Fort McMurray faces a severe land shortfall as major projects fire up in the resurgent oilsands

BY DAVE HUSDAL

A shortage of ready-to-develop land around Alberta's oilsands boomtown has Fort McMurray officials wondering how they'll meet the demands of 2011 and beyond - particularly as more major projects move forward.

"We could be a year to a year-and-a-half with no single-family lots available," said Bryan Lutes, president of both the local Urban Development Institute (UDI) chapter and the Wood Buffalo Housing and Development Corp.

Only 17 months ago, back in September of 2009, the urban heart of the sprawling Municipality of Wood Buffalo boasted about 1,500 single-family lots ready for builders. That inventory had fallen to about 290 at the end of 2010, Lutes said.

"The likelihood of us burning through those 290 in the next six months is very high," Lutes predicts.

"By this summer, we should be out of single-family lots, other than what's in people's inventories."

New lots could come on the market at the end of 2012 in the Parsons Creek/Parsons North area on the northern edge of urban development in Fort McMurray.

Lutes says there's definitely demand for the single-family lots in Fort Mac, and the lack of lots may limit what builders can do to reach Canada Mortgage and Housing Corp. (CMHC) projected 2011 new-housing numbers for the region.

CMHC is predicting 600 single-family housing starts for all of Wood Buffalo, along with starts for 450 multi-family units in 2011. Lutes said there should be an adequate supply of serviced land for CMHC's multi-family projection.

Housing supply and cost has long been one of many growth issues to dominate the agenda in Wood Buffalo and its urban heart, but the slowdown from the out-of-control boom of 2006 and 2007 has yielded a few steps forward.

According to the municipality, Wood Buffalo's rate of homelessness was down 41.9 per cent in 2010 from a few years ago, and that the actual number of people couch surfing in Alberta's most expensive region had dropped to about 320.

The root of homelessness in Fort McMurray is both the rate of growth in the city and the cost of living.

Consider rents in the boomtown: $1,792 for a one-bedroom apartment, $2,210 for a two-bedroom and $2,525 for a unit with three or more bedrooms, according to CMHC's figures from October 2010. The vacancy rate was around 5.5 per cent, but heading lower, in the estimate of locals.

Suncor upgrader

Adding to demand will be things like the resumption of construction of Suncor's Voyageur upgrader about 40 kilometres northwest of the city.

Suncor announced in late 2010 that it wants to hike overall oil production by 8 per cent per year in the coming years, mostly by hiking oilsands production by 10 per cent per year.

Suncor's capital budget for 2011 is roughly $6.7 billion, with about $4.18 billion of that amount to be spent on oilsands development - much of it mining and upgrading operations close to Fort McMurray.

The average price of a single-family home in Fort Mac hit a yearly high of around $704,000 for November 2010 (it fell to $688,000 the following month), and the rental option is more than twice as expensive in Fort McMurray as it is in Alberta's biggest urban centres, Calgary and Edmonton, where CMHC pegs the monthly cost of a two-bedroom apartment at $1,069 and $1,015 respectively.

Still, investors looking for property in the oilsands capital can find one-bedroom apartment-style condos in the range of $230,000. Per-square-foot prices on many older condo properties are less than $300.

Commercial land

More residential properties sold through the Fort McMurray Realtors Association in 2010 than in 2009 (sales up 9 per cent), and Royal LePage True North Realty broker/owner Marian Barry expects a positive 2011.

"Both inventory and sales have started to pick up and we anticipate that trend to continue with 2011 looking very positive for the housing market," Barry said.

The home-building sector isn't the only one carefully watching land availability. Things are even tighter in the market for developable commercial and industrial land, in part because the province only committed to bringing more land on the edge of Fort McMurray forward for development in August 2010.

Since that time, it has listed about 980 acres of land along Highway 63 south of the city with Avison Young. The realty and leasing firm was taking bids from prospective developers for the land until January 12, and was expecting to have a chosen developer by the end of the month. The asking price for 980 acres of raw land with three-plus kilometres of highway frontage? A cool $29.4 million, based on $30,000 per acre.

"The government is going to select a developer to come in, take it over and do all the necessary planning and engineering. It's likely somebody will be selling parcels probably 14 to 18 months down the road," said Adam Kilburn of Avison Young.

The serviced land can't come too soon in the eyes of some.

"We've received lots of interest from users, but the land won't be in a position to be subdivided for users for probably a year to a year-and-a-half," Kilburn added.

Whomever is chosen to develop the parcel will have to spend a significant amount of cash on geotechnical testing long before earth starts moving and servicing can take place.

That worries development industry officials such as Lutes.

"You'd be lucky to see any dirt moved in 2011," he said.

"Typical development timeline is three years, from land in hand to product on the market."

$2M an acre

That's not great news if you're looking for parcels to develop in Fort McMurray, where scarce serviced-highway commercial land runs in the range of $2 million per acre, and other land for business/industrial uses can go for $1.35 million per acre, according to Lutes.

The same type of land would sell for a quarter to a third of that price in many locations in Edmonton and Calgary, Lutes says.

Add to the land cost the fact that labour costs are much higher in the north and it's clear Fort McMurray isn't a cheap place to build or buy.

Some development costs can be double or triple what they are elsewhere, Lutes says.

The municipality is taking some steps to lower costs in the downtown area of the city, known as the Lower Townsite.

A case in point: Wood Buffalo council passed a resolution in December aimed at reducing developer costs in 2011 in the Lower Townsite area covered in a redevelopment plan.

While that may not be as good as it sounds, Lutes cautions, it won't hurt. UDI was still looking for clarification from the municipality as of early January on the net benefits of the council motion.

"This incentive program aims to make the long-term community objectives expressed in the Lower Townsite Area Redevelopment Plan a reality," said Dennis Peck, the municipality's director of planning and development.

Incentives

According to the municipality, the initiative will reduce development charges in Fort McMurray's downtown neighbourhood by 60 per cent for development applications approved in 2011. Upon approval of a development project, the fees will be calculated at the reduced cost. This decrease in fees is intended to support developers to plan projects in the lower townsite. Development charges in the lower townsite are higher than other areas because of the amount of infrastructure that needs to be upgraded to support a higher density.

Downtown incentives aside, developers are looking at a scarcity of land and rising demand based on where the oilsands sector is expected to go in 2011 with oil prices comfortably over $80 per barrel. "Everything we are hearing from the industry is saying everything is going to speed up here again," said Lutes.

from Western Investor, February 2011