Strong demand for rentals drives down Ottawa’s vacancy rate: CMHC

Apartments

Ottawa’s rental market tightened in 2017 as more people chose to rent rather than own, leaving fewer and fewer vacancies in the city’s purpose-built rental units.

A new report on Ottawa’s rental market released by the Canada Mortgage and Housing Corp. found that the vacancy rate had dropped from three per cent in 2016 to 1.7 per cent this year, while average rent rose 2.1 per cent to $1,113.

That bucked the trend the CMHC had predicted only a few months earlier. In its fall 2017 housing outlook report, the agency forecasted the vacancy rate in Ottawa would hold at around three per cent this year and climb to 3.4 per cent by 2019.

CMHC analyst Anne-Marie Shaker said unusually strong demand for rental units put pressure on the vacancy rate.  

“We expected it to stay around the same, because we expected supply (to) increase,” she said. “In reality, demand strengthened to cover for the supply increase. We didn’t expect demand to come in so strong.”

John Dickie, chair of the Eastern Ontario Landlord Organization, called the report “positive,” adding it reflected what he’s been hearing on the ground.

“Landlords were telling me that the market seemed to be tightening up, that they were renting their units a little faster than they were before.”

Developers shift to rentals

Ms. Shaker pointed to a healthy, growing economy in the city and shifting market behaviours as possible explanations for the spike in popularity of rental units. The city has seen a healthy population growth among people in their early 20s, while residents between the ages of 25 and 44 are generally remaining renters for longer than in the past.

Developers certainly seem willing to jump on the trend. According to CMHC data, 2017 saw 1,065 new purpose-built rental units started — a 65.6 per cent increase over 2016 — while condo starts dropped to 487 from a high of 2,412 in 2014. (CMHC’s numbers don’t reflect any of the major developments that, over the last few years, switched over from condos to rentals.)

Industry groups say they aren’t worried about a risk of oversupply.

“It would take a heck of a lot more than that to create a rental surplus, just because of the size of the rental market,” said John Herbert, head of the Greater Ottawa Home Builders’ Association.

The full impact of the high number of rental starts over the last few years won’t be felt for a while, CMHC said.

“The full effect of the rental construction boom this year will not be evident until 2019, when we expect completion to rise, pressuring the vacancy rate further up as newer units take a longer time to be absorbed,” its report reads.

Ms. Shaker said broader trends in Ottawa’s economy will allow the market to absorb the new units.

“We still are a growth economy,” she said, noting the continuing strength of the tech sector and the arrival of the Confederation light-rail line in 2018 should help spur demand for rentals.

However, Ms. Shaker said the agency’s forecasts suggest the city will see fewer new units being built next year.

Mr. Herbert said the announcement of new money from the feds for housing is a good omen for the rental market. Specifically, he pointed to the portable housing benefit – which would put around $2,500 in the pockets of lower-income renters – as a positive development.

“It made a lot of sense,” he said. “It was directed towards trying to utilize the private housing stock.”

That impact is still a few years – and at least one federal election – from taking effect, however.

“The government’s policy changes are not having much impact yet, because frankly they haven’t taken effect,” said Mr. Dickie. “We’re going to feel the impact in two or three years.”