Housing starts in Ottawa are expected to grow at a “modest pace” over the next two years as rising prices for single-detached homes and a bump in recent rental construction threaten to eat into demand for new builds, the Canada Mortgage and Housing Corp. says.
In its latest Market Outlook Report, the national housing agency says the total number of starts in Ottawa this year should fall between 6,500 and 7,800, while its forecasts call for between 6,700 and 8,000 new builds in 2020 and 6,500 to 7,700 starts the following year.
By comparison, there were 7,539 new dwellings constructed in Ottawa last year and 7,457 in 2017.
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“There is a notable downside risk to the starts forecast caused by a potential drag on growth for multiple-unit starts,” CHMC said in its report.
“A historically high number of rental apartments under construction to be completed by the end of 2021 could reduce the need for further starts and thus bring numbers to the lower end of the forecast range,” the agency added, noting that rising cost of single-detached homes “could also reduce affordability enough to dampen the pace of starts.”
At the same time, CMHC also said rising condo starts fuelled by tight supply in the resale market “should also balance out some of those risks.”
The Crown corporation predicts the average price of a resale home in the capital will continue to rise from about $409,000 in 2018 to as much as $442,000 this year and $480,000 by 2021. Realtors completed 17,700 resale home transactions last year. CMHC is projecting sales to range between 17,600 and 18,600 for 2019, with 17,300 to 18,900 deals projected two years from now.
“Significant public administration employment and a substantial IT sector that both provide higher average incomes give Ottawa key support for home purchases,” the report says.
“On average, the resale market offers buyers less expensive options than the new home market, keeping its appeal to many.”
Meanwhile, CMHC predicts that a steady flow of newcomers to the city and a rise in the number of seniors looking to sell their homes and downsize will also continue to fuel a hot rental market.
The agency predicts that Ottawa’s rental vacancy rate will drop from 1.6 per cent in October 2018 to 1.5 per cent this year before ticking up slightly to 1.7 per cent in 2020 and 1.9 per cent the following year. Average rents, which stood at $1,300 last year, are expected to climb to $1,370 in 2019 and continue rising to $1,430 in 2020 and $1,490 in 2021.
“Strong full-time employment growth for the 15-24 age group has supported this group’s demand for rentals, and some first-time-buyer households delaying homeownership is also boosting their rental demand,” CMHC said. “Average rents will trend higher amid steady demand and tight supply in 2019, but growth should ease slightly over the following two years.”
Across the river in Gatineau, housing starts are expected to jump from 1,929 last year to as many as 2,750 in 2019, an increase of more than 40 per cent, the agency’s outlook says.
CMHC said new apartment builds in Gatineau are expected to reach their highest level in nearly 50 years in 2019 thanks to historically low rental vacancy rates which are projected to dip to a microscopic 0.5 per cent in October, down from 1.2 per cent a year ago.
However, the agency is predicting that housing starts in the Quebec municipality will fall back to a high of 1,950 next year and 1,850 in 2021 due to slower population growth and a softer resale market.
“Residential sales will be limited by gradually rising interest rates and weak employment growth over the next two years,” the report says.