Over the last few months, it feels as though we’re all experiencing the effect of inflation, including the effect of inflation on Calgary Real Estate. Price increases have been a major factor in many people’s lives. With everything from rising grocery costs to higher prices at the pump, money simply is not going as far as it used to. Inflation has hit a 40-year high this week, up 9.1% year-over-year in the US, with similar numbers this side of the border.
This has had a huge impact on the residential rental market, with rents skyrocketing across the country. Calgary’s rental prices have seen a 29% increase in rents since the beginning of 2022, with vacancy rates near historic lows. For landlords, this appears to be very good news. Higher rents mean higher returns on investments, which means more money in their pockets, but there are a few areas where this has some drawbacks.
1: Higher repair and renovation costs
Just as in your own home, things get older and need to be repaired or replaced. This is everything from small fixes such as a toilet not flushing correctly to major work such as installing a new roof or new hot water tank. Many of our suppliers are finding that the cost of their materials has gone up substantially, which they then must pass on to consumers. On top of that, supply chain issues are causing delays in the arrival of certain parts and materials, which is particularly impacting appliances.
These delays are a particular concern for tenants, especially for items that are necessities. This includes furnaces and hot water tanks, but also ovens and fridges, which are also seeing a backlog on orders. When we note that a repair is needed during our inspections or over the course of our management, it is worth seriously considering, especially while the weather is still warm.
That’s another good reason to hire a property manager. While costs are rising across the board, our buying power allows us to obtain services from suppliers at rates below market value. We work with trusted partners who are up front and honest with us about their costs, but still give us the best rates possible, which we are then able to pass on to you.
2: Increasing condo fees
For owners of condominium units, inflation is causing a major increase in the costs of goods and services, which may have an impact on your condo’s bottom line. In particularly, the fluctuation in the cost of utilities has made budgeting for these items difficult. The good news is that many condos are locked in on utility contracts, but when those end, the cost to renew them will likely increase, and the cost will be passed on to unit owners as a part of their condo fees.
On top of that, every five years, condo projects need to do a reserve fund study in order to effectively budget for major capital projects upcoming in their complexes. These studies estimate the cost of work to be done based on the estimated cost of goods and labour required. With higher costs for materials like wood, concrete, steel, and more, the cost to perform capital projects will increase, and condos will be required to put more away for these projects down the road. While this is better than being hit with a special assessment due and payable at a time specified by the board, higher condo fees mean less money in your pocket. This is something to budget for.
3: Rents are high, but for how long?
If you have had tenants renew their lease in the last few months, your statements have likely reflected a higher rent than you had previously, which given the last few years of the economy being down is no doubt welcome news.
There is a caveat- we do not know when this situation may change. The cost of living has gone up for everyone, and for individual renters, higher rents and higher costs of living couped with stagnant wages will have to come find balance somehow. At some point, lack of affordability will put pressure on rent prices again.
Increased Rental Rate Results
This trend has created a great opportunity for developers to build more residential real estate and for investors to buy these units as rentals. The city is growing and there are not enough units to go around right now. This may be a good time to consider investing in Calgary’s market.
While inflation is high and costs for some things are rising, there is an opportunity in this as well. Historically inflation results in a wage increase, which again adds increased stability in prices. This is a good time to consider increasing your investment in residential real estate.
