July 17, 2023

Weekly EconMinute—Value of residential building permits

In this week’s EconMinute, we’re talking about the value of residential building permits in Alberta.

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Last Monday, Statistics Canada released its monthly update on the inflation-adjusted value of residential building permits across the country.

The value of residential building permits is a forward-looking indicator of growth in the housing stock. It offers insight into whether housing construction will respond sufficiently to population growth trends. If residential permit values are sufficient to meet the needs of new residents, pressure on housing prices will likely ease. When they do not, housing prices are more likely to rise.

This relationship is important because since 2021 Alberta’s population growth has been soaring, with year-over-year growth rates hitting levels unseen this millennium.

However, new residential construction permits are not keeping pace—and far from it.

  • Between 2011 and 2015, Alberta’s population was booming, and the value of residential building permits rose accordingly.
  • More recently, population growth is even higher (+200k since last Spring), but the value of permits is trending in the opposite direction.
  • Alberta’s residential permit values are trending toward their lowest levels since 2011 (outside of a brief dip during the pandemic in early 2020).
  • As interest rates have increased, access to the capital needed to renovate and build new homes has decreased nationwide.
  • The imbalance between housing supply and demand has pushed up both rental prices (across Alberta) and purchase prices (most notably in Calgary). As of June, the Calgary market had just one month of available housing supply.
  • Meanwhile, rents have increased by 13.5% and 11.3% in Calgary and Edmonton respectively since last June.
  • Canada-wide, the value of multiple dwelling building permits has generally exceeded single dwelling permits since late-2017. While the gap between the two has narrowed significantly since 2011, the value of single dwelling permits remains slightly higher in Alberta than multiple dwelling permits.
  • This difference could be related to several factors, including regional differences in: land use rules and regulation that dictate the type of residences that can be built to meet growing housing demand; the availability of land for development; the value of land and its impact on consumer preferences; and more.

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