Calgary’s New Home Market Remains Active Despite Rising Costs

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Rising interest rates and headwinds from inflation weren’t enough to slow down new housing development in Calgary.

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Recent Mortgage and Housing Corporation figures in Canada show that starts, completions and absorptions increased year-over-year in September and year-to-date in Calgary.

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“This really reflects the demand for housing that developers are seeping off of the high demand from last year,” said Michael Mack, a market analyst at CMHC in Vancouver. “However, rising interest rates and costs are expected to eventually slow the start this year or next year.”

Already, the market has adjusted to higher levels of exclusive rental construction, he added.

Overall, the city had 1,679 starts in September, up almost 64% from the same month last year. He’s also up nearly 24% year-to-date, which ended Sept. 30.

Similarly, completions increased by almost 42% year-on-year, while total absorption increased by just under 2% to 761 units.

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Half of the activity consisted of single-family single-family home starts, which saw a 13% year-over-year increase in average price from $626,707 to $705,158.

Still, multifamily housing experienced the biggest increase in construction starts last year, up 101% from 542 to 1,089 units.

Most of it was for the apartment market, but the rental market is still active.

“There is a huge influx of rental construction in Calgary right now,” Mack said, adding that the city has historically not been a vibrant market for new private rentals until recently.

Still, Calgary has seen about 3,000 rental starts to date, compared with about 1,300 last year.

One reason for the increase, Mack said, was that higher borrowing costs pushed first-time buyers out of the market and forced them to rent for longer than expected.

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Another reason is the strong economy, which reopened as pandemic restrictions eased, resulting in record immigration in the second quarter, according to Alberta government data.

As a result, out-of-state investors have, for better or worse, fueled significant growth in new markets, says real estate agent Jared Chamberlain of Chamberlain Group/Real Broker in Calgary.

“Many out-of-state buyers have purchased pre-construction homes and condos in the last 12 months,” he says.

But the concern for this activity is whether these new homes will be occupied rather than “resold for quick money.” This could result in an influx of these homes into the resale market over the next 18 months, increasing inventory as demand declines. , adds Chamberlain.

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Overall, however, increased new market activity has generally acted as a pressure relief for the very tight single-family single-family home resale market, with prices rising despite declining sales. It’s stopped, he says.

Another advantage is that the new single-family home market is the most adaptable segment to demand. That’s because developers can delay or ramp up starts to meet demand more quickly than multi-family projects, Mack said.

However, for the foreseeable future, as long as immigration is high, we are likely to see strong demand across all segments, especially new dedicated rentals.

“Developers are optimistic that the rental market was tight during the 2014 housing boom,” says Mak.

At the time, Calgary had only 493 new units opened for rent by September 30, compared to nearly 3,000 today. CMHC data show.

“So new rental construction is significantly higher than we saw during the last peak of the market,” Mack said.