Curbing urban sprawl, flood driving up home prices, say economists

Calgary has the highest year over year spike in new housing prices in Canada at 7.5 per cent.

One economist, Jack Mintz, says it’s a matter of supply and demand.

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The director of the University of Calgary's School of Public Policy says the city’s effort to curb urban sprawl is helping drive new home prices up.

“Calgary now has moved towards what's called an intensification strategy. And it’s a good thing to have some intensification because you don't want to hollow out the middle of the city,” says Mintz.

“But you have to have some balance and if there's no more expansion that's going to be allowed, maybe we have to close down parks to make way for new housing. Otherwise prices are going to go up because you're simply going to have higher land prices.”

Affordable housing concerns

Mintz says the city needs to think carefully about limiting new housing development if it wants to make housing more affordable.

“The prices can be policy induced. And if you think of it being artificially high that can happen if you're no longer getting enough supply relative to the number of people who want to move into Calgary. And, of course, if prices become very high in Calgary they're going to end up moving to Airdrie and other communities around Calgary instead.”

Calgary realtor Len T. Wong also points to the shortage of land for the reason home prices are going up.

"The demand is more than what the city is ready to release. So that's what's driving that there,” he said.

"From what I understand in the north part of town there isn't much land left for new home builds. "

Wong says overall housing prices were up by about 10 per cent in the first three months of this year. And, that once again, he’s seeing multiple offers and some houses selling for above list price.

Building costs up

Economist Todd Hirsch, however, points to last year's flood as a big factor.

"I think that's part of the reason building costs and material costs and labour costs are a little bit elevated in Calgary still because again we're not seeing the same impact in Edmonton," he said. 

"So I think Calgary’s flood last year still having some residual carry over effect to these new home prices even today."

Hirsch says once the flood rebuilding is complete, building costs will come down — and we will likely see more moderate growth in new home prices.