Ottawa home starts to fall from 2020's record high: CMHC

Ottawa house
Image for illustrative purposes only. (Photo by Intiaz Rahim/Flickr)

After hitting record highs in 2020, housing starts are expected to taper off in Ottawa over the course of this year due to waning demand for new rental units, the Canada Mortgage and Housing Corp. says in its latest market outlook.

Builders started work on 9,950 homes last year, up more than 2,000 starts from the previous year and a historic high, the federal housing agency noted in its spring report released Thursday. 

But CMHC says mounting job losses among workers in the 15-to-24 age group and lower-paying industries ​– workers who are more likely to rent rather than own – forced some tenants to vacate higher-priced units in the core or move back in with their families.

The agency also cited a steep drop in immigration in 2020 and the shift to online learning that kept many out-of-town students at home as other factors that have dampened demand for new rental construction. 

In addition, more than 800 new rental units have been completed since the agency’s last rental market survey in October, adding more supply to an already weak market.

“The unprecedented peak in apartment starts in 2020 is not expected to be replicated, due to the large number of units currently under construction,” analyst Anne-Marie Shaker wrote in the report. 

“Conversely, it is expected that single-detached and row home starts will continue to grow this year, albeit not at a level that would offset the effect of a decline in apartment starts on overall activity.” 

CMHC is now projecting housing starts will range between 8,100 and 9,300 in 2021, with the top-end forecasts rising as high as 9,550 for 2022 and 9,900 for 2023.

While the agency says the city’s rental vacancy rate will likely remain about last year’s level of 3.9 per cent for the rest of 2021, it expects the market to bounce back quickly as most of the population gets vaccinated against COVID-19 and the economy begins to recover.

“Indeed, as normalcy slowly returns in 2022 and 2023, demand for rental housing should also return, given the expected winding down of government support programs and the affordability challenges of homeownership,” the report says.

Meanwhile, CMHC says the housing market will “remain robust in 2021,” with average resale prices expected to reach up to $640,000 – nearly $110,000 above the 2020 average. That’s an about-face from the 2020 outlook, when the Crown corporation predicted housing prices would drop this year due to weaker demand for homes as a result of job and income losses.

More 'modest' growth in 2022

Still, Shaker said she expects the market to cool off somewhat in 2022 thanks to an anticipated jump in mortgage rates and fewer apartment-dwellers looking to buy.

“Prices will continue to grow until 2023, though growth will be more modest in the latter two years of the forecast period, as demand moderates from the 2020 and 2021 peaks, the composition of sales shifts toward lower-priced condominiums, and listings increase,” she wrote. 

Across the river in Gatineau, housing starts are also forecast to decline from nearly 3,100 in 2020 to a high of 3,000 this year and a top end of 2,800 in 2022.

Analyst Lukas Jasmin-Tucci said rising unemployment among younger workers and a dip in immigration in that city have dampened demand for rental housing, leading to a projected high of just 2,150 multi-unit starts in 2021 – down dramatically from last year’s total of 2,540. Demand for apartments is expected to decline even further the following year, with a forecast top end of 2,000 new starts for 2022.

More single-detached starts

But CMHC is predicting those declines will be offset in part by a jump in single-detached starts.

“While the potential for construction in this segment is constrained by densification requirements, among other things, increasing demand in the outskirts of the City of Gatineau could encourage some builders to increase their activity,” Jasmin-Tucci wrote.

Meanwhile, the agency says it expects resale transactions to increase for the seventh consecutive year in 2021, albeit at a slower pace than last year. Average home prices are forecast to tick up from about $319,000 in 2020 to between $360,000 and $370,000 this year.

However, CMHC says sales will likely start to taper off in 2022 and beyond.

“High employment levels among full-time workers aged 25-44, growing demand from Ottawa (buyers) and continued low mortgage rates will stimulate demand in the resale market in 2021,” its outlook says. 

“Thereafter, demand will experience weaker growth due to slower employment growth and lower transaction potential. This is expected to lead to a decline in home sales in 2022 and 2023.” 

The report comes a day after the Ottawa Real Estate Board said home prices in the capital skyrocketed more than 40 per cent in April compared with a year earlier despite a significant jump in the number of new listings.