Prices rising faster within inner city
Fuel costs and convenience are factors
Despite new subdivisions constantly sprouting up on the outskirts of Calgary, buyers continue to mostly favour an urban address in the inner city during the last decade, says a recent national report.
Prices in Canada’s urban neighbourhoods — including those in Calgary — slightly outgained those found in suburban areas between 1998 and 2008, says a price appreciation report by Royal LePage Real Estate Services.
An average two-storey house in an urban setting appreciated by 129 per cent from March 1998 to March 2008, while a similar property in the suburbs saw its price rise by 110 per cent.
The price of an average urban bungalow grew by 122 per cent, compared to 115 per cent for its suburban counterpart — while urban condos rose 132 per cent compared to 104 per cent in the suburbs
The difference reflects what people are looking for in their next home, especially considering increasing transportation costs linked with energy prices, says Phil Soper, president and CEO of Royal LePage.
“If you step back and look at the economic principles, why people are buying is based on what they put value on for a home,” he says. Canadians are putting increasing emphasis on the rising cost of long commutes, as well as the convenience and saving time of living in the inner city, he says.
“Over the course of the year, that cost of gas is going to be tangible (for a longer commute),” says Soper. “Now, fewer people will actually sit down and map it all out, but they do know that there’s an expense tied to that.”
In Calgary, the bungalow market bucked the national urban-suburban appreciation trend, with those further from the city centre appreciating by 157 per cent in the last decade compared with 136 per cent for inner-city units. But for homes (two-storey, single-family dwellings) and condos, the relative strength of the local urban market was even more sharply demonstrated than in the national numbers.
Urban two-storey homes in Calgary outgained suburban ones 207 per cent to 170 per cent — and the urban condos followed suit at 364 per cent for urban and 108 per cent for suburban.
Calgary also claims two of the five neighbourhoods with the higher appreciation rate, with Mount Royal second and Scarboro fourth. Both are part of Calgary’s inner city core. The sharp contrast in appreciation may be explained by Calgary’s geography, which isn’t shared by the likes of Toronto or Vancouver, says Soper. Both had smaller gaps between their urban and suburban markets, he says.
“In Calgary, the vast majority of commerce is conducted in the central part of the city,” he says.
“There are no geographical barriers like Vancouver, or Toronto with the lake. For those cities, because of the expensive downtown costs, white-collar jobs are sometimes outside of the city centre.
“But Calgary is so centralized that people can really see on a map the value of time as they see the distance to the city.” Ted Zaharko, owner and broker at Royal LePage Foothills in Calgary, says the study results did not surprise him. There may be a more important reason than commuting distance when it comes to Calgary’s preference for urban properties, he says.
“Not looking at an Airdrie or a Cochrane, Calgary isn’t a very big city, and the driving times from the inner core and the outer core aren’t really that different,” he says. “But that’s not the only factor. There’s also prestige and convenience. It’s a matter of status.”
The redevelopment of waterfront neighbourhoods like Eau Claire has drawn significant numbers of empty-nesters and those approaching retirement age, who are usually associated with the suburban markets, into the urban core, says Zaharko. There’s also the factor of limited supply. While developers can continue to build outwards for more suburbs, Zaharko says inner-city property are, by nature, limited in number.
“It’s like having a lakefront cottage,” he says. “There’s only so many of them. The inner core will always be in high demand.
“My guess is, it will grow at a greater percentage (in the next 10 years) than what we saw in the last 10 years, since as the city grows larger, it’ll become even more of a preferred location.”
But while prices should continue to appreciate, it may do so at a slower pace for the next decade than what was seen in the last 10, says Soper. “The typical, long-term appreciation rate in Canada is five per cent (per year),” he says.
“If you look at that compounded for 10 years, you have about 60 to
70 per cent. (The rate in the last 10 years) is considerably higher, and it’s because of the unusually long continuous price appreciation we’ve seen. It would be unusual and entirely unexpected to see appreciation this decade like we saw the last decade.”
In order for urban properties to maintain growth in value, municipal governments need to make sure that their downtowns are balanced commercially, with shopping and nightlife countering office towers, says Soper.
“All things being equal, yes, this will continue,” he says of the urban appreciation advantage.
“But public policy does matter. Downtown cores are not a place just for work, especially for young people. It has to be a place for play, as well.”
Zaharko says that Calgary’s inner city neighbourhoods should do just fine, even if the price run-up in the last two years has created a lull in the market. “There’s no evidence of anything to the contrary,” he says of Calgary’s demand leaning urban. “As I said, it may be even more so. I wish they took out 2006 and 2007, because those two years were huge years. But there will always be huge demand closer to downtown.”