A petrostate, in its most basic of definitions, is a country whose economy is heavily dependent on the harnessing of fossil fuels to sustain its economy.
By that very definition alone, Alberta does not meet the criteria of a petrostate because it is not, in fact, a country. However, a very strong argument can be made for the fact that the province of Alberta is or has been in the past reliant on the oil and gas industry, and many would argue much too reliant.
Before we dig too deeply into this, I want to highlight that Canadian Real Estate Wealth is purposely sidestepping weighing in on the morality of economic dependence on oil and gas. There are already many opinions on that subject, and I’m not sure that we have a new voice to add in favour of or against the ethics of that issue. Our interest instead is to understand the economic landscape, where Alberta may be headed, and what that means for Albertans and investors in Alberta for the future.
Speaking of the economic landscape, according to Statistic Canada, the nation’s governmental statisticians otherwise referred to as StatsCan, Alberta was and has consistently been for the better part of a decade, Canada’s third heaviest hitter; the province trailed behind Ontario and Quebec in terms of its contribution to the overall gross domestic product (GDP) of Canada.
Let’s take a beat to look at Alberta’s historical economic topography. According to economicdashboard.alberta.ca, in January 2019, the province’s GDP was at a three-year high of $335.1 billion. An all-too-familiar refrain that COVID-19 ruins everything rang especially true for Alberta.
In January 2020, the GDP drop down to $307.8 billion. With some economic recovery plans in place, the wild rose country experienced a sizable rebound, bringing its GDP up to $322.9 billion.
In June 2020, the provincial government launched an economic recovery plan amidst the worldwide pandemic and collapsing world oil prices. This economic reboot included investment in infrastructure, tax incentives, and employment grants to entice businesses to put roots in Alberta.
A principal focus of this economic rebound was the development of an innovation and technology strategy to provide channels of support for the rapidly-growing technology sector of Alberta to flourish. The innovation focus of the economic recovery plan invested in research at post-secondary institutions and seed money to tech start-ups.
We tapped Canadian Real Estate Wealth’s trusted source Mark Verzyl for his take on whether the transition from an energy-reliant economy has been a successful one. Mark has over 1.5 billion in real estate value sold and over 4,000 property sales in his career, so the man knows how to take the temperature of Albertans:
“The economic recovery plan has been massively successful at attracting new business to Alberta and more specifically Calgary. Mining, Oil, and Gas in the 1980s was over 40% of the GDP, in 2014 it was 27%, and today is under 24%. Tech companies are coming to Calgary in droves, driven by low taxes, cheap commercial space, plus an available and well-educated tech workforce. If you are employed by a company moving to Calgary, wouldn’t you be excited by cheaper taxes, and real estate at ½ the price, not to mention it’s rated in the top 4 cities for livability in the world (and has been for the past 12 years)? It’s what brought me to Calgary in the first place.”
According to businesscouncilab.com’s report Alberta’s Economy: An Overview, Real Estate has replaced manufacturing as the second largest industry contributor to the province’s GDP, followed closely by commercial and business services. We asked Mr. Verzyl for his take on how that shift happened.
“I couldn’t say the specific date when Real Estate hit 2nd place on the list, but here’s the truth: We put it on Ontario’s investment radar starting in 2019, and it grew to viral status by 2021. It became the perfect storm; with migration, and immigration due to a higher standard of living, a massive tidal wave of investors came as we merely pointed out that it made a lot of investment sense. It checked all the boxes, with no rental controls, cash flow properties, significant ROIs, low closing costs, and an influx of working people, just to name a few. The Canadian Real Estate investors took notice. Once the door opened and the first wave of savvy investors started to buy, it grew to a tsunami.”
For more insight into the factors that helped move the shift along, visit Canadian Real Estate Wealth’s piece entitled, Wild Rose Country: A True Underdog Story.
TD Bank’s Provincial Forecast released on September 21, 2022, noted Alberta’s economy has been enjoying robust growth so far this year amid surging crude oil and natural gas prices in the winter and spring. The soaring income performance was reflected in Alberta’s Q1 fiscal update in which the government increased its budget estimate for the current year to a hefty $13.2- billion in surpluses.
Since good things come in threes, we had one last ask of Mark Verzyl.
Canadian Real Estate Wealth asked Mr. Verzyl to look into his crystal ball and tell us what he thinks investment real estate in Alberta has in store for 2023. This is what Mark and his crystal ball told us:
“You will not see the drop in prices in Alberta, specifically Calgary, that you are seeing in the other major cities in Canada, due to higher interest rates. Yes, Calgary is experiencing higher interest rates and a slowdown in the market from the March 2022 peak, however low inventory, immigration, and migration will continue to push prices on an upward trend. Already at the beginning of this year, speaking with developers, the traffic in sales centers is much higher than expected, and transitioning into sales. A slight last quarter pause in ‘22 while buyers evaluated the market, is just what it was a slight pause. 2023 will be brisk, much higher than average. Expect condos to continue being eaten up in the suburbs with a little extra inventory in the downtown core compared to the burbs but inventory will be far lower than the past 6-year average, keeping prices balanced or trending higher. Townhomes and detached homes will be difficult to obtain and will also be trending higher in price.
The mid-market will see increases in prices this year, the top-end market will find balance or slight declines. One thing is for certain, the highs and lows of the Calgary past markets are definitely a thing of the past. I believe that 3-4 years from now, a lot of people will have wished they jumped in now.”
Two notions have repeatedly come up in my research around the economy of Alberta: like bells that keep ringing. The first is the English translation of the motto on Alberta’s emblem, “Strong and Free”. The second thematic concept is that is often said that Alberta is very entrepreneurial. I believe to count out the Albertan people, with their ‘strong, free and entrepreneurial spirit’, or to discount their unrelentingly tenacious recovery effort would be betting on the wrong economic horse, so to speak.
If you are thinking of buying, selling, or investing in the Calgary market and would like the comfort of knowing that you’re in good hands, reach out to Mark Verzyl at [email protected].
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