Increasing levels of employment and population growth through immigration and inter-provincial migration, buoyed by a strong economy, are boosting the resurgence this year in housing construction in Calgary, particularly in the multi-family residential real estate market.
It signals continued optimism in the city and a need to meet the burgeoning demand for housing both in the present and into the future.
“With higher levels of rental construction than ever before, oncoming supply should help alleviate affordability concerns. However, growth in construction activity much further beyond current levels will not be sustainable in the short term, since rising interest rates, construction costs, and labour constraints all serve to put downward pressure on new activity,” says a report by the Canadian Mortgage and Housing Corporation.
The report says housing starts in the city were strong in the first half of this year despite weaker activity across other Canadian metropolitan areas.
“Most notably, apartment starts were higher by almost 30 per cent and took up a higher-than-average share of total new construction. Greater construction activity in Calgary is occurring at the same time as observed cost inflation and higher financing costs. This optimism is supported by strengthening expectations stemming from economic growth and expected sustained migration flows into Alberta,” said the CMHC report.
Inventories of completed and unsold homes reflect sustained demand for housing, as inventories fell to levels last seen in early 2015.
That has also helped push the rental market to new levels.
“In the first half of 2022, rental apartment construction rose to an all-time high when compared with the first and second quarters of previous years. Tightening rental market conditions in 2021 and 2022 signal strong demand for these units in the Calgary CMA. Rental apartment units made up nearly half of total apartment units started, a record high and up from 40 per cent in 2021. Because inner-city land is more costly, projects there would have to be larger to be more cost-efficient, especially considering redevelopment costs. Larger developments were more likely to be: closer to the downtown core; in the southwest; and near the Chinook area.”
According to the CMHC, smaller rental structures have made up a significant portion of rental starts in 2022 and 60 per cent of apartment units under construction were considered rental-oriented. The share of apartment construction accounted for by rental-oriented units first started growing in early 2021, and such units now account for the highest share of rental apartments under construction since the early 1990’s, said the report, adding that these 5,845 rental units are expected to come online within the next year, given average rental development times in Calgary.
The good news from the CMHC report is that the average construction time for apartments has been decreasing steadily since 2010. In the 2000s, the average construction time rose from a low of 10 months in 2002 to a high of 21 months in 2010. This then fell back to 10 months in 2022. Of course, there’s also a correlation here with the smaller size of developments.
One thing is clear. Markets always respond to demand. And with housing demand continuing to grow in the future, more residences are expected to be built.
Chris Chornohos has a passion for real estate and helping his clients reach their business goals by providing Real Estate Investors and Owners with the first class valuation and advisory services to close more deals. Chris is also an investor, builder and developer. Reach out to Chris today to help with your Real Estate needs.
Image Source: https://www.brookings.edu/research/making-apartments-more-affordable-starts-with-understanding-the-costs-of-building-them/