Home Month and Year May 2023 Calgary’s Fragile Construction Boom

Calgary’s Fragile Construction Boom

Rebounding despite the speedbumps


The encouraging sign, including massive cranes and hectic activity at sprawling new subdivision construction sites, are everywhere! While some experts are cautious about calling it a Calgary construction boom, there is definitely positive momentum.

The various stages of multi-family high-rise condo and rental apartment tower residential construction, as well as commercial construction like the recently completed Calgary Cancer Centre, the massive Amazon YYC warehouse and other commercial projects, are exciting indicators.

When it comes to residential construction, recent CMHC numbers show a large shift in the type of Calgary housing being built. About 45 per cent of housing starts being in multi-unit housing, many of them purpose-built for rentals. Some specifics are: the cost of construction on apartment buildings has increased 13.3 per cent year-over-year, while single detached has increased 14.3 per cent and townhouses have gone up 15.3 per cent.

Despite broadsides like spiked mortgage rates, jittery consumer confidence, builder and developer construction speedbumps like skilled labour shortages, high material costs, the  limited availability of supplies and equipment, as well as two-plus years of pandemic disruptions, Calgary’s residential construction reflects a housing market that is strong, resilient and even rebounding.

The numbers show that the city continues to be hectically busy with large volumes of permit applications and inspections. Last year, more than 18,855 building permits were issued, for a total construction value of $5.5B. While that number is slightly lower than the permits issued in 2021, the totals are still well above the 10-year median of 16,598. Another positive residential construction stat is that Calgary’s housing real estate set records last year.

“Calgary’s residential construction trend was positive, regardless of the rising interest rates,” says the respected Shane Wenzel, CEO and president at Shane Homes Group of Companies. “We felt a slight dip last summer and in December, but sales have remained above average over 2022. And 2023 sales appear to have taken off even faster.”

According to Dave Hooge, COO of Jayman BUILT, “Sales, or sometimes the lack of sales, impacts housing starts. Other factors including affordability, migration and homebuilder confidence can impact the appetite to start spec homes and/or larger multi family projects.”

“Fortunately, the residential construction industry holds much potential to stimulate recovery, thanks to its potential to create jobs. Additionally, Calgary, and all of Alberta, has the advantage of affordability, attracting significant net-migration. It has been integral in a strong Alberta market.”

Wenzel emphasizes migration is a major boost for residential construction and Calgary housing starts. “There’s a substantial migration to the province of Alberta to the tune of 50,000 new residents. The largest migration has come from Ontario, as people are exhausted with the expensive housing prices there.”

Another encouraging Calgary housing stat is recent StatsCan numbers crunching, which showed that Alberta had a net gain of 19,285 people from interprovincial migration in Q3 2022. The highest net gain in 43 years! Forecasts suggest that all segments of Calgary’s homes market are likely to see strong demand, as long as migration into Alberta remains high.

Most developers, builders and  residential real estate experts agree about some key ‘lingering challenges’ when it comes to Calgary housing and residential construction.

While it is mostly in the rearview mirror, the pandemic disruptions impacted home builders in many ways, like project delays. “During COVID, some workers simply refused to work on sites with other people, and many moved to different provinces, reducing construction’s already strained and tight skilled labour force,” Hooge says.

“Even with the work disruptions during the pandemic, our industry banded together to find new ways to complete construction and keep everyone safe. We also found more innovative ways to interact with customers, while they stayed at home, like digitalizing our industry at a faster pace than we might have seen otherwise.”

Residential construction also took a hit from the supply chain problems, which ultimately caused material shortage and, as things get slowly sorted out, continue to impact the costs of construction.

By the end of last year, residential construction costs in Calgary had jumped by 14 per cent, mostly due to fuel, concrete, steel and equipment price increases, underscoring some industry concerns about possible challenges of meeting the growing housing demand.

Calgary trailed only Toronto (21.9 per cent) and Edmonton (16 per cent) for increases in residential construction costs. The cost of materials and labour is also impacting construction timelines. The current guesstimate to build a multi-unit high rise building is 20 months, while the average detached suburban house takes eight months.

There are other beyond-builder-control factors, like affordability and mortgage rates.

“Affordability is impacting Calgary’s multi-unit, residential construction. Not only has the  Calgary condo market been fairly slow over the past several years,” explains Cole Harris, president of the Centron Group of Companies, “demand has switched from condo purchasing to new high-rise apartment rentals. The combination of changing consumer demands and more stringent mortgage qualifying rules, as well as higher interest rates, high, downpayments and lack of flexibility, have been major contributors to the switch from condo purchasing to rental properties.

“Affordability is definitely a factor where units and buildings are getting more and more efficient, and larger scale projects are able to get the cost per unit down,” Harris points out.

Shane Wenzel also mentions that housing affordability is top of mind for consumers. “There was a sincere shock that the fed continually increased rates and rapidly. We witnessed a slowdown across the country but more of a market lull here in Calgary. Some buyers are still waiting to see if the rates will drop.

“And, while we strive to keep pricing as reasonable as possible, upward pressure from a lack of available land supply, materials and especially labour rate increases have forced pricing up again.”

Centron’s Cole Harris cautions about the ongoing impact of costs on Calgary residential construction. “The increasing cost environment is substantial and will limit the number of developers proceeding with new towers. Unfortunately, it will limit supply even  further, while demand is increasing with the increasing Calgary and Alberta population from migration.”

With much experience, both as a builder and savvy about consume trends, Dave Hooge admits that price is always an important driver of residential construction and new home sales. “As consumers settle into rising interest rates, they are often forced to consider more affordable product than they had originally anticipated. This causes some delays in purchase decisions, as they either warm up to the idea of choosing a different home model or built form (a laned home instead of a front-attached garage home, for example), or even the decision to stay where they are.”

The construction cost crunch, hiked mortgage rates and affordability are also causing Calgary builders and developers to up their game, in many ways. Like amenities, new standards and innovation.

Cole highlights some new Centron projects, like the Oliver East and West apartment towers on 10th Ave., with the Luca restaurant and the Fleetwood lounge on the main floor, the Catalyst on 14th St., and Clearwater Park, Centron’s 580-acre master-planned community in Chestermere.

“Whether it’s sustainability or adding smart home devices to our standard packages, we are continually looking for ways to provide more value,” Hooge says. “This year, Jayman BUILT introduced 10 standard solar panels on all single-family homes to help save up to 50 per cent on electricity bills and add sustainability.”

The best indicator of the positive construction momentum? Calgary builders, developers and construction sites are busy!