Canada’s Top Investment City Is Closer Than You Think
Canada’s Top Investment City Is Closer Than You Think

Calgary

Canada’s Top Investment City Is Closer Than You Think was last modified: May 9th, 2012 by maddy
     
 

Calgary

With a population of over one million people, Calgary offers amenities and business opportunities found nowhere else in Alberta. As such, the city will continue to experience growth as it is recognized as a prime location for both businesses and home owners.

Population and Income

As of the last Civic Census (April 2011), the City of Calgary had a population of 1,090,936, an increase of 19,421 residents (a growth of 1.81%) from the 2010 census. During this time period (ending April 2011), four communities grew more than 100%, reflecting a migration to some of the newer developments: Mahogany (205%), Walden (183%), Skyview Ranch (154%), and Sage Hill (102%)1.

Five communities had population increases of more than 1,000 people. Often, depending on the original number of inhabitants, this number is more telling than percent change (i.e. an increase of 10 residents to 20 residents is still a 100% increase). These communities include: Panorama Hills (1,952), Auburn Bay (1,552), New Brighton (1,236), Cranston (1,186), and Skyview Ranch (1,093)2.

As the baby boomers age, driving the average age up in most centers across the country, Calgary will have a distinct advantage as it continues to attract younger families. This important fact will help drive the economy longer and farther than most other major centers in the country. In other words, as other areas age, Calgary continues to renew itself.

Despite the overall decline in net-migration compared to previous record years (9,563 this year down from a peak of 25,794 in 2006)3, Calgary will continue to be a magnet for a vibrant populous. Calgary is no longer just attracting people from Canada; it is also becoming a more attractive location for immigrants and foreign workers.

Calgary’s labour participation rate increased to 74.5% in the CMA as of December 2011 from 73.4% in December 2010. At the end of 2011, the unemployment rate stood at 5.5%, down from 6.2% the previous year. By the end of December 2011, employment was up 2.9% from 2010. A majority of the jobs created during that time period were full time-positions, adding over 16,000 jobs4. With employment opportunities improving, more people will be drawn into the labour force, preventing any large declines in the unemployment rate. CMHC is predicting the unemployment to drop marginally, to 5.4%, by the end of 20125.

Housing Trends

Like most cities in the wake of the recession, Calgary has also experienced some ups and downs in the housing sector in the last several years. 2006 and 2007 saw record building permit values and housing starts in the city, while starts dropped off in 2008 and 2009 before increasing again in 2010. By the end of 2011, it appears that market conditions have started to improve.

The City of Calgary reported a total building permit value of $4.5 billion in 2011, an increase from $2.9 billion in 2010 and the third highest year on record. The city posits the building permit value growth to an increase in new builds over improvements. Several large residential projects have bolstered the total building permit value, including the University Residential Towers ($55 million) and Eight Avenue Place – West Tower ($195 million)6.

The Calgary CMA recorded a total of 9,292 housing starts in 2011, a slight increase from 9,262 units in 2010. The increase in housing starts can be directly attributed to the increase in multi-family construction. In 2011, 4,208 multi-family units began construction, in comparison to the 3,480 units started in 2010 (an increase of 21%). On the other hand, single- detached housing experienced a small decline: 5,084 units began construction in 2011, a decrease of 12% from 5,782 units in 20107.

Residential construction is expected to lift even further in 2012 as the economy improves, increasing job creation and net migration. CMHC predicts that the city’s housing starts will increase 11% to 9,400 in 2012, with gains in both the multi- family and single-family housing markets. Single detached starts are forecast to reach approximately 5,500 units in 2012, while multi-family starts should hit 3,900 units8.

Sale and Rent

Getting into the housing market with positive cash flow properties in Calgary has proved difficult for investors in the last decade and that is one key consideration that kept Calgary out of the #1 spot for several years. 2006 and 2007 were characterized by multiple offers, zero days on the market, bidding wars and offers with no conditions. Most home-owners and investors were wishing the market would come back to normal. As the pendulum swings the other way to a buyers’ market, we are seeing the opportunities for sane purchasing once again entering the market.

According to the Calgary Real Estate Board (CREB), residential sales in Calgary have increased 8% in the past year, with 18,568 sales in 2011 compared to 17,267 in 2010. While sales activity was lukewarm in the first half of 2011, job growth,

stronger migration, and higher earnings all contributed to lift sales in the second half of the year9. In addition, low mortgage rates continue to provide prospective buyers, especially first-time home buyers, with many opportunities.

While sales were up in 2011, elevated levels of inventory limited housing price growth. At the end of 2011, the average price for a single-family home in the Calgary CMA was $466,402, an increase of just over 1% from $461,132 in 201010. The median price of a newly constructed home sat at $457,271 in 2011, an increase of 5.1% from 201011.

One negative of the renewed momentum in Calgary’s real estate market, however, is the decrease in housing affordability. Calgary’s affordability index is currently sitting at 38.2 for a standard two-storey home, meaning 38.2% of an average person’s pre-tax income is necessary to afford an average home in the city. But when compared to other major cities across Canada, Calgary still comes out on top. In the third quarter of 2011, Toronto recorded an affordability index of 61.3, Montreal came in at 52.2, and Vancouver sat at 94.412!

Rental rates in Calgary have also increased in the past year. The average rent for a private apartment in Calgary was $978 in October 2011; an increase from $969 in October 2010. The average rent for a bachelor unit was $705, down slightly from $709; a one bedroom unit rented for $899, up from $894 in 2010; a two bedroom unit was $1,084, an increase from $1,069 the previous year; and a three bedroom unit sat at $1,077, up from $1,057 in October 201013.

Increased economic activity will support rental demand in 2012. Improved activity in the energy sector will create jobs and attract newcomers. New migrants are expected to be the main contributor to rental demand in 2012 as many of them will look to rent and familiarize themselves with the city before deciding to purchase a home. As demand for rental housing rises, rental rates are also expected to increase. The average rent of a two-bedroom apartment is anticipated to reach $1,100 by October 2012. However, despite the rise, the average two-bedroom rent will still be below the peak of $1,148 experienced in 200814.

Vacancy Rates

As the rental market tightened in response to increased economic activity, the Calgary CMA experienced a dip in the average vacancy rate. As of October 2011, the vacancy rate of a private apartment in the CMA was 1.9%, down from 3.6% in October 2010. This is the lowest vacancy rate the city has experienced since October 2007. A bachelor unit had a

1.9% vacancy rate, down from 4.1% in October 2010; a one bedroom private apartment sat at 1.8%, down from 3%; the vacancy rate of a two bedroom unit sat at 2%, down from 4.2%; and a three bedroom unit had a vacancy rate of 3.3%, down from 5.3% in October 201015.

Downtown Calgary reported the lowest vacancy rate, sitting at 1% in October 2011. Demand for rental units in the downtown area has remained high, as many people strive to live close to their place of work. The Beltline area has also benefitted from increased activity in the core, posting a vacancy rate of 1.7% in 201116.

As the economy continues to improve in 2012, rental vacancy rates are expected to moderate further.

Top Investment Town

Calgary, the head office center of the west, is no longer a city with wild economic swings like it experienced in the 1980’s. It’s economy has diversified (with more work to do), the population growth continues to be leading the Nation, incomes are increasing faster than anywhere else, and the lifestyle it offers has been rated one of the best in North America.

Receiving an ‘A’ grade from the Conference Board of Canada17, Calgary showcases many investment opportunities. A growing population, steady job creation and the strong resale housing market are driving growth.

During the economic recession, Calgary’s real estate market made a predictable correction resulting in slightly more affordable housing compared to recent years passed. It was economically impossible for the market to continue at the pace at which it was heading and now finds itself adjusting to market realities.

Housing affordability will continue to be an issue in Calgary, with rents increasing and a high average price. However, when we look at that price versus average income, we see that other cities in this country have a much larger problem on their hands. Calgary has the long-term economics to support long-term market strength while other cities do not.

1.City of Calgary. (2011). “2001 Civic Census Overview”. (April 2011). http://www.calgary.ca/CA/city-clerks/Documents/Election-and-information-services/Civic- Census/2011_census_result_book.pdf
2.Ibid.
3.Ibid.
4.CMHC. (January 2012). “Housing Now – Calgary CMA”. http://www.cmhc-schl.gc.ca/odpub/esub/64167/64167_2012_M01.pdf?fr=1330028095785
5.CMHC. (Fall 2011). “Housing Market Outlook – Calgary CMA”. http://www.cmhc‐schl.gc.ca/odpub/esub/64339/64339_2011_B02.pdf?fr=1330032593501

6 City of Calgary. (January 6, 2012). “The City of Calgary records third‐highest year for building permits in 2011”.
http://www.calgaryeconomicdevelopment.com/relocate/construction/building‐permits
7.CMHC. (January 2012). “Housing Now – Calgary CMA”. http://www.cmhc-schl.gc.ca/odpub/esub/64167/64167_2012_M01.pdf?fr=1330028095785
8.CMHC. (Fall 2011). “Housing Market Outlook – Calgary CMA”. http://www.cmhc-schl.gc.ca/odpub/esub/64339/64339_2011_B02.pdf?fr=1330032593501

9.Calgary Real Estate Board. (January 3, 2012). “Year‐End Figures Demonstrate Stable Growth”. http://www.creb.com/public/documents/statistics/2011/package/res-stats-2011_December.pdf
10.Ibid.
11.CMHC. (January 2012). “Housing Now – Calgary CMA”. http://www.cmhc-schl.gc.ca/odpub/esub/64167/64167_2012_M01.pdf?fr=1330028095785
12.RBC. (November 2011). Housing Trends and Affordability. http://www.rbc.com/newsroom/pdf/HA-1125-2011.pdf.
13.CMHC. (Fall 2011). Rental Market Report – Calgary CMA. http://www.cmhc-schl.gc.ca/odpub/esub/64371/64371_2011_A01.pdf?fr=1330038341834.
14.CMHC. (Fall 2011). “Housing Market Outlook – Calgary CMA”. http://www.cmhc-schl.gc.ca/odpub/esub/64339/64339_2011_B02.pdf?fr=1330032593501.

15.Ibid.
16.Ibid.
17.Calgary Economic Development. (2010). “Building Momentum,”. http://www.calgaryeconomicdevelopment.com/sites/default/files/CalgaryEconomicDevelopment_2011AnnualReport.pdf .

 
     
 

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