It’s a Simple Case of Supply and Demand

House prices are rising, and there aren't as many on the market as should be. It's creating a perfect storm in the housing sector

“There are a number of factors that are making housing more expensive, but the biggest issue is supply. Put simply, Canada is facing a housing shortage—we have a lower number of homes per person than many OECD countries. Increasing our housing supply will be key to making housing more affordable for everyone.” — From the 2022 Federal Budget

House prices in Edmonton are up. It’s not uncommon to see bidding wars, and the rise in interest rates haven’t cooled things down, yet.

According to stats from the Realtors Association of Edmonton, the average price for a single family home in April of 2022 was $510,988, up more than 11 per cent from the same time last year. But the number of homes sold was down 6.3 per cent over April, 2021.

At end of 2021, the average Edmonton home-sale price was just $472,000.

Simply put, house prices are going up, and there are fewer of them on the market. For those of us who have ever taken an economics class, or watched BNN for even a half-hour, it’s about the basics of the supply-demand curve. Strained supply and higher demand will lead to upward pressure on prices, no matter the other market factors.

“[Supply] is lower than it has ever been in the last six years. It is considered a seller’s market,” Bruno Schiavon, co-founder of The Foundry Real Estate co, warned earlier this year.

And it’s a national issue. As the federal government states in its 2022 budget, Canada is lagging behind other developed nations when it comes to building new housing supply. So, no matter how many infill projects we champion in our Canadian cities, no matter the affordable housing projects we support, we also need new communities, places where couples can buy their first homes (which, more and more, are becoming their forever homes). We need new, dense neighbourhoods. To cool housing prices, we need the most tried-and-true solution of all — increased supply.

“The more that gets built, the cheaper it will be,” says Anand Pye, an Edify Top 40 Under 40 alumnus and executive director of the Edmonton branch of the NAIOP, Commercial Real Estate Development Association.

But he’s bullish that Edmonton can be a leader when it comes to being a city that eases the pressure points on the housing market. He’s hopeful that the Housing Accelerator Fund, which the Liberals made part of the budget, will have an impact in Edmonton. While the specifics have not been announced, developers and builders are waiting for details on a promised $4 billion fund to speed up homebuilding across the country.

“We shouldn’t be penalized for doing a better job, already,” he says.

As well, changes were recently made to the Canadian Mortgage and Housing Corporation, to create flexible funding and insurance for multi-unit projects that satisfy federal requirements for environmental standards, affordability and accessibility.

But, because Edmonton’s average home prices and rental fees are well below those you’d find in the overheated markets of Toronto and Vancouver, many new projects would qualify by satisfying the affordability requirements as set out by the CMHC.

There are challenges. Inflation is forcing developers to think and re-think their projects on the fly. At a recent meeting of the NAIOP, there was discussion about how quotes from contractors are good for as little as 10 days. That’s how volatile labour and material prices are right now; that, if you ask a contractor what it will cost to staff a project, the answer could be very different two weeks down the road.

Rohit Gupta, president of the Rohit Group of Companies, said that developers and builders have to act quickly. With supply-chain uncertainties and inflation, they can’t afford to finance land that will remain undeveloped for two or three years while they wait for zoning. They need to build quickly and efficiently.

“Until the supply chain issues in China sort themselves out, nothing else matters,” he said.