A Small Step Forward

A small measure of relief is on the way for Calgary renters.

While the city’s vacancy rate isn’t about to see a dramatic increase in the near future, construction in the long dormant rental sector is on the upswing.

With just 418 purpose-built apartment rental units built in the city between 2006 and 2011, it appears Calgary developers are recognizing the need for more rental properties.

“For several years, there was not a lot of purpose-built rental construction in Calgary,” said Richard Cho, CMHC Senior Market Analyst. “However, with vacancy rates expected to remain low and rents moving higher, more purpose-built rental construction is expected.”

Cho, who presented his outlook for the city’s rental market as part of the recent CMHC Housing Conference, said more than 450 rental unit starts were recorded in 2012, with nearly 200 more started thus far in 2013.

However, CMHC’s latest forecast puts Calgary’s vacancy rate at just 0.8 per cent.

Those looking for a root cause for Calgary’s rental crisis only need to look back to the number of rental units constructed in the city in the last decade.

According to CMHC, the first quarter of 2004 alone saw 331 rental apartment units break ground. However, the following five years saw just 132 new apartments added to the city’s rental stock. During 2005, not a single rental apartment unit was built in the city, and 2009 and 2011 saw less than 10 new units.

The resulting situation has left many Calgary renters with few options.

“I’ve been renting in Calgary for most of the past 10 years and this is the craziest I’ve seen it,” said Tara Scaglione, who shares an apartment in the city’s southwest with her son and two pets.

“Having a small dog, a cat and a kid makes things much harder. I’ve had both of my pets for a long time, so it’s not like I can get rid of them. Now, even if the landlord will accept pets, it usually means the place is a dive, or they’re asking for a non-refundable pet fee, usually around $250 per animal. A damage deposit would be fine, but a non-refundable fee? It’s ridiculous, but you don’t really have a choice anymore.”

Although rental construction in the city has increased dramatically, it’s easy to draw a line between the five-year lull in construction and the lack of availability for Calgary renters. With nearly 165,000 people moving to the city between 2005 and 2012, and many of those looking to the rental market, demand has increased while increased construction in the sector has yet to have an impact.

“Demand is strong certainly in Calgary and Edmonton, which does help construction of rental,” said James Ha, director of Mortgage and Finance for Boardwalk Properties. “But it takes time to put these buildings in the ground. You’re talking 12 to 24 months to get these projects completed and when you’re from a risk adjustment standpoint, nobody knows what the market is going to look like in 12 to 24 months.”

Boardwalk manages 5,310 rental units in Calgary, making the company the city’s largest landlord. The company recently completed construction on its first development project, a 109- unit, wood frame, four-storey building in the city’s southwest.

As to why developers didn’t move to fill the gap between demand and construction in Calgary’s rental market, Ha said building with renters in mind isn’t as financially feasible as condo construction.

“The problem with it is the economics just don’t quite make sense. We have our first project in the ground and for all intents and purposes complete. That project made a lot of sense to us because we own the land, so that was built on excess land that we already owned at a project that we already have existing multifamily on.”

Providing further indication as to why so many renters are having difficulty, statistics released by CMHC show the total number of purposebuilt rental units in the city has been on the decline, dropping from more than 42,000 in 2005 to less than 35,000 in 2012. While condominiums converted to rental have been on the rise, adding nearly 15,000 units since 2006, Ha said changes in mortgage rules have reduced the trend.

“People were [buying condos] with hopes condo values were going to go up and they were going to flip that condo and make $30,000 to $40,000 or whatever. Rules have changed since then, where CMHC has said, ‘Hey, if this isn’t your primary home, and you want to buy a second home, you need to have 25 per cent down.’ So that’s kind of slowed it down quite a bit.”

Even with purpose-built construction on the rise, Ha said he expects Calgary’s rental market to continue to be tight, due in large part to the city’s ongoing increase in net-migration.

Meanwhile, renters seeking accommodation will have a powerful new tool early in 2014. CREB® will launch a rental listing service on its MLS® Service. That means rental unit hunters can tap into REALTOR.CA, Canada’s largest real estate resource.

2 thoughts on “A Small Step Forward

  1. Easy situation–allow suites in R1 zoned areas and not a vacancy problem to be had. The suites are already there, many are not being used or rented because they are deemed illegal with the current ancient rule

    Montgomery triangle is awesome!

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