In Calgary, apartment building construction is booming as more Canadians embrace rentals

Across the country, competition is stiff among apartment hunters as the rental market gets tighter. In Calgary, that struggle to find rental space is fuelling an unprecedented amount of rental construction.

As of September, construction has begun on 2,799 new rental apartment unitsin Calgary this year.That's the highest number on record, though 2021 was another banner year with 2,572 rental apartment starts, numbers from the Canada Mortgage and Housing Corporation (CMHC) show.

Developers describe it as a classic Economics 101 scenario: supply rising to meet demand.

For years, they say a lack of rental construction in Calgary has left that side of the market underserved. On the demand side, higher interest rates are driving more people to rent rather than own.

The province is also seeing a significant uptick in people moving to the province, with more than 50,000 comingto Alberta to live in the first half of 2022 alone.

"We have this huge void space compared to a lot of the other major metropolitan cities within Canada of rental housing," said Alkarim Devani, president of the Calgary-based development company RNDSQR, whichhas shifted in recent years to building rentals exclusively.

"We've had almost a 20-year gap of rental product, and so that's why we're seeing such an influx of it."

According to the latest numbers from Rentals.ca, the average Canadian rental apartment was $1,810 a month in September, up about 12 per cent from the previous year.

In Calgary, the average one-bedroom rental was $1,629, an increase of 29 per cent year-over-year.

Outlook across Canada

Calgary isn't the only city that's seeing some shift toward rentals.

In several big cities, the share of apartments being built for rentals, rather thancondominium ownership, has grown in the first half of this year compared to the average for the same period in the previous five, according to CMHC numbers.

One exception is Toronto, where the share of rental construction dipped in the first half of 2022, something CMHC analyst Michael Mak says is likely due in part to the high cost of land in that city.

"There are rising interest rates and rising construction costs and labour costs, and those all play a factor in lower rental starts," he said.

In Vancouver,development firm Anthem Properties is pushing hard on multi-family rentals, with about 3,000 units that are either inpreliminary planning stages, under review or under construction, most in Metro Vancouver, according to Gage Marchand, the company's manager of investment.

He noted thatmore Canadians are renting, rather than owning, their homes a trend he expects will only continue to 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 moving forward in this next generation, renting will be more accepted as a sort of normal reality [and] Anthem wants to continue building homes for people."

Policy also driving development

Public policy also has a role to play in driving rental development.

In Vancouver, Marchand pointed to policies that provide incentives to developers for building close to public transit,or higher density allowances if affordable housing is included, among other benchmarks.

Another example is a City of Calgary program that provides grants for converting empty office space into residential buildings, said Ken Toews, senior vice-president of Strategic Group, which is in the middleof transforming one of the city's first oil and gas office towers into residential apartments. The city is supporting that project, though it is technically separate from the official downtown conversion program as work began prior to its coming into existence.

Toews said many developers are also using a CMHC program called MLI Select, which offers insurance incentives if a rental development hits certain targets for affordability, energy efficiency, accessibility or some combination of the three.

"It's a really good program, and it brings more product online than you would normally have in a market," he said.

Future outlook

Opinions vary about whether rental development will accelerate or slowin the months and years ahead.

High interest rates and construction costs are also putting pressure on developers, which Paul Battistella predicts will lead to some pullback in rental development going forward.

"Rents are just not going to be able to accelerate at that same proportion to be able to make the math work on those things," said Battistella, a managing partner withCalgary-based condo developer Battistella Developments, which also sets aside some of its units for rental.

"The [projects] that are in play now, they've been contracted for, their costs are locked, they're OK I just think anything new is going to be really, really difficult to get going."

As for when, and if, the increase in supply will lead to relief for current renters opinions vary on that, too.

Mak expects some buildings under construction now, especially the low-rise buildings, will wrap up in the months ahead leading to some loosening of the market.

But if demand continues at the current clip, Toews believes any new apartments added will likely be absorbed pretty quickly.

"I think we're undersupplied and it's gonna create challenges," he said. "Less supply means that your prices are gonna go up."