annualized rate, which basically means the number of homes that would be built if the pace in March continued for 12 months). That is nearly three times the level of a year ago when residential construction nearly ground to a halt. Most home builders are busy, but not overloaded with work. They’re hiring back framers, drywallers and plumbers, yet they don’t have to pay exorbitant amounts in overtime to get their projects completed. The current level of activity is still well below the frantic, record-setting pace set in 2006 and 2007, but it is actually quite close to the provincial 10-year average for annual housing starts.
A drag on the housing market
However, residential construction could still level off and take a bit of a breather in 2010. Mortgage rates have already started to rise, and further increases will come later this year when the Bank of Canada starts pushing up its trend-setting overnight interest rate. That may drag down the housing market a tad. But offsetting this negative effect will be gains in employment and improved consumer optimism in Alberta. It should balance out, resulting in a fairly stable market.
This year won’t set any records for construction activity in the province – neither on the high side, nor the low side. With infrastructure and institutional spending kicking in, the sting of the downturn in commercial and industrial spending will be soothed. Residential construction will hold its own. And overall, Alberta’s construction sector will pull through just fine.
Todd Hirsch is Senior Economist with ATB Financial.
Channels: The Calgary Beacon, April 16, the Slave Lake Lakeside Leader, April 28, 2010