Unprecedented population growth, persistent higher interest rates and elevated housing prices across much of Canada are creating a unique set of challenges for the Western Canadian apartment development industry, according to ATB Financial chief economist Mark Parsons.
Speaking to over 450 commercial real estate industry professionals at Tuesday’s Western Canada Apartment Investment Conference in Edmonton, Parsons walked through the latest economic and productivity data and how that is affecting the industry in the region.
The most dramatic population growth occurred in Alberta, which experienced an influx of over 200,000 new residents last year, a 4.4 per cent increase. British Columbia chimed in at 3.3 per cent, while Manitoba was at 2.9 per cent and Saskatchewan at 2.6 per cent.
“We’ve never had population growth in people terms this high,” Parsons said, zeroing in on Alberta. “About 200,000 people added in one year and we are expecting that to stay really, really high, about 150,000 this year and 100,000-plus the year after.”
Those residents are coming from abroad as well as from other Canadian provinces and territories.
Alberta influx a new phenomenon
”I think it’s a really interesting story here that we have never seen before,” Parsons noted of the internal migration within this country.
“Alberta experienced net inflows from every single territory and province in 2023 – 55,000 people. That is a record. It’s not only a record for Alberta, it is a record for any province. Ever.”
Traditionally, such an influx would correlate to a boom in the province’s energy sector. But Alberta has a higher unemployment rate (about six per cent) than the national average and Parsons said wage growth is also muted.
“This is another hint that there is something else going on that we haven’t seen before,” he said, leading to the subject of housing costs.
Most of the inter-provincial influx of new residents is younger adults (a big focus the ages between 20 and 35) coming from Ontario and British Columbia, where housing prices – both to buy and to rent – are the highest in the country.
“The combination of that wider price gap and those higher interest rates have priced people out of these expensive markets,” Parsons noted.
“I would argue that people are chasing affordability . . . we think that people are moving, more than ever, at least in my lifetime, due to affordability considerations.”
Calgary and Edmonton offer more affordable housing, he said, even though costs in Calgary have been rising steadily and Edmonton is beginning to experience a similar pattern.
Housing construction already falls short
This is putting even more pressure on housing development in the province, where about 70,000 new households were created in 2023 but only 40,000 new homes were built.
“We have catch-up to do in the construction industry,” Parsons said.
“It’s a credit to anyone in this business, I don’t know how you’ve been able to pull it off given higher interest rates, high construction costs, labour shortages, how you’ve been able to increase housing activity in such a short period of time, it is really incredible because we have seen housing activity start to pick up.”
Parsons said the most significant increases are in apartment development, but more still needs to be done especially if projections for another quarter-million new residents during the next two years are accurate.
One factor that would help would be to attract and/or train more skilled trades workers. Alberta and British Columbia each have a shortage of about 15,000 construction workers, while there are about 5,000 jobs to fill in Manitoba and Saskatchewan.
“We are in, I call it a twin challenge right now. We need to build a lot of homes to keep up with the population and we need more business investment,” he said. “We need to do both things.
“What do both those things require? Workers, construction workers. One of the things that keeps me up at night a little bit is, where are we going to find workers, because we have high job vacancy rates in the construction industry?”
Economic forecast
While Parsons did express concerns about the soft economy and lack of productivity growth, he did offer some encouraging news with a forecast for lower interest rates later this year.
He believes Bank of Canada governor Tiff Macklem is taking a very cautious approach to the economy.
“He basically said, ‘We’re seeing what we need to see, we need to see more.’ So what does he want to see? He wants to see more data,” Parsons explained. “He just wants to see that this trend in core inflation holds. That we get back to the two per cent target.”
Parsons said if housing costs are removed from the current inflation statistics, it is already in the two per cent range.
“Light is at the end of the tunnel for interest rates, they are going to go down, we think slowly, but starting mid-point of the year.”
