Calgary is awash in newly built homes that remain unoccupied — hitting levels not seen in 15 years — as an influx of condo projects comes at a time of muted demand, according to housing data.
The surge in supply has not scared off all developers in the city, with a number of new projects on the horizon. But some are converting their condo proposals into rentals, which they view as a better investment as the economy slowly turns the corner on a prolonged slump.
The city had about 1,500 newly constructed housing units that were vacant in December, a stunning glut not seen since June 2001, according to the Canada Mortgage and Housing Corp. More than half of the current stockpile, about 800 units, were apartment-style condos.
“Very pricey homes have taken a beating,” said Brian Kernick, president of Greenview Developments, which plans to break ground in the coming weeks on a 65-unit low-rise condo building in Inglewood.
“There are still areas of the market where there is demand, even though the economy has taken a hit lately.”
Highrise condo projects that were planned pre-recession have been finished in the rout, driving up supply during a period of weak demand.
Smaller projects “don’t get over-built like highrise condos do, because they don’t take as long (to build),” Kernick said.
Canada’s national housing agency expects fewer new apartment and row-house projects will get off the ground this year as the focus turns to selling existing inventories of new homes.
“Later in 2017, these inventory levels should be moving lower,” said Richard Cho, analyst at Canada Mortgage and Housing Corp.
Many prospective buyers have been nervous about putting their money down for new housing at a time of high unemployment and low commodity prices, said Chris Pollen, director of sales and marketing at Battistella Developments, which is planning a condo tower for East Village in 2018.
The City of Calgary received 27 development permit applications for condo projects worth more than $10 million in the last six months of 2016.
Four of them, including an $18.7-million apartment development in Mahogany and a $15.8-million building at Legacy Park, have been approved so far.
“Demand is low but it’s not gone,” said Calvin Buss, who specializes in designing and marketing large condo projects in Calgary.
Several developers that have approached his company recently have found they couldn’t charge high enough prices for condos in the current market to build their projects economically.
Three out of four condo projects that have come across Buss’ desk in the past few months have converted to rental developments. The theory is that builders would have to sell condos at a loss now, or they could build rental apartments and take a loss on rents — but only until the economy recovers.
“If you build a tower and you have to rent it out for two years at 15, 20 per cent below market value, you eat it for those two years, and in the next 20 years, you make it all up again,” Buss said.