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2007 Construction/Development and the economy


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#1 concorde

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Posted 02 December 2006 - 11:34 PM

I would be interested to hear what people think 2007 will bring for us. Do you expect to see continued strength in the development and construction economy or continued slow down?

I spent a significant amount of time back east this fall and was suprised to see the overall lack of activity. The maritimes were slow, but thats nothing new. Quebec was slow with mainly government work (what I call a false economy). In Ottawa things were slowing down significantly and even Toronto is slowing down, although it may take a little while before some of the bigger projects fizzle out. I understand the praries are still extremely busy, but the major industrial projects are slowing down and not much new work has been released.

I am sure everyone remember the last slow down:

1996 was an extremely good year
1997 saw the last major projects released
1998 things were slowing down, nothing new on the drawing boards
1999 HOLY CRAP, I'll work for food!!!! House in Oak Bay for less than $200K
2000 By the end of the year, things were getting better

I would appreciate some good replies to this post for general discussion. If you feel the economy will go which way I would like to know your reasons why you feel the way you do.

I feel the economy will continue to slow, but not end up in a tailspin. The US economy is likely to head into a recession next year and since they are our largest trading partner, we will likely start to feel a serious pinch. A good case in point is lumber prices which have fallen to record lows. The Canadian economy is slowing down in the east and seems to be slowly making its way west and there are all ready warning signs that the west can expect a continued slow down for the years to come. Most large construction projects are expected to end by 2008 and few are on the drawing boards past this date. Does this all sound familiar to the late 90's?

#2 G-Man

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Posted 03 December 2006 - 08:45 AM

I think that increasing media attention caused by the 2010 games will keep us out of recssion. We have to understand that what we have experienced for the last two years is an anomoly and you have to go down to get back to normal. So I think that construction will stay steady between now and 2009 and then ramp up for a year and then have a good little recession in 2011.

A good way for us to increase our "false economy" (as you called it) contruction would be amalgamation because we would qualify for a ton more grants.

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#3 Mike K.

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Posted 03 December 2006 - 10:06 AM

Whatever goes up must eventually come down. That's a given and is to be expected but luckily out west we have increasing in-migration from boomers who are choosing Victoria/Vancouver as their place to retire. With those boomers comes the need for service industries, oftentimes high-priced and more luxury services (not to mention automobiles, investment firms, etc etc).

Victoria's office market is facing historically low vacancy and somewhat high lease rates. If demand for office space continues we may see an increase in commercial development from the rapid pace of condo development (three large proposals are already in the works for downtown, afterall). For the economy, that's a great thing and a welcome change.

As for the downtown condo market, as more people move to the core, more will want to move to the core. In other words, people will be more enticed to buy into downtown condos once downtown turns a population corner. If Langford's condo boom recedes as a result because the focus changes then I'll consider that a form of succes. In fact, the unbelievable amount of housing planned for the west is really the bubble that we should be worried about if we are to worry about local real-estate. Downtown will be fine so long as it continues to evolve into a more complete district.

On top of that, interest rates will recede by 1% next year. That should help sustain the home purchasing momentum.

Overall our market will share the burden of a weakened US economy but we have a lot going for us that, say, cities out east may not.

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#4 G-Man

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Posted 03 December 2006 - 10:17 AM

Can this be moved to South Island Economy pls?

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#5 NMP

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Posted 03 December 2006 - 11:20 AM

Major problem we may encounter is stemming from the increasing disbalance between "raw material" economy and manufacturing economy. The tale goes like this:

- rallying oil/gas prices create a boom is according industry;
- Canadian dollar becomes an oil-related currency, gaining strength on oil rally;
- Canadian dollar strength weakens local manufacturer;
- economy tilts toward oil/gas supply as major product at the expense of manufacturing.

This is somewhat oversimplified of course, but that's the real danger in a long term as such disbalance hollows out the economy and makes it overly dependent on a highly volatile resource. Imagine what happens if oil dips to $30/barrel and Alberta economical powerhouse crashes

#6 Mike K.

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Posted 03 December 2006 - 11:32 AM

Increased production costs translate to leaner business practices. Some say such high-dollar spikes are good in that they demand more efficiency (dirty word oftentimes) and belt-tightening.

As for oil, it drives the economy and sets the market price for virtually all goods we consume. Even inflation is tied directly to the rising costs of crude. With increasing global demand from the two largest world markets, China and India, the price of oil will not deflate until we rid ourselves of the internal combustion engine.

I guess the bottom line is our manufacturers have to adjust to operate with a high currency value and not rely on a cheap dollar to push their goods.

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#7 m0nkyman

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Posted 03 December 2006 - 12:12 PM

Imagine what happens if oil dips to $30/barrel and Alberta economical powerhouse crashes


Yeah, umm. Alberta ain't the only one relying on energy prices. BC and Saskatchewan are also floating on an energy high.

#8 NMP

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Posted 03 December 2006 - 02:52 PM

I guess the bottom line is our manufacturers have to adjust to operate with a high currency value and not rely on a cheap dollar to push their goods.


Ugh, it's not that they just rely on it, they may very well run a good business, but too high currency rate simply makes competition much harder for them, and at some point much harder translates into impossible. Theory that it's all good in a long run as it makes them become more efficient is fine while currency rate stays in certain "sane" range... there are limits to any ability to adjust. Sure, what doesn't kill us makes us stronger - unless it kills us, lol. I am not saying we are there yet, my point is that it's a danger lurking.

#9 G-Man

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Posted 03 December 2006 - 04:23 PM

Yeah until we see renewable energy creep above 20 percent of the market oil ain's going any direction but up.

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#10 NMP

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Posted 03 December 2006 - 08:58 PM

^ You know.... this is so obvious and so widely acknowledged as an absolute certainty that I can't help but wonder whether it's actually true... The market simply doesn't work in a way that rewards those who play for obvious, and the time when everyone knows for sure that something has nowhere to go but up is exactly the best time to sell. Just like the high time to get out of technology stocks was when every cab driver or shoe-shining boy would give you stock tips

#11 Number Six

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Posted 03 December 2006 - 10:30 PM

^ but the world economy is dependent on oil and like any junkie it will pay almost anything to get its fix. Alternative energy sources will eventually kick in but most of the "experts" seem to agree that in the short to medium term there are no viable alternatives.

The tech bubble burst because most dotcom companies had a lousy business plan, or more often that not, no business plan at all. It was the 21st century equivalent of a gold rush ... a few propector's who knew what they were doing propsered while the majority were easy pickings for all the hucksters and other eager business people keen to mine the miners.

#12 m0nkyman

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Posted 03 December 2006 - 10:31 PM

If our economy suddenly stops needing energy, I'm not going to be concerned about my stock portfolio. I'm going to be concerned about having enough ammo, 'cause there will have been either a disaster or the kind of paradigm shift that creates revolutions and wars.

#13 NMP

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Posted 04 December 2006 - 06:42 AM

^^ See. you equate the need in energy with the prices we see. In other words, what you say is that those prices are based on fundamentals and reflect real supply/demand ratio. But the fact is, noone knows, and cannot know that by definition. The market game works differently - initial idea of supply/demand disbalance jump-starts the price movement and then the game of speculation starts.

Look at tech boom analogy from somewhat different perspective: sure, there was not much substance under many of those price fluctuations, but at the time they occured crowds thought differently, and fueled those fluctuations with their money. Then the reality took over. Who is to say we don't see same thing happening with oil pricing right now? After all, during tech boom it was just as obvious for both pundits and crowds that the boom was for real and would never end. That's just the freshest of examples we all lived through, but this chain of events repeated itself zillion times before (see Extraordinary Popular Delusions & the Madness of Crowds as the most well known material on the subject matter) and it was never recognized during the development - only after it was all over it was identified as another boom/bust instance.

#14 captain highliner

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Posted 05 December 2006 - 07:13 PM

Required reading: John Keneth Galbraith, A Short History of Financial Euphoria

#15 G-Man

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Posted 05 December 2006 - 08:56 PM

I have seen that one but have not read it. I should get it from the library.

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#16 Holden West

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Posted 05 December 2006 - 10:39 PM

This is also on my list of books to read one day:


"Beaver, ahoy!""The bridge is like a magnet, attracting both pedestrians and over 30,000 vehicles daily who enjoy the views of Victoria's harbour. The skyline may change, but "Big Blue" as some call it, will always be there."
-City of Victoria website, 2009

#17 captain highliner

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Posted 06 December 2006 - 04:30 PM

This topic keeps me up at night. I work as a foreman carpenter in commercial construction and therefore I follow economic news and analysis intently for any signs of a downturn in construction.

My thoughts are that we've definately turned a corner in terms of finally meeting the pent up demand for condo's and SFDs. Absorbtion of new units has fallen, while construction costs have continued to rise. I'm thinking that the number of new projects will slow down.

Moderating this is the fact that there's still unmet demand for class A office space. And according to The Economist's "The World in 2007" commodity prices are going to moderate substantially in the new year, especially steel because of a projected market correction in China. They also say that oil is unlikely to decrease in price substantially in the new year, so the demand for energy efficiency should still be a significant factor driving urban planning and the residential remodelling market. Think pink!

Where the rubber hits the road for me is whether I'll be able to find good work in the future. I'm still optimistic about my prospects due to the demographic shift from baby boom to echo. We'll have to wait and see.


By the way, I've decided to lighten up and finally break down and use some of these emoticons I've been hearing about.... 8) :P :cry: :evil: :twisted: :-x :shock: :-D :roll:

#18 gumgum

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Posted 06 December 2006 - 04:48 PM

Is there a subconscious reason why you've got two devil emoticons?

#19 Holden West

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Posted 06 December 2006 - 06:08 PM

^One is angry devil and one is devious devil!

As the Victoria 2020 conference anticipated a 20 fold increase in the population of Downtown (Metro Victoria) I would think the outlook for construction would be quite robust! Don't put your hard hat away just yet.
"Beaver, ahoy!""The bridge is like a magnet, attracting both pedestrians and over 30,000 vehicles daily who enjoy the views of Victoria's harbour. The skyline may change, but "Big Blue" as some call it, will always be there."
-City of Victoria website, 2009

#20 captain highliner

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Posted 06 December 2006 - 06:31 PM

Actually, the two devil emoticons represent my faith in evil as a force for positive change vis a vis the built environment. The mean one's Pam, the happy one's Dean. Hail Satan!
:evil: :twisted: :evil: :twisted: :evil: :twisted: :evil: :twisted:

The only problem with the more optimistic estimates for downtown population increase is that they don't seem to reflect the reality of what the market can support. I would love to see a twenty fold inctrease in residents downtown, but don't see how we can find that many customers with the means to afford to live in new developments downtown. Like I've said before, the high cost of restrictive land use regulation effectively prices units out of the reach of middle income families. How much demand will remain for $500 a square foot condos after Bayview and projects like it have built out is anyones guess, though I have my doubts that there's a limitless supply of rich Albertans waiting to move to Victoria at that price.

That being said, if civic politics shifts a bit in the next election towards a more urban development friendly agenda, then the picture becomes a lot more rosy.

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