As Alberta rebounds, massive inventory of unsold condos raises concerns

Posted by Robert McIntyre on Friday, January 19th, 2018 at 2:56pm.

Alberta's economy is slowly emerging out of a deep hole, but there are lingering worries about a massive inventory of condominiums available for sale.

While it could be a buying opportunity for someone who wants to get into the market as the province's fortunes improve, the sizable inventory could just as easily drive down prices. New condo projects and purpose-built rental apartments planned when oil was riding high are now hitting the market, even as the vacancy rates in both Edmonton and Calgary remain high, and employment and migration remain weak. The number of new housing units sitting unsold in Alberta this year is striking. The figure soared above 4,000 in early 2017, and peaked at a record 4,447 in July. In October, it still sat at 4,161, according to Canada Mortgage and Housing Corp. That is about double the unsold units in British Columbia (2,105) and much higher than Ontario (2,580) – both provinces with much higher populations, but where there are more robust economies and hot housing markets.

Looking at it another way, nearly 30 per cent of Canada's 14,204 built-but-unsold housing units are in Alberta.

More than 45 per cent of the empty housing units in the province are apartment-style condos, mostly in Edmonton and Calgary. In Calgary, the province's largest city, the new condo units for sale are being added to an increasingly large inventory of resale apartment condos – a number now sitting at more than 1,600. Lurking in the background are the debt obligations carried by developers who could be pressured to sell for lower prices in the months ahead, and the possibility of more units coming on the market from individual condo owners who bought when prices were high and want to sell their properties as soon as there is a slight improvement in the market. 

Economists and market watchers have been surprised at how resilient the overall housing market has stayed through the province's economic downturn that began three years ago. The Teranet-National Bank National Composite House Price Index shows Calgary's overall prices are down 2.85 per cent from a peak in October, 2014. Alberta, like other provinces, is seeing a major shift from single-family to multi-family housing construction as land prices surge. While it takes two years or more to build a high-rise, economic fundamentals can shift drastically in that period. That time lag between deciding on a multi-family project, and completion, doesn't always work with the cyclical nature of Alberta's oil and gas-focused economy. 

Alberta's economy is improving, with ATB Financial forecasting GDP growth of 3.9 per cent in 2017, to be followed by growth of about 2.7 per cent in 2018. However, employment remains a major issue. In the same way that many of Calgary's downtown offices are sitting empty, many of the residential condos in the inner city are also unoccupied. Some developers have taken to renting out completed but unsold units. Lamb Development Corp. is offering realtors a 50 per cent cut of a month's rent if they find a tenant for its newly built 230-unit 6th and Tenth building in Calgary's Beltline.

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