High building costs stifled Edmonton's new home growth, report finds
Analysts say it’s Edmonton’s first major decrease in 3 years
New home builds in Edmonton declined in the first half of 2023 due to the negative impact of higher interest rates on the demand and supply of housing, according to a new report from the Canada Mortgage and Housing Corporation (CMHC).
The housing supply report, which provides regular insights into new housing supply in Canada's major cities and urban areas, found the number of new builds in Edmonton decreased by 30 per cent, compared to 2022.
Taylor Pardy, a senior specialist in market analysis for CMHC, said it's the city's first major decrease in new builds in about three years.
"It's largely due to the fact that higher interest rates over the past year and a half have at least temporarily put some folks on the sidelines," he said in an interview.
"For most of this year, what we've seen is actually higher unsold new home inventories in the market."
The report found those factors, as well as increased construction costs and labour shortages, likely prompted some home builders to pursue fewer projects in order to allow existing inventories to be sold.
It's a stark contrast to the rest of Canada, which inched up by one per cent in the first half of this year, mostly because of a surge of new apartment builds in Toronto and Vancouver. Meanwhile, developers in Calgary had overall greater numbers of new builds compared to Edmonton.
Pardy believes the reasoning is tied to Calgary's population growth over the last two years.
The CMHC report also found decreases are being felt in Edmonton's rental market, with new apartment starts reaching the highest year-on-year decline, at 1,630 apartment units in the first half of 2023, compared to 2,648 units in the same period of 2022.
Findings on par with anecdotal evidence
Scott Fash, executive director of Alberta's Building Industry and Land Development Association, said the report's findings are on par with what his organization is hearing anecdotally from "exceedingly cautious" builders.
He said July and August already saw increases in the number of new home builds in Edmonton. Out of those 1,400 new builds each month, almost half were all-purpose rental units.
Fash also noted Edmonton has historically built a lot more rental units than Calgary.
"So Calgary is playing a bit of catch-up right now on the rental side of things, which I think is why you're seeing some of those starts at a bit of a higher level," he said.
Still, Fash says it's hard to say if trends in the CMHC report were just a blip on the radar.
"Typically, when that's the case, you won't see a whole bunch of builders and developers going off and bringing a whole bunch of new product online because the market might not be there."
Edmonton still has a healthy inventory of new but unsold units, but Fash said the level of demand has not reached Calgary levels.
"You're at a higher probability of having to compete for a home when you're going out to purchase [a home] in Calgary, relative to Edmonton right now," he said.
Zoning changes could change the game
Edmonton city council is looking to overhaul zoning rules that outline what can and can't be built in the city, slashing the number of zones from 46 to 24.
If the proposal passes, all residential areas would have the same zoning and allow builders to construct more than one type of home on a piece of land.
Pardy said the CMHC supports any initiative that could lead to an increased supply of housing within any market in Canada.
"Some of the things that the city is proposing right now, through that zoning renewal initiative, are certainly … a potential positive from a supply side perspective," he said.
Looking ahead to the fall, Pardy said CMHC is forecasting higher development numbers and new home sales, primarily focused on single-detached homes, which make up the highest percentage of unsold units in 15 years.
"The brief pause that we've seen in housing starts, we don't really expect it to last," he said.
"It's actually something in our forecast from the spring; we were anticipating maybe a brief pause in 2023, but then back to business in 2024."
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