By: Wesley Gunderson
1. Mandatory New Home Warranty
The Alberta Government’s New Home Buyer Protection Act will come into effect this fall. And while increased protection for consumers seems like a good idea it comes at a cost; it will likely triple or quadruple warranty cost for builders, a cost that will ultimately be passed on to buyers.
The average home buyer who does their homework and picks a reputable builder is likely to experience minor, or even no, warranty issues. For this buyer, these are added costs without any added value.
This legislation was driven by the unfortunate situation that arose when the Penhorwood Condos in Ft. McMurray were found to be structurally unsafe and consequently condemned. While I empathize with their situation I am skeptical of government mandated, one size fits all solution, especially for outliers or once in a lifetime events.
Here’s why: Alberta has had roughly 32,000 housing start over the last few years. If this new Act added $1,500 in cost to each of those starts we are talking about $48M more in costs to consumers. Meanwhile the Penhorwood owners need $35M to rebuild, once. The $48M however continues to get charged to consumers (at a 32,000 start level with the assumed increase in cost of $1,500) in perpetuity. The real win
Does it solve the problem, maybe, but not in a cost effective way for consumers. And not when the vast majority of homes have no major warranty issues.ners are the warranty and insurance companies.
2. Lumber, Specifically OSB Prices
A key element of wood frame construction is Oriented Strand Board (OSB), it provides sheathing for the roof, walls and floor. Over the past year a sheet of OSB has gone from $5.99 to $15.99. An over 125% increase. The main driver causing this is a U.S. housing recovery increasing demand. Other lumber prices are also affected, not quite as dramatically as OSB.
What this means is the cost to build a home today versus last year is thousands of dollars higher. Some of this has already been passed on to consumers, but not all of it for fear it would slow sales.
3. Energy Code Changes
Slated for adoption later this year or early 2014 is the National Energy Code for Buildings (NECB). This may make homes cheaper to operate, but increase the upfront costs to buyers. There are 245 changes that will improve efficiency requirements by 26% over the old code. Homes built with the new NECB will be comparable to EnerGuide 80 or BuiltGreen Gold homes.
What this means is the cost to build homes with the NECB changes will be thousands of dollars higher. Admittedly these changes may pay for themselves over time. Operative word is may.
All these changes will continue to push prices and consequently push First Time Homebuyers out of the market or limit their choices. My recommendation is to buy now and capture today’s savings while they last. Especially with interest rates so low