Calgary, Edmonton leading Canada in new housing construction, but will prices fall?

Calgary and Edmonton continue to lead the country in new housing construction, new data show, but some industry watchers question whether this uptick in new builds will bring prices down.

In the first six months of the year, housing starts in Alberta’s two largest cities were more than double what Toronto recorded, and several points above levels in Vancouver, Montreal and Ottawa, according to the latest numbers from the Canada Mortgage and Housing Corp.

Droves of newcomers have been flocking to Alberta, in part because of its less expensive housing, but the influx has put pressure on the province’s housing supply, ironically driving prices higher and leaving cities clamouring to build homes that working families can afford.

“Some of the rhetoric that we need to build more houses so the price will come down, I don’t quite buy that,” said Bill Black, the Calgary Construction Association’s chief executive.

Prices of new homes are rising, not solely because of a shortage in demand, but also due to increased costs for materials and labour, Black said. Wages and household incomes that have not kept up with inflation are also making housing less affordable for some, he said.

“It’s going to be a lot more than the volume of homes that will begin to help make a difference in this challenge,” Black said.

Demand for rentals increasing

From January to June, construction crews in Calgary started building a slew of new housing — 79 homes for every 10,000 residents, compared to Edmonton’s rate of 63 new starts per the same population, CMHC data show.

Both cities posted double-digit increases over the same period last year.

In Toronto, meanwhile, homebuilding activity fell to its lowest point since 1996, driven by a 60 per cent drop in condominium starts.

Declining demand from investors in the first half of the year also reduced the feasibility of projects, leading to cancellations, delays and a drop in construction, according to CMHC.

Much of the new construction in Calgary and Edmonton is being driven by a shift in demand for rentals, said Michael Mak, a lead economist for the prairies at CMHC.

“Those make up a lot of the new units that are starting to be built and the units that are coming online,” Mak said.

Meanwhile, it’s becoming increasingly difficult to build in both Vancouver and Toronto, where new construction is slowing, he added.

Similar to Toronto, new condominium construction in Vancouver fell by over 13 per cent in the first half of this year, with projects being cancelled or paused.

Rezoning aiming to increase density

Investors and developers may see the growth in rental demand in both Calgary and Edmonton as an opportunity to park their money in Alberta’s largest cities instead, according to Mak.

Over the past several years, rezoning changes in Calgary and Edmonton have aimed to boost density and create new housing, but the moves have proven to be divisive.

Some Calgary communities took the city to court over its zoning policy changes. After a judge sided with the city, residents have taken the matter to Alberta’s highest court.

Mayoral candidates in Calgary’s upcoming civic election have called for the policy to be scrapped or altered significantly. A similar debate is unfolding between candidates in Edmonton’s race ahead of the vote on Oct. 20.

Calgary’s rezoning may “theoretically” help reduce prices, but that’s not always the case, according to John Hripko, a realtor with Royal LePage Benchmark in Calgary.

If you spent $1 million buying a 1950s bungalow — a common housing type in Alberta’s largest cities — and then subdivided the lot to build two new homes, you might be able to sell both for $1 million, he said.

“Density increased. However, affordability has not increased. It actually decreased,” Hripko said.

Evidence of growth slowing, says economist

Mak noted that construction costs have grown substantially — between 30 and 40 per cent — since 2020.

With those costs in mind, it’s natural to expect new homes to cost more, Mak said.

However, rental prices in Calgary — which climbed in the past half-decade — have declined in some cases.

“There’s evidence that growth has definitely slowed down (over) the past year, and that’s largely (due) to the amount of inventory that’s coming online,” Mak said.

Construction of detached homes has reached a peak, despite an increase in demand, Mak noted.

“Where you get a new single attached home is basically out in the periphery, where new neighborhoods are being developed,” Mak said.

Even if demand lightens, he expects prices will stabilize rather than drop like he’s observing with rentals.

For single-family homes in particular, developers are largely responding to demand, driven by both interprovincial and international immigration, Hripko said.

“They’re not building speculatively, they’re building because you and I are walking in and saying ‘Hey, I want this house built’,” he said.

swilhelm@postmedia.com