Home builds cool off in city while rentals heat up: CMHC

Evidence of overbuilding in the local housing market is decreasing, in part because economic conditions are prompting a growing number of Calgarians to rent instead of buy.

On Thursday, the Canada Mortgage and Housing Corp. downgraded its risk assessment for the Calgary housing market from high to moderate, based on the fact that evidence of overbuilding significantly lessened in 2018.

While inventory levels in the condo/apartment market remain elevated, the rental vacancy rate in Calgary fell from 6.3 per cent in 2017 to 3.9 per cent in 2018.

James Cuddy, CMHC senior market analyst, said the relatively slow rate of economic recovery in Calgary is putting pressure on some individuals’ ability to move into home ownership and prompting them to consider more affordable options.

“What’s happening is that some individuals are actually renting for longer,” Cuddy said.

“So some of the demand in the housing market is actually being shifted away from home ownership and toward the rental market.”

The CMHC report indicates Calgary continues to deal with a supply and demand imbalance in the housing market, as an elevated unemployment rate, lower disposable incomes and higher interest rates have put higher pressure on demand.

Home resales in the third quarter of 2018 were 8.3 per cent lower than the year before, according to the report.

Last week, the Calgary Real Estate Board predicted Calgary home prices will fall by an average of 2.3 per cent in 2019, the continuation of a four-year trend of declining sales activity and rising inventory.

The latest projections come as a growing number of politicians are calling on the federal government to remove the mortgage stress test from certain regional markets. The mortgage stress test — introduced at the beginning of 2018 — was meant to ensure homebuyers can still afford their mortgages even if interest rates rise substantially, but many in the real estate industry

In the Calgary case, there are a lot of other issues that are arguably more important for impacting an individual’s ability to move into home ownership.

say it is making it harder for Canadians to buy homes.

CMHC chief economist Bob Dugan said while there has been a moderation in housing market activity in many Canadian cities since the stress test was imposed, it’s difficult to say how much of that is attributable to the new rules.

“It’s very hard to isolate the impact of the stress test by itself, but certainly it probably contributed to some of the slowing of demand that we’ve seen,” Dugan said.

“In the Calgary case, there are a lot of other issues that are arguably more important for impacting an individual’s ability to move into home ownership — like the slow economic recovery and like interest rates,” Cuddy said.

In Alberta, UCP Leader Jason Kenney has said that if he becomes premier, he will introduce a motion in the legislature calling for the federal government to remove the rules from the Alberta market and will encourage other provinces to join.

The debate also came up in the House of Commons recently, where Conservative MP Tom Kmiec said the stress test is having a destructive effect on his Calgary riding.

Calgary Coun. George Chahal introduced a notice of motion earlier this week calling on Mayor Naheed Nenshi to write a letter to the premier, treasury board and federal minister of finance advocating that Alberta credit unions and ATB Financial consider the adoption of Alberta-based mortgage approval requirements.