Grandinite Interview Exclusive: The Calgary Economy

(GNN - Grandin News Network) - Calgary’s economy has been driving Canada’s growth for the past year, but is it all it’s cracked up to be? Grandinite.com interviews one of America’s budding analysts of Calgary’s economy to find out.

“Go West, young man” has been the mantra of many Eastern Canadians eager to tap into the seemingly boundless wealth of Alberta to make a fast buck, get ahead of the Jonses or to simply find gainful employment. But economic growth comes at a cost, particularly the widening economic divide between the haves and the have-nots. Calgary, Alberta, has been the destination for many seeking high-paying jobs and business opportunities, but what’s the downside to this growth? Grandinite.com managed to secure an interview with Aaron Braaten, a U.S. - based economist who specializes in analyzing the Edmonton-Calgary corridor.

GNN: Calgary’s economy is booming, there’s no doubt about it. But why in the sweet name of Moses should anyone care what some hack on the Eastern seaboard of the US says about Calgary’s economy?

Braaten: I’m one of the few analysts in the US who specializes in studying the Calgary metro area. My own personal views in no way represent the company I work for, of course. I’m speaking as an Albertan who has economic training and as someone who’s somewhat of a voyeur on the whole economic scene. I know of no other US based analyst who studies Calgary, and I like that sort of ignorance. Sure, there may be one or two others, but the point of the matter is that many investors, upon reading about Calgary in the media, read my stuff to find out if it’s a good place to park their cash. I’d like to think my words could sway billions in investment, but that’s just what I’d like to think. Also, as an outsider to Calgary, I’m pretty much immune to the hype you typically find coming from the city hall website or the local real estate boards, who have a vested interest in pumping up the good and downplaying the suck. Finally, as an Albertan and former resident of both Edmonton and Red Deer, I’m just plain awesome.

Above: Economic Guru-dom never seemed so easy. Braaten says he’s able to maintain his Canadian identity in the US by “drinking a shitload of maple syrup, followed up with copious amounts of Molson”.

GNN: Statistics Canada claims that Alberta is the “most moved-to province in Confederation”, and undoubtedly, Calgary’s warmer climate and high levels of income attract a fair share of these migrants. Who are these people, and what have they done for Calgary?

Braaten: “First off, I know the report you’re talking about, but what’s often omitted from the analysis is that Alberta’s the most moved-from province as well, with the primary destination of outbound migrants being B.C.”

GNN: Why is that?

Braaten: “Think about it. If you’re a pensioner or a teacher, your property value has doubled in the past five years, and your property taxes have gone up as well. Calgary’s rapid growth bids up prices for people living on fixed incomes, so it makes sense to move to a region where inflation is lower. Calgary is at the heart of national inflationary concerns - the 6% rate of growth in the Consumer Price Index doubles the national trend. If were a retiree in Calgary right now, I’d take that fixed income and buy a cabin in one of these BC towns that’s been decimated by the pot-smokin’ hippies who have managed to hold up mining and forestry activity. Alternately, I’d be looking at Saskatchewan if I wanted to see some property price appreciation, as that province is becoming more receptive to developing its oil resources.

GNN: What do you have to say about Calgary’s spillover effects in the national economy?

Braaten: It’s jobs, plain and simple. If you’re one of those Maritimers who’s living at the YMCA working construction to sock away a ton of cash you’re probably not getting ahead. But at least you know you could buy yourself two trucks, a house and a Ski-Doo back on The Rock (Newfoundland). Housing out east is still affordable. In terms of housing, your dollars will go further in Saskatchewan or Newfoundland than they will in Alberta. Also, I’ve noticed some Calgary firms setting up shop in Nova Scotia, to tap into the cheaper labor supply there and prepare for the next oil boom. Calgary’s getting too expensive, even for its wealth-generating companies, and they’re heading east to where the labour is instead of waiting for it to come to them. So in short, Calgary’s basking in its post-orgasmic glow, whereas Halifax is just getting felt up right now.

GNN: So dollars don’t go that far in Alberta’s housing market. Is that making it difficult for people to get ahead?

Braaten. Oh, you bet. Calgary’s average house price is upwards of $430,000. Mind you, that’s driven by the big sales at the top, as luxury home sales for oil executives skew the numbers. But it can’t be skewing the numbers that much. I mean, you’d have to be a double-income earning couple with a gross cash flow of over $120,00 per year to afford to tap into Calgary’s housing market with minimal down. If you can, that’s great - your house will probably sell for over $500,000 in a year. Even though price growth is slowing, there’s still room for expansion, and people who can afford it will still do well. If you’re not fortunate enough to qualify for a mortgage, you’re pretty much excluded from these income gains. It’s unfortunate, but them’s the rules. You can still get ten times the house in Saskatchewan. Old shitboxes are selling for 300k in Calgary - you could buy ten of those in Saskatchewan. Heck, I even heard Gimli, Manitoba is giving away lots to people who build within a year.

GNN: Why the high house prices in Calgary?

Braaten: Migration into Calgary is substantial. My guess is that most of the migrants to Calgary are slightly more educated than the ones moving to Edmonton. Edmonton’s more of a destination for skilled tradespeople, whereas Calgary’s got its professional core of engineers, geologists, lawyers and bankers. Incoming migrants to Calgary have higher earning power, and hence, more purchasing power than immigrants to Edmonton. So Calgary’s congestion has more cash, which bids up property values. Plus, in Calgary, most of the construction workers are engaged in building hi-rise office towers, so residents are competing with oil companies in the same construction labor pool, which makes it more expensive to build a house. Edmonton doesn’t have that. On the flipside, Edmonton’s house price appreciation has been strengthened as blue collar workers, priced out of Calgary’s market, head north.

GNN: Calgary’s economy is moderating - why do you think that is?

Braaten: Two trends - congestion and regulation. Last year employment grew in the double digits, and all those highly paid white collar workers went to purchase single family homes, only to find that as the typical DINK couple with earning power over 100k, just the downtown condos were affordable. Everyone in Calgary wants a slice of the Alberta dream - the McMansion in the suburbs, and the economics of congestion drove demand high enough to price them out of these markets. Furthermore, with all the construction resources tied up in the downtown office towers, it’s been tough for the city to service new subdivisions and build roads, even though the Calgary annexed a bunch of land in the northwest. In the broader scope, da gubmnt is out to get a slice of Calgary’s wealth any way it knows how, and this is the biggest risk. The Feds know that another NEP will not fly, and have instead decided to go with the frog-in-the-pot approach. This started in October, with the elimination of certain advantages conferred upon income trusts. Now da gubmnt’s gonna get its share of the revenue pie through taxing oil companies. Precision Drilling got hosed on this one, and now Transalta is looking for a buyer. In an effort to tax Calgary’s oil companies, the feds actually made them ripe for foreign takeovers, which is ironic. Precision Drilling sold off its global assets and put all its eggs into the income trust basket, and now that the tax advantage is gone, the company’s not diversified enough to hedge against risks. As a result, its share price suffered, making it cheaper for rich Amurikuns to consolidate our oil patch.Thank Stephen Harper when ExxonMobil and Halliburton buy Calgary and rename is Bushgary. On the upside, I suppose the lawywers in Calgary will make a killing selling off our oil companies to US buyers like private equity firms. I mean, already, the Carlye Group has its greasy paws in Alberta’s biodiesel scene with its plat near Red Deer, and its ownership of Kinder Morgan. That company’s pumping oil to Vancouver to supply the Chinese with energy. Dang gubmnt.

GNN: What do you see happening in Calgary over the next year or so?

Braaten: The recent increase in living cost will piss off unionized employees, so there’s going to be more labor disputes. Also, as Calgary-based corporations decimate the environment up north, there will be more pot-smokin’ hippies protesting in front of CNRL and BP oil. It’s a great time to open up a head shop in downtown Calgary. Affordability will deteriorate, and migrants will re-think the move to Alberta. Saskatchewan and Nova Scotia are the next areas of the country to benefit from people priced out of the Calgary dream. While it might not be as flashy, it’s still a nice life, and I’d be looking to those regions if I wanted to raise a family. But if you want to make cash, Alberta’s still the place to do it. Come west with a hammer and some nails and start building stuff. Yes, just nail some scrap lumber together as soon as you get off at the Greyhound station. I’m sure some would-be homeowner will try to buy it from you.

GNN: That’s it for now. Thanks for your time, Mssr. Braaten.

Braaten. Yeah, sure, whatever. No BFD.