Luxury Home Sales Rise Again in Rising Canadian Oil Country

(Bloomberg) — Rob Hryszko’s phone rings. Calls are pouring in from executives in Calgary’s oil industry asking to know if he can build them a multimillion-dollar luxury home.

Hryszko sort of says yes and then asks them to get in line.

There are currently 28 people on the waiting list. Veranda Homes Ltd., a small Canadian family business that typically builds 12 to 15 homes a year. for this is too much. Those at the end of the line will not build their homes until 2024.

For Hryszko, all of this brings back memories of the hectic days of the mid-periods, when oil rose to a high of around $140 per barrel and Calgary was, in his words, “on fire.” The boom in Canada’s energy capital today isn’t quite the same as this one – less drill-baby-drill, more careful salting of unexpected profits – but Hryszko barely notices the difference. “This is very similar to 2006, 2007,” he says. His optimism is so high that he plans to nearly double his capacity to build houses.

At a time when post-Covid economic expansions have cooled in much of the world, Canada’s is advancing as well. No economy in the Group of seven industrialized nations and few in the entire developed world are growing faster.

And Calgary, surrounded by oil, natural gas, wheat and barley fields that have made Canada a global export power, is at the epicenter of it all. The employment rate is one of the highest of any major Canadian city, with home sales up 58% in the first quarter. Job creation in the province of Alberta is expected to hit the top of the nation this year (but that wasn’t enough to save Premier Jason Kenney’s job).

It’s been a long time. The effects of the 2014 oil crash lasted for years. The failure to complete major pipeline projects and the rise of Justin Trudeau to power in 2015 only fueled resentment from the eastern financial and political centers. Now the unexpected drop in oil and gas revenues is creating prosperity even as other parts of Canada face a slowing real estate market and other headwinds.

“It feels like it’s finally our turn here,” says Hryszko.

Export Engine

There is also a dark side to all this. Not only does growth lead to the same acute famines and runaway inflation that have plagued governments around the world, it also highlights a fact that some Canadians would rather ignore: Commodity exports are still the engine that drives the economy. In March, the fossil fuel industry broke a record, representing 27.4% of merchandise exports.

And for all the Trudeau government’s goodwill on climate change, keeping the country and its politicians, business leaders and workers off fossil fuels will be a huge challenge. In fact, the war in Ukraine and efforts to move away from Russian energy have given Calgary’s oil field, as we call it, a moment.

“Canada could be providing more energy to the world if we had just continued with a few projects. “And that’s one of the things that disappointed people in Alberta quite dramatically,” said Deborah Yedlin, CEO of the Calgary Chamber of Commerce. “We have to be a more global player and we are not because we don’t have enough infrastructure.”

Sit in C-suites with energy executives in Calgary and it turns out that they are certainly aware of the contradiction between Canada’s economic and environmental policies.

Unsuccessfully, they are all quick to highlight the greener elements of their business plans. Some of these are real. No matter how high crude oil prices are, they know that peak oil is not many years away. What’s more, Trudeau has ordered them to reduce emissions by 42% by 2030 from 2019 levels. But most of it seems to be the 2022 version of the embrace the future message they’ve been delivering for decades. that energy riches would pay for diversification and innovative methods for cleaner energy production.

There is no easy substitute for the printing power of oil and gas. The energy sector represented 25% of Alberta’s economy and about 9% of Canadian production last year.

A small example of the side effects can be seen at Petropolitan, an upscale pet grooming and hostel business located in the heart of Calgary’s downtown office district. Founded in 2019 and subsequently beaten by the pandemic, the business is now growing exponentially. Revenue increased 125% year-on-year in the first quarter and is expected to increase 160% in the second quarter.

“This growth is very promising,” says owner Hailey Seidel. He knows very well the sharp economic turns in western Canada: his father was in the energy business, and he still remembers the oil bull markets of the past when “money rained from the sky”.

Like any entrepreneur in town, he’s certainly aware of how bad things have gotten after the last one turned south. Energy companies laid off so many workers that many downtown office buildings were completely abandoned even before the pandemic hit.

But Calgary is coming back. The 17th Avenue SW area, the retail and entertainment hub where Veranda’s office is located, is brimming with students and young professionals. Hotel lobbies still appeal to business travelers. Lunch and rush hour crowds fill popular downtown hotspots as more people return to their offices.

And again it attracts new residents. Alberta led the country in net immigration from other provinces in the fourth quarter for the first time since 2015, mostly people from Ontario, Manitoba and Saskatchewan.

The human flow is not large enough to meet the workers’ needs of the companies. Seidel has already increased prices by 10% to curb demand and raise wages to retain staff. He said he would continue to raise prices until he completes the expansion plan, doubling the capacity of nurseries to accommodate 160 dogs, and triple the number of sitters to six.

High inflation, labor shortages and supply chain disruptions still pose challenges for businesses in the state. For Hryszko’s Veranda, this means construction costs increase 20% as it competes for skilled workers and contractors and hires an additional manager to minimize delivery delays for everything from steel beams to refrigerators.

Still, it’s a good problem to have. “This is going to be a very, very healthy town to do business, for everyone, not just as a home builder,” Hryszko said, if the oil stays north of $80 a barrel.

“I really hope this isn’t a cycle of ups and downs again.”

©2022 Bloomberg LP

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