New home sales in Ottawa down 50% since 2021, study shows

David Sali

January 18, 2024

Already an Insider? Log in

Get Instant Access to This Article

Become an Ottawa Business Journal Insider and get immediate access to all of our Insider-only content and much more.

Learn More and Become an Insider

New home sales in Ottawa fell nearly 50 per cent over the past two years as higher interest rates and rising inflation eroded consumer confidence and buying power, the head of an organization representing local homebuilders says. A new report from PMA Brethour Realty Group says 2,571 new homes were sold in the city last year, down from 2,776 in 2022 and 5,022 in 2021. The study, based on surveys from Ottawa construction firms, shows a steady decline in new home transactions over the past five years. In 2019, the year before the COVID-19 pandemic triggered massive supply-chain disruptions that drove up the price of materials, Ottawa homebuyers purchased 6,315 new single-detached homes, condominiums and townhomes. New home sales dropped to 5,928 in 2020, the first year of the pandemic, and fell further the following year before plummeting in 2022, when the Bank of Canada began a series of hikes that saw its benchmark interest rate jump from 0.25 per cent to five per cent, the highest level since 2001. Jason Burggraaf, executive director of the Greater Ottawa Home Builders’ Association, said that, as borrowing to buy a new home became more expensive, many potential owners were pushed out of the market. Burggraaf also noted that persistent chatter about a looming economic downturn dampened buyer enthusiasm as 2023 went on. “A lot of that … is (caused by) high interest rates and economic conditions,” he told OBJ in an interview on Thursday. “High interest rates keep people on the sidelines. There is housing demand, but if you can’t make it work (financially) … there’s been kind of a quiet drumbeat of perhaps there will be a soft recession over the past six months or so. That kind of keeps people on the sidelines.” Natalie Smith, vice-president of sales and marketing at Richcraft Homes, said new home sales began to slow noticeably early last year. She said the company adjusted by shifting employees from building homes to working on purpose-built rentals and other projects that continued to be in high demand. Developers have also adapted by ramping up construction of less expensive projects such as low-rise condos, which have surged in popularity as home prices skyrocketed during the pandemic. At the same time, Smith said Richcraft and other developers have detected a bit of an uptick in activity lately. The numbers seem to bear that out. PMA Brethour Realty Group’s statistics show that 140 new homes were sold in Ottawa in December, up from 62 in the same month in 2022 but still well below the five-year average of 242 for December. Burggraaf said that, with the Bank of Canada expected to start cutting interest rates later this year, sales will gain momentum as consumers who’ve been holding off on buying properties jump back into the fray. “Once interest rates really look like they’ve stopped climbing and maybe even started (falling) a bit mid-year, that’s when all that demand is going to start rushing back into the market,” he said. “This is a cyclical business. Just because there aren’t sales happening doesn't mean that new families aren’t forming. Housing demand doesn’t diminish because of high interest rates or economic conditions. It continues to grow – it just stays pent up.” The year-over-year improvement in December’s sales figures could be a sign the industry is on the cusp of a rebound, Burggraaf added. “You want growth in those numbers,” he explained. “It does give us hope that we are going to do that steady kind of climb and, as we move into the second half of the year, it’s going to get even stronger (and) we’re going to get up to the numbers that we need.” Townhomes were the most popular type of housing unit for new homebuyers last month, accounting for 47 per cent of sales. Single-detached houses were next with a 37 per cent share of the market, followed by condo-style townhouse units with 15 per cent and condominium apartments with one per cent. More than half of all new home sales in December – 54 per cent – were in Ottawa’s south end. The west end accounted for 34 per cent of sales, the east end had a 10 per cent share of the market and about one per cent of sales happened in the city’s core. Burggraaf said Barrhaven, Leitrim, Manotick and Riverside South were particular hotbeds of sales activity in 2023. “All that area has been exploding for a long time now, and it has no signs of abating any time soon,” he said.

City will be hard-pressed to achieve housing goal

The ongoing downturn in new home sales comes as the City of Ottawa has pledged to encourage the construction of more than 150,000 new dwellings by 2031 to address a growing housing shortage. Burggraaf, however, said the city will be hard-pressed to achieve that goal. Housing starts have fallen over the past few years as higher interest rates and soaring inflation drove up construction costs and stunted demand for new homes, prompting developers to put projects on hold, he noted. He said measures such the federal and provincial governments’ recent moves to waive the HST for new rental developments will help address the housing crisis, but he said the city also needs to loosen its rules to make it easier for developers to build taller and denser residential projects near transit hubs and major arterial roads. Ottawa is already working on a new comprehensive zoning bylaw to help achieve that goal. But Burggraaf said the city should be doing more to encourage intensification, such as allowing four housing units per lot rather than the three-unit limit council approved last fall to comply with the province’s More Homes Built Faster Act. In November, council approved a motion directing city staff to look at allowing four units per lot as part of their review of the new zoning bylaw. “Staff were given a direction in the fall to say, ‘OK, you need to start considering four units on a lot,’” Burggraaf said. “That’s going to be the big push for us.”