By Matthew Boukall, Vice President, Product Management, Data Solutions & Danielle Chabot, Senior Director, Economic Advisory | May 21, 2020

These 5 strategies can help home builders and developers in Calgary manage risk and advance real estate development opportunities

While demand for housing never goes away, it does go through cycles of upswings and downswings.

We’re all too familiar with the bad news in the media today – shuttered businesses, job losses, uncertainty for the future. A global pandemic combined with weakness in the energy sector has created a situation that most Albertans have never seen before. Navigating through the next couple of months will be a challenge for most sectors of the economy – including the housing industry.

While we are currently in a quiet period, when housing demand resurfaces, it may look different than it did a few months ago.  Home builders and developers will need to be in a position to quickly address those changes.

Now is the time to plan and prepare. To begin, it’s helpful to look at the current Calgary housing market, along with five strategies that can help home builders act swiftly on opportunities as they emerge.

 

Calgary new home sales were on track to surpass last year

The Calgary economy had positive momentum in 2019 and early 2020. Initially, the new housing sector looked like it was going to start stronger than 2019. Household growth was forecast to increase over the next three years and, during the lead-up to the traditional spring market, Calgary’s Q1 new home sales were on track to surpass 2019 numbers. The rental market also had strong demand with newly completed rental buildings showing a good rate of absorption.

Then Saudi Arabia and Russia faced off in an oil production war in early March. Global oil prices fell some 30 per cent – the biggest drop in decades.

And, on March 17, Premier Kenney declared a state of public health emergency in Alberta over the novel coronavirus pandemic.  Many sectors of the economy were shut down, social distancing rules came into force and Calgarians were encouraged to work from home.

While construction continues, and new home sale centres have remained open, Albertans have been struggling to deal with business closures, job layoffs – and many other priorities more pressing than looking for a new home.

So what should be next steps for home builders and developers? Here are five strategies to consider that can help you capitalize on the changes arising from Calgary’s new marketplace.

 

1. In the short term, manage key risks

Most of the expectations for the economy in 2020 have been jettisoned; in the short term, current economic effects will depress housing demand. Population growth will now be slower this year, next year and through to about 2026. Slower immigration and a reversal in inter-provincial migration will drive this outcome.

Calgary CMA population growth

Now is the time to focus on managing costs and expenses to ensure the best possible pricing for your product.

For current projects – focus on recurring cost structure. Can you slow the pace of construction activity to match the current demand? Is it possible to adjust specifications or packaging to provide buyers with more pricing flexibility? Do incentives relate to consumer expectations?

For home builders and developers who are considering bringing a project to market or preparing to launch – delay project redesigns or repositions until the economy starts to open up and a sense of normalcy begins to return. It may make sense to revisit some planning decisions. For example, where consumers may have seen certain items as “nice to have,” some of these items may now be perceived as frivolous.

Revisiting your plans may also provide you with some flexibility so that if pricing shifts, you will not feel compelled to make hasty decisions in the face of competitive or resale market pressures.

 

2. Forecast a five-year horizon

While many home builders and developers operate on a one- to two-year planning horizon, the impacted energy sector, higher unemployment, recessionary economic conditions and lower international immigration will lead to slowing housing demand for the next few years (see revised forecast below from Altus Group’s Economic Advisory team).

Calgary CMA demographic and housing implications from the crises of 2020

While we can’t predict the future, forecasting ahead five years can help you assess whether current shifts are signalling a need for change in direction. Should you build for home ownership or rental? What does that look like?

In a world of uncertainty,  looking ahead can reveal possibilities and provide context that informs intuition and judgment and supports strategic decision-making.

 

3. Start gathering information from potential customers

More than ever before, it’s crucial to really understand your market. Look to customers and prospects who remain active in the market as a resource for predictive information.

Individuals may be delaying a purchase, not necessarily abandoning the market. Initiate contact to learn more about their potentially changing preferences. It’s too early to know, for example, whether working from home will or won’t be a trend, but consumers may want to determine if they can fit a desk in a space.

Using sales centres and virtual tours as feedback-gathering opportunities is especially important if you have a project at the pre-launch or pre-construction stage. Leverage online technology – virtual tours and video conferencing apps like Facetime and Zoom –not only to sell to consumers but also to gather feedback around their wants and needs.

Has their budget changed? Their timing? How about their location preference? Are they considering other housing options?  Are their needs within the home changing; for example, do they want a separate entrance? Are they considering a space to work from home?

We don’t yet know how long the COVID-19 crisis will last and whether it will have a dramatic effect on the way people live. But having these conversations now is critical to acquire timely insights about how potential buyers’ needs and priorities are and aren’t shifting.

 

4. Before making decisions, collect and correlate data from multiple sources

It’s important to apply context to your findings as you gather information. Using data from multiple sources can reveal, and confirm, market trends. So, if you have consumer feedback, weigh this in terms of economic data such as employment statistics and short-term GDP. When looking at the new home market, compare activity against other data such as the resale market.

Since the COVID-19 situation is dynamic, don’t pin your view on data from one point in time. March or April employment data and new home sales activity may look quite different in a month or two. To inform good business decisions, gather timely, comprehensive data, correlate it and analyze to find the hidden insights.

 

5. Expand your target market

When positioning a product and targeting a market today, expanding reach can be invaluable.

Buyers want to see a clear link between their needs and wants and what a new home project offers. But the unknowns related to the Alberta economy and the coronavirus pandemic have made life unpredictable and uncertain.

Many potential buyers aren’t yet sure what they will want and need – now or a few months from now. So developers should be wary of narrowly defining a development; the goal should be to attract as much consumer interest as possible.

Consider showcasing your product with flexibility in mind. For example, highlight design features that address topical issues like working from home and technology that provides comfort and security.

Meanwhile, avoid narrowly defining a niche while the environment is still so fluid. Instead, look for ways to expand market reach, to gather more information and to engage with more prospects. This applies equally to condo and rental developments.

 

Opportunities are emerging – are you prepared to act on them?

Albertans are understandably distracted right now. We are still in the early days of the energy and COVID-19 crises. There are more unknown than known impacts at this point. To formulate strategies, answers to key questions will take some time to find.

According to the Conference Board of Canada, the province’s economy is going to shrink by an unprecedented 5.8 per cent this year because of the COVID-19 pandemic, amplified by the collapse in oil prices. But a sharp rebound is expected in 2021 – with 6.1% growth.

At the same time, activity on the rental side of home ownership is quite strong. We are on track for the highest number of rental completions in 2020 in more than three decades.

In the short term, people may be inclined to stay in rental longer because of job uncertainty. We’ll know more in the coming weeks whether consumers are taking a “wait and see” approach, or whether something different is happening.

Calgary developers are loyal to this city, accustomed to volatile economic cycles and resourceful in responding to tough situations. Use this time to conduct good research, develop forecasts and devise a business plan for your projects. When the time is right, you’ll be ready to quickly make on-target decisions.

 

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