Across the country, competition among apartment hunters is fierce as the rental market tightens. In Calgary, the struggle to find rental space is fueling an unprecedented amount of rental construction.
As of September, construction has begun on 2,799 new rental units in Calgary this year. That’s the highest number on record, although 2021 was another banner year with 2,572 housing starts, Canada Mortgage and Housing Corporation (CMHC) figures show.
Developers describe it as a classic Economics 101 scenario: supply increases to meet demand.
For years, they say, Calgary’s lack of rental construction has left that side of the market underserved. On the demand side higher interest rates drive more people to rent than to own.
The province is also seeing a significant increase in the number of people moving to the province, with more than 50,000 people coming to live in Alberta in the first half of 2022 alone.
“We have this huge void compared to a lot of other big metropolitan cities in Canada for rental housing,” said Alkarim Devani, president of RNDSQR, a Calgary-based development company that in recent years has shifted exclusively to rental buildings.
“We’ve had almost a 20-year hiatus from rental products, and that’s why we’re seeing so many of them.”
According to the latest figures from Rentals.ca, the average Canadian rental home was $1,810 per month in September, up about 12 per cent from the previous year.
In Calgary, the average one-bedroom rent was $1,629, up 29 percent from a year earlier.
Prospects across Canada
Calgary isn’t the only city seeing some shift towards renting.
In several large cities, the share of rental rather than home ownership has increased in the first half of this year compared to the average for the same period last year, according to CMHC figures.
One exception is Toronto, where the share of rental construction declined in the first half of 2022, which CMHC analyst Michael Maki said is likely due in part to the city’s high land costs.
“Interest rates are going up … and construction costs are going up and labor costs are going up, all of which contribute to a lower starting rent,” he said.
In Vancouver, developer Anthem Properties is pushing hard for multifamily rentals, with about 3,000 units either in preliminary design, under review or under construction, most in Metro Vancouver, according to the company’s chief investment officer, Gage Marchand.
He pointed it out more Canadians are renting rather than owningtheir homes – a trend he expects to only grow.
“I don’t see the affordability crisis getting any better anytime soon,” said Marchand, whose company also has offices in Calgary, Edmonton and Sacramento.
“I think in this next generation, forward renting will be accepted more as a kind of normal reality [and] Anthem wants to continue building homes for people.”
Politics also drives development
Public policy also has its own role in promoting rental development.
In Vancouver, Marchand pointed to policies that encourage developers to build near public transit or increase housing density allowances if affordable housing is included among other benchmarks.
Another example is the City of Calgary program, which offers grants to convert vacant office space into residential development, said Ken Toews, vice president of Strategic Group. Strategic Group is currently transforming one of the city’s first oil and gas office towers. residential apartments.
Toews said many developers also use a CMHC program called MLI Select, which offers insurance incentives if a rental unit meets certain goals for affordability, energy efficiency, accessibility, or a combination of the three.
“It’s a really good program and it brings more products online than you would normally have in the market,” he said.
Opinions differ on whether rental growth will speed up or slow down in the coming months and years.
High interest rates and construction costs are also putting pressure on developers, which Paul Battistella predicts will lead to some retreat in rental development in the future.
“Rents just can’t go up at the same rate to make the math work on these things,” said Battistella, CEO of Calgary condo developer Battistella Developments, which is also setting aside some. units for rent.
“The [projects] that are in the game now, they’re under contract, they’re cost locked in, they’re fine… I just think anything new is going to be really, really hard to get off the ground.”
As for when and if the increase in supply will make it easier for current renters – opinions differ on that as well.
Mak expects that some buildings now under construction, especially low-rise buildings, will be completed in the coming months, leading to a loosening of the market.
But if demand continues at the current clip, Toews believes the new apartments added will likely be absorbed fairly quickly.
“I think we’re undersupplied, and that creates challenges,” he said. “Less supply means prices will go up.”
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